Following the announcement by Labour at their annual conference of plans to introduce an interest cap on consumer credit card debt, the Financial Conduct Authority (FCA) has rejected the idea.
Andrew Bailey, chief executive of the Financial Conduct Authority, stated ‘We are not there at the moment’.
In a speech at the Reuters Financial Regulation Summit, he confirmed that the FCA has been doing a ‘lot of work’ on consumer credit cards and was finalising measures following public consultation.
He said: ‘Our general approach is look, we would rather like to see what the effect of those measures is.’
Despite the FCA renewing a cap on the high interest rates charged on payday loans in July, Mr Bailey does not believe that one cap fits all.
‘An interest rate cap in some parts of the credit market would not work because the credit is not structured in a way that lends itself to a cap. The most obvious case is rent-to-own, where it would not work,’ Bailey said. ‘I am concerned we don’t choke off all access to credit.’
He continued to say that credit has a role to play for those in the ‘gig economy’, where income is erratic, as it can help smooth out earnings, while social housing usually needs furnishing when people move in and therefore credit is needed to buy appliances.
‘Cutting them off has consequences.’ Bailey said. ‘Leaving them in the hands of payday loans has consequences.’
Mr Bailey also confirmed that there were no plans to interfere with the car financing sector, where personal contract purchase (PCP) has become the norm.
He said: ‘I am not persuaded that per se the structural shift in car credit in this country towards PCP is a bad thing’.
The Bank of England Financial Policy Committee, on which Bailey sits, told British banks on Monday they will collectively need to find an extra 10 billion pounds in capital to cover potential losses from consumer credit, as the sector has grown considerably.