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FCA review “opportunity” to protect more high cost credit customers

29 Tachwedd 2016

Rent to own services, logbook loans and guarantor loans should be included in the FCA’s payday loan cap - and new rules introduced to provide added protections for customers including full checks to make sure people can afford to pay back what they have borrowed says Citizens Advice.

The Financial Conduct Authority has today launched a call for evidence on how the wider high cost credit market is working - including rent to own, guarantor and logbook loans - to find out how firms are treating their customers. It follows the regulator’s action to clean up the  payday loan market, which included a cap on interest rates and fees introduced in January 2015.

The national charity had published a new report today finding rent to own customers are getting trapped in debt due to problems such as high interest rates and additional fees, inadequate affordability checks and inflexible debt collection practices.

Since the introduction of the cap on payday loan interest and fees in January 2015, Citizens Advice has helped people with 45% fewer payday loan problems.

Citizens Advice Chief Executive Gillian Guy, said:

“Payday loan problems have fallen, but other high cost credit products are causing problems for thousands of borrowers.  

“We’ve been helping people who have got into financial problems after taking out a rent to own agreement and logbook or guarantor loan. Where high interest rates and charges have made it difficult to pay back what they owe.

“Our new report on the rent to own market out today highlights specific problems within this industry including inadequate checks to make sure people can pay back what they borrow and poor treatment when payments are missed.

“By turning it's attention to the wider high cost credit market, the FCA has an opportunity to build on the success of tackling the payday loan industry, by extending the price cap and introducing more protections for consumers.”

A report from Citizens Advice, published in August, revealed that the cap on payday loans - and other measures introduced by the FCA - have lead to a reduction in payday loan problems and a number of lenders leaving the market.  However it also found that some lenders are still giving out loans without proper credit checks and called on the FCA to turn its responsible lending guidance into rules for the payday loan industry.

Citizens Advice’s new report on the rent to own market includes a survey of 2,000 rent to own customers which finds:

  • A third have missed one or more payment

  • More than half have taken on other debts to make their payments - including taking out loans with doorstep lenders

  • More than half (52%) of clients who missed payments said they were treated unfairly and 45% said their treatment made it more difficult to repay their debts

  • Over 90% of customers in arrears said they were not given a payment holiday - a key forbearance tactic

  • 7% who missed repayments have had their goods repossessed

  • One fifth spend 20% or more of their annual household income on rent to own repayments

Notes to editors

  1. The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
  2. The advice provided by the Citizens Advice service is free, independent, confidential and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
  3. To get advice online or find your local Citizens Advice in England and Wales, visit citizensadvice.org.uk
  4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.
  5. Local Citizens Advice in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full service statistics see our publication Advice trends.
  6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.