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Rip-off debts soar as rent-to-own, catalogue credit and doorstep lending surge after payday loan crackdown

Debts from catalogue credit, doorstep lending and rent-to-own have all more than doubled in recent years even as regulators cracked down on payday loans.
Poor British families are paying well over the odds for the basics when they use these loans, often being trapped for years under mounting interest bills.
Lenders now face a crackdown as the City watchdog wants to make sure high-cost loans are only used by borrowers who can afford the debt and are helped by it.
“It makes no sense at all surely to create a well-developed social housing system, but leave tenants to provide essential furnishings and fittings at a cost which can be three- or four-times the ordinary retail price of these goods,” said Andrew Bailey, chief executive of the Financial Conduct Authority.
One step to stop debts spiralling was a cap on payday loan interest rates, introduced at the start of 2015.
Rip-off debts soar as rent-to-own, catalogue credit and doorstep lending surge after payday loan crackdown

Top regulator Andrew Bailey said the interest rate cap on payday loans has helped some borrowers, but he is wary of going too far which could risk cutting families off from credit altogether

Credit:
Clara Molden
This has saved borrowers ?150m per year and cut the cost of fees and charges from more than ?100 to ?60, Mr Bailey said.
Default rates are down by one-third as lenders have focused on those with a better chance of repayment.
New regulations are on the way to try to stop other types of high-cost credit ruining the lives of vulnerable borrowers, Mr Bailey said – but he hinted that a cap might not be imposed across the whole market.
“We are examining a range of potential approaches to address the harm we see to consumers using these products, and I expect to set out our views in the next month,” Mr Bailey told the New City Agenda conference.
“These will be tailored to the particular harms we have found in different markets – we will be consistent in applying the principles I have set out, but that does not imply that our solutions for different markets will be the same.”
Cap rent-to-own lending like payday loans, MPs told
One target is rent-to-own (RTO) debt – even as payday lending risks subsided, debt owed by RTO borrowers doubled from an average of ?2,000 in 2014 to ?4,300 by the end of 2016, with a third of that made up of RTO debt.
Such debtors have an average income of ?16,100, the FCA found.
The debts of home-collected credit customers also more than doubled over the period – 1.6m people have such a loan – and the debts of catalogue credit customers rose more than four-fold.
Fees for unarranged overdrafts are also being targetted by campaigners, as fixed charges for even tiny overdrafts can translate into enormous costs in percentage terms.
Mr Bailey added that he does not want to destroy the market as it is vital for some families.
"For many, but not all, users of high-cost credit, access to borrowing is an important feature which can allow sensible smoothing of income flows and the purchase of necessary durable goods," he said.
"I do not take the view that credit should not be available to this part of the population."
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