FCA to review high cost credit markets

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The Financial Conduct Authority (FCA) has announced that it plans to review high-cost credit products that pose the highest risk to consumers.

Amongst the sectors under scrutiny is the rent-to-own market, which includes leading retailer BrightHouse. The FCA will look across all high-cost products to build a full picture of how these are used, whether they cause detriment and, if so, to which consumers.

The FCA is seeking evidence and feedback to further inform on the issues, which will enable the FCA to consider whether further policy interventions are needed.

Other areas that the FCA will look into are overdrafts, payday loans and the repeat of multiple borrowing from a variety of sectors across the finance industry.

National charity, Citizens Advice has already come out backing the FCA and has published a new report that finds rent-to-own customers getting trapped in debt due to problems including high interest rates and additional fees, inadequate affordability checks and inflexible debt collection practices.

Citizens Advice chief executive Gillian Guy, said: “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.”

BrightHouse has defended claims made by Citizens Advice, stating that they have worked closely with the FCA and that it has thorough checks, as well as options for customers in difficulty.

A statement from a BrightHouse spokesperson told Cabinet Maker: “As the UK’s leading rent-to-own retailer we are proud to serve lower income families who are seeking quality products for their homes. This is very different to some other types of borrowing.

“Having worked closely with the FCA, BrightHouse’s affordability checks are some of the most thorough in the financial services industry.

“Should BrightHouse customers be in difficulty, we have a wide range of options including the flexibility for them to return the product at any time without owing anything further. This helps them to avoid a spiral of debt, unlike other forms of lending.”

Andrew Bailey, chief executive of the FCA, said: “This is a significant moment for our approach to consumer credit regulation as we continue to ensure that this market works well for consumers.

“As an organisation, we have already taken many steps to address the risk of consumer harm by putting in place new rules for high-cost short-term credit firms and taking action against non-compliance across all credit markets.”

The FCA took over regulation of consumer credit in April 2014 and has since seen arrears rates fall by a quarter and a 20% drop in loan approval rates.

Furthermore, ratings agency Moody’s has recently downgraded BrightHouse ratings, stating that its outlook is negative.

Announced on 25 November 2016, Moody’s said: “The downgrade reflects the rapid deterioration in the company’s metrics in the second quarter due to the impact of new procedures introduced by the Financial Conduct Authority (FCA) in February 2016 as part of its ongoing authorisation across the industry.”

Moody’s has downgraded BrightHouse’s corporate family rating and the rating on its £220m senior secured notes due to further weakening of the company’s credit metrics driven by regulatory changes and adverse product mix, as well as its upcoming refinancing risk on its senior secured notes maturing in May 2018.


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