Summary of the FCA’s proposals on high-cost credit review
The FCA have been concerned with the cost of RTO purchases in comparison to buying the same goods by way of a cash purchase or even through the use of other forms of credit. As a result, the FCA propose to introduce a price cap on RTO purchases. The FCA will consult on the draft rules relating to the price cap this Autumn.
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The FCA have been concerned with the lack of clear information and the point of sale practices relating to the sale of extended warranties. In response the FCA propose to introduce a two clear day rule (similar to the sale of GAP insurance) – RTO firms will not be able to sell extended warranties until two days after a customer is given pre-sales information. The consumer will not be able to decide to buy extended warranty until day three. The only exception to this will be where the customer initiates the purchase of the extended warranty and they confirm that they are aware of the deferred two-day period and consent to this being waived.
Certain pre-transaction information will need to be provided before the conclusion of an extended warranty sale, namely:
- price in terms of weekly cost, annual cost and total cost over the length of the RTO agreement
- significant features and benefits, exclusions and limitations
- that it may be possible to purchase extended warranties elsewhere
- how the extended warranty interacts with and compares with the standard warranty and theft and accidental damage insurance
- when the extended warranty sale can be concluded
In response to the FCA’s concern over the risk of repeat borrowing and long-term use of what is meant to be a shorter-term product the FCA propose to make rules requiring firms to provide customers with comparative information about the cost of refinancing a loan versus the cost of taking out a separate loan. The FCA found that the latter would typically be cheaper than refinancing within the home-collected credit sector.
There is currently a ban on selling cash loans off trade premises under section 49 of the Consumer Credit Act 1974. The FCA are concerned that firms rely on the initial written agreements to give them permission to canvass the sale of cash loans indefinitely. The FCA propose to issue guidance to clarify that firms cannot visit a customer to offer a new loan or refinance unless the customer specifically requests this.
Catalogue credit/store cards
The FCA propose to impose a requirement for firms that offer promotional ‘buy now pay later’ offers on interest free credit for a certain period of time to clearly set out the implications and costs of not repaying the credit in full within the promotional period.
Firms will be required to notify customers when the promotional period is about to come to an end to prompt repayment.
The FCA proposes to impose the following requirements on firms when extending credit limits:
- Firms must not increase or offer to increase the customer’s credit limit where they have been advised that the customer does not want to have any credit limit increases;
- Firms must permit a customer to reduce or decline offers to increase the credit limit; and
- Firms must tell the customer of a proposed increase in the credit limit under the agreement at least 30 days before the increase comes into effect unless (1) customer has expressly requested the increase or (2) firm has proposed the increase, but the customer agrees to it at the time and wants it to come into effect in less than 30 days.
The FCA identified persistent debt to be an issue in this sector. They propose to require firms to proactively engage with consumers who owe more than £200 for 18 months and try to assist them to clear their credit in a faster, cost-effective way. Proactive contact should also be made at 27-28 months of being in credit of £200 or more. At month 36 firms should consider waiving fees and charges to assist customers clear the principal.
Alternatives to high-cost credit
The FCA are trying to support registered social landlords to assist vulnerable consumers be aware and have access to alternatives to high-cost credit at points of need such as sudden relocation. The FCA have set up a specialist team to help registered social landlords with queries on regulatory perimeter and assistance with the preparation of authorisation applications.