After nearly two years of looking at the cost of high interest borrowing the Financial Conduct Authority (FCA) has unveiled proposals for new regulations to protect three million people from sky-high credit costs.
It has now put forward a set of recommendations with regards to rent-to-own schemes, doorstep lending and catalogue shopping, alongside a review into bank overdraft fees.
One of the main suggestions has been a cap on prices in the household goods rent-to-own sector. Its findings have revealed that customers ended up spending more than £1,500 for cookers that retail in other high street stores for less than £300!
As such, it is considering a cap on rent-to-own prices, similar to the cap introduced in the payday loan market in 2015 and is also consulting on whether to ban the sale of extended warranties at the point of sale, helping to save consumers nearly £8m a year.
It is estimated that about 400,000 people have outstanding debt with rent-to-own firms such as BrightHouse from which they buy household appliances, paying the money back over three years.
It is expected that the cap is set to come into force next April.
It has said that high-cost credit is used by three million people in the UK with single-parents aged 18 to 34 being three times more likely to have a high-cost loan such as a doorstep loan than the average national.
In respect of doorstep lenders the FCA is looking to raise the standards in disclosure and sales practices to prevent lenders from offering new loan or refinancing during home visits without the customers specifically requesting this.
Turning to catalogue credit and store cards the FCA want to see firms providing clearer explanations of the impacts on costs, more information on when customers can be offered credit limit increases and when they can decline such offers, as well as offer additional help to those in persistent debt.
The FCA have said that it would also be consulting on reforms to bank overdraft charges.
However, does the limit of supplying credit actually reduce demand or does this give rise to more illegal, unregulated credit…
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