In a wide-ranging speech given at the Mansion House, Bailey spoke on the dangers of high cost credit, mortgage policies and how banks’ lending practices might need reform to better serve the interests of vulnerable customers.
On the rent-to-own sector, Bailey said that despite having “taken action through authorisation and supervision,” the FCA remains “concerned about the high costs and the lack of viable alternatives for this particularly vulnerable group of customers.”
However, he acknowledged that it “makes sense to look at the role of housing as an investment,” and added that the FCA has “made changes that help firms offer a wider range of lifetime mortgages.”
“We think there is more to do, and have published proposals that would make it easier to lend affordably to older consumers,” he continued.
Bailey also stated that credit ought to be “sensibly available to those with lower incomes and means,” but that he was unconvinced there is currently “an appropriate system in this country for the sustainable supply of such credit”.
His speech was marked by concern for consumers (especially the elderly) who are vulnerable to over-indebtedness and high cost credit, and suggested that changes were necessary to ensure credit accessibility and affordability.
Five million in difficulties
Bailey also took aim at the role of banks’ credit practices and policies, saying that the FCA has identified approximately five million Britons experiencing “real difficulties in paying off their balance.”
“It is not untypical for such consumers to be paying around £2.50 in interest and charges for every pound of balance they repay.” Bailey added: “Firms can lack incentives to tackle this as these customers are profitable.”
Starting with unarranged overdrafts, where “many consumers don’t seem to know the cost implications of using unarranged overdrafts – or even that they have used them at all”, Bailey said the FCA is currently assessing whether fundamental change is needed to this aspect of current account services.
Furthermore, Baily said the FCA was looking at whether banks gave adequate explanations of credit-offers and their potential repayment to consumers, as well as firms’ arrears charging policies and practices.
Bailey also warned that consumer debt carried a higher risk, although the rapid growth of consumer credit wasn’t seen as a “material risk to economic growth as a whole,” it still poses a risk to lenders, because in comparison with mortgage lending, “defaults are more likely in a severe economic downturn.”
Of the £200bn of consumer debt in the UK, around £68bn is held in credit card debt, £7bn as overdraft credit by main banks, and another £15bn in various forms of high cost credit.
Bailey also acknowledged the multilateral nature of these proposals, saying that the FCA has “started discussions using our ability to convene to see what might be possible and how stakeholders could work together.