It may also recommend mobile alerts to warn of charges, stop the inclusion of overdrafts in the term ‘available funds’ and tighten up online tools to make overdrafts clearer.
The FCA is also introducing measures to make catalogue credit and store card firms do more to help customers avoid persistent debt – as they have already done with credit card providers.
“High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society,” said the watchdog’s chief executive. “Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending. The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer.”
Big Issue founder John Bird, whose Creditworthiness Assessment Bill progressed through the committee stage in the House of Lords earlier this month, has urged the FCA to cap overdraft charges to help puncture the poverty premium.
“Whether it’s extortionate levels of interest on overdrafts, or unfair doorstep, catalogue or rent-to-own borrowing, the poorest have been paying through the nose for their credit for decades,” he said.
“Though it’s good to see the rent-to-own sector now faces a price cap, it looks as if the FCA is still dragging its feet by not imposing the same restrictions on bank account overdrafts.
Bird said he wants to see the FCA, and the government, get on with the job of ending the poverty premium, including by supporting his private member’s bill.
“If my Creditworthiness Assessment Bill becomes law, it’ll mean that lenders will have use a tenant’s biggest outgoings – their rent and council tax payment data – when weighing up their creditworthiness. If it’s about fairness, and offering a hand up to Generation Rent,” he said. “Now is the time for leadership, and radical reforms to end Britain’s credit rip-off and make rent count. Let’s get on with it.”
The recommendations have been met with a favourable response by charity Citizens Advice, who had led calls for a rent-to-own price cap.
Chief executive Gillian Guy said: “People who use rent-to-own and doorstep loans are woefully unprotected from runaway costs.
“Our research shows a cap on these loans would save people £185m and help stop debts spiralling out of control. The payday loan cap has been a remarkable success and led to a dramatic reduction in the number of people we see with problem debts from these loans.”
Big Issue Invest-backed ethical lender Fair For You welcomed the action credit cards, mail order and other high cost credit but called on the watchdog to do more for people in private accommodation.
“We are very surprised that the FCA are looking to social landlords and councils to aid the reach to those who may need affordable credit,” a spokesperson said. “For decades we have asked councils and social landlords to deliver social support to lower income families. With 11m in private rented accommodation arguably more vulnerable than those in social housing, and many more families struggling to find social housing.”
