Data (Use and Access) Bill [HL]
The Data (Use and Access) Bill [HL] is scheduled to have its second reading in the House of Commons on 12 February 2025.
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An survey of high-cost credit products (including bank overdrafts, loans, buy-now-pay-later and rent-to-own) and action being undertaken to regulate such products and to address problems that they can lead to. This paper reflects the situation in early 2020 and is not being updated.
Protecting consumers from unfair high-cost credit (4 MB , PDF)
NOTE: This briefing is no longer being updated.
High-cost credit
High-cost credit covers a large and diverse range of financial products including bank overdrafts, loans, buy-now-pay-later and rent-to-own schemes. Each product has its own benefits to consumers, but they also carry a risk of consumer harm. This harm may include high repayment costs and a greater risk of financial problems.
The regulator’s review of these products
The Financial Conduct Authority (FCA) regulates credit. It began a large-scale review of the sector in November 2016. The different financial products that were included within the FCA’s review were overdrafts, store cards and catalogue credit, home-collected loans and rent-to-own services.
The review found that 3.1 million UK consumers were using these products in 2017, running to billions of pounds in debt. It also found that these products created particular risks to the most vulnerable people.
The FCA review led to several changes to various financial products in late 2019 and early 2020.
The FCA said that it will continue to monitor other forms of high cost credit. This may include on motor finance, guarantor loans and the Credit Information Market Study.
What alternatives are there to high-cost credit?
In conducting its review of the sector, the FCA found that many households had come to rely on high-cost credit to replace domestic items that had broken and could not be lived without such as ovens or fridges. In order to avoid such circumstances, the FCA called for more assistance from numerous stakeholders in promoting the use of second-hand appliance markets.
The FCA also indicated that consumers wishing to avoid using high-cost credit might consider joining a credit union, which are limited by law in how much interest they can charge.
Help for people struggling with debt
People struggling with debt can agree a Debt Management Plan. These are voluntary agreements between a debtor and some or all their creditors to repay their debts in an extended time period. While these can be a solution for some of those who may be struggling, some creditors may not agree to the Plan for some customers.
The Government is therefore considering how to introduce a ‘breathing space’ period for those with problem debt. This would give respite from creditor action, so that consumers can get debt advice and seek a sustainable solution to their debts.
Complaints about high-cost credit
Consumers who feel that they have either been given unaffordable credit, or that the lender acted irresponsibly in providing the product, may be able to complain to the Financial Ombudsman Service. But this avenue is not available for all products, notably buy-now-pay later, as we discuss in an Insight.
Protecting consumers from unfair high-cost credit (4 MB , PDF)
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