Financial Conduct Authority lending regulations for 2017

Now that the Financial Conduct Authority has placed regulations on payday lending firms, they will now be expanding their review to other lenders during 2017. Next up for the FCA will be an assessment done on rent-to-own firms, overdraft fee costs, as well as retailers that offer high interest rates on their credit deals, such as furniture stores. Other lenders will be assessed as well, as noted below.

One particular issue that will be examined is whether the regulations put into place on payday loans has caused consumers to turn to other expensive forms of borrowing money, such as rent-to-own companies or other loan sharks. This has always been one risk in any new regulation; if someone is cut off from one one type of lender they will just turn to another risk form of borrowing for the money they need.

It will take months for the review to be complete. It is expected that the Financial Conduct Authority will have some form of assessment done by June to August of 2017, but the timeframe can always change. The aim is to ensure that any new regulations or price caps that are placed on high-cost lenders effectively protect the hundreds of thousands of UK families that use them each year.

It is estimated that about 400,000 people used credit from a retailer during 2016. Many other used overdraft fees, pawnbrokers, or other companies. People took out a loan, and then used that cash to buy furniture, electronics, household goods, or appliances. However the interest rate charged by many of these retailers is so high that the borrower often ended up paying up to 200% of the original purchase price. So they bought the item, then paid a “second time” for interest on the purchase. The same concept applies to pawnbroking, etc.

Lending types up for FCA review

Other forms of lending will also be reviewed during 2017. The FCA will look at companies involved in doorstep lending, pawnbroking, retailers that offer catalogue credit, rent-to-own providers, and more. Some companies, namely banks, will also be reviewed as they are involved in issuing logbook loans, overdraft schemes as well as guarantor loans. All of these types of lending are up for regulation.

This is the big item that the Financial Conduct Authority will be taking a close look at. The government agency will be examining data during the first part of 2017, then releasing the results of the review during the summer months. It is expected too that if there has been abuse from the stores offering high-cost credit deals that new regulations will be put into place. Or if abuse is discovered from other companies then regulations will be assessed on them.

The FCA may put caps on interest rates as well as fees. They may also ensure that any loan made for buying furniture can be paid by the client. Or their will be limits to overdraft fees. There may also be income tests put into place for all these lenders. Or other rules may also be implemented.

Another possible result will be an easing on interest rate caps that payday loan companies such as Wonga must adhere too. It is thought that if the FCA determine that people are turning to other types of predatory lenders (instead of a “traditional” payday company) then Wonga may get a break from some of their regulations. The reason being is that the Financial Conduct Authority does not want to restrict one type of lending so much that people just turn to another, potential dangerous source of funds.