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ABCUL comments on Labour credit capping proposal


29 Sep 17

This week saw Labour’s Shadow Chancellor, John McDonnell, propose a new cap on the costs of credit card lending at 100% of the amount borrowed. This comes as rapidly increasing consumer debt has caused both the Financial Conduct Authority (FCA) and Bank of England to ring the alarm bells.

Matt Bland, ABCUL’s Head of Policy, said: “The proposal from Labour for a cap on the total cost of credit card borrowing at 100% of the amount borrowed is an interesting proposal and would set and absolute limit on the level of over-indebtedness that could be directly caused by credit card borrowing. The available data from work by FCA and others on problem credit card borrowing has shown how a significant minority of credit card borrowers make only minimum repayments for prolonged periods – in some cases many years – and this can result in these people paying more in interest than they originally borrowed which cannot be good for those individuals.

“To the Financial Conduct Authority’s credit, it has been conducting a great deal of work around problem debt in the credit card market and some of their proposals for ensuring that borrowers are not allowed to continually pay the minimum amount are to be welcomed. Credit unions have been considering how they might break into the credit card space with an affordable and ethical product and to do so will require us to devise a model that provides a sustainable repayment route where repayments are not likely to see members pay their balance off in a reasonable time frame.

“The Labour proposal comes at a moment when both the FCA and the Bank of England are showing increasing concern at levels of consumer borrowing and debt both from the perspective of consumer protection and financial stability. The FCA’s work in relation to the High-Cost Credit market, with its recent publication and confirmation of the payday lending cap is to be welcomed in this regard. While the payday capping system has had a direct and positive impact, the application of the FCA’s overall supervision framework for consumer credit lenders should not be underestimated, either. High-cost lenders such as Brighthouse and Provident, as well as the likes of Wonga, have all faced a stiff test and significant changes to their business models, in order to satisfy the regulator’s expectations on areas such as affordability assessments, proportionate collections practices and clear product information.

“Finally, we welcome the FCA’s initiative to explore how more affordable and consumer-focussed lenders can be encouraged and enabled to expand their lending to underserved markets. Credit unions have been active in this market for decades – disrupting high-cost lenders and encouraging people to build savings – and we believe that the FCA could take measures to be more flexible in its approach to our sector in order to allow credit unions to expand the range of lending that they undertake to the benefit of consumers and the wider market.”

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