Thursday 20th Dec, 2018
The Financial Conduct Authority have today released detailed information on their plans to review high cost credit. The reforms are targeting bank overdrafts, high cost lending, doorstep credit, rent to own and buy now pay later schemes
Banks will have to make it much clearer as to how a person is charged when going into an overdraft. The regulator wants banks to get rid of daily fees and instead to charge interest on the overdrawn balance. Further restrictions will be placed on those accounts which go into an unauthorised overdraft. The onus will be on the bank to identify customers who are struggling financially and offer them help, this will include those who have been in overdraft for a long time.
Doorstep Lending will be prevented from encouraging customers to top up their loans unless the customer specifically requests this.
Catalogues, Store Cards and Buy-Now-Pay-Later (BNPL) will have to have systems in place that identify customers who are experiencing financial difficulty and to offer them help. They will be prevented from offering further credit to these customers and from charging higher interest. Restrictions will also be placed on BNPL and the hidden interest they charge.
Rent-To-Own companies such as Brighthouse and Perfect Homes will begin to have a cap on the amount they can charge in interest. They are also going to have to review how much the base cost of items they are selling.
Unify found that a washing machine sold by a local electrical retailer for £285 (including installation) could cost as much as £702 when purchased through a rent to own company.
Angela Fishwick, CEO of Unify welcomed the crackdown ‘We see many families who are struggling due to the hidden cost of credit. A washing machine for £5 a week sounds good but people need to look at the total cost when taking out credit. We are so glad that the regulator is putting a stop to these irresponsible practices that are ripping off customers!’
You can read the full article here: https://www.fca.org.uk/news/press-releases/fca-announces-proposals-fundamentally-reform-way-banks-charge-overdrafts-and-extends-protections
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