UK’s financial watchdog fails to protect debt-trap victims

Today the Financial Conduct Authority (FCA) called for a crackdown on high-interest lending but its proposals do not go far enough, says the End the Debt Trap coalition.

Under the pressure of low wages, precarious work and social security cuts, millions of people are taking on debt to cover their basic needs and are falling victim to exploitative credit deals. The poorest pay the most in interest rates and costs for their borrowing, while wealthy and high-income households are privy to historically low levels of interest.

Analysis from the New Economics Foundation shows monthly income spent on debt is doubly burdensome for the poorest households; the poorest fifth of households who have personal loans spend around 14% of their monthly income on loan payments. Middle to higher income households spend around 5-8%.

Despite some positive steps forward, the FCA’s review on high cost credit will not end the debt trap says the coalition, because it does not limit the prices that can be charged and allows lenders to continue to exploit people in financial difficulties. The FCA is considering curbs on rent-to-own schemes that can see customers paying several times the cost of household appliances. Overdrafts are also up for reform; the FCA is consulting on measures to help customers manage their accounts, such as mobile alerts warning of potential overdraft charges.

But the End the Debt Trap coalition is calling on Parliament to intervene and force the FCA to go further. They would like to see the cost cap that was imposed on payday lenders in 2015 extended to all forms of consumer credit including credit cards, overdrafts and doorstep loans. Citizens Advice have also urged the FCA to take firmer action.

Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign says: “The FCA has a duty to protect households, that is part of its core purpose. But this review outcome suggests it’s more concerned with protecting the profits of banks and reckless lenders. We need the FCA to step up and use its powers to protect the poorest households from predatory and exploitative lending by capping the cost of all forms of household debt, not just rent to own. Anything less than this would represent a major failing in its duty and responsibility as a regulator.”

Damon Gibbons, Director of the Centre for Responsible Credit adds “Serious questions now need to be asked about whether the FCA has the resolve required to stand up for lower income consumers. In our view, it is now clear that Parliament will have to intervene, as it did with payday lending, and force the FCA to act.”

Households in the UK currently owe £1.6 trillion in outstanding debts, which is 13% higher than at the time of the 2008 great financial crisis. The deep, systemic and growing problem of household debt in the UK must be addressed with urgency.

The End the Debt Trap campaign is a coalition of civil society organisations campaigning for a cap on all forms of consumer credit. It is composed of the New Economics Foundation, Centre for Responsible Credit, Jubilee Debt Campaign, Toynbee Hall, and Research for Action.

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