Things cost more when you’re poor

Following a two-year investigation into high-interest lending, the FCA are cracking down on excessive borrowing fees. Doorstep lending, catalogue shopping and rent-to-buy schemes are top of their hit list.

Things cost more when you’re poor

I always thought this was an odd saying, but the rent-to-buy market demonstrates it perfectly. The FCA use the example of an electric cooker. An essential purchase, and one that many of us will make from the high street for as little as £300.

However, when £300 is beyond your means, the electric cooker is no less essential. With no flexibility in your monthly expenditure or savings to dip into, borrowing is often the only option. If your credit rating is poor, your ability to borrow is limited. So instead, you turn to a rent-to-buy company. Rather than making a one-off payment of £300, you make small monthly payments. The result? You end up paying more than £1500 for the same cooker.

This can quickly lead to a borrowing spiral, allowing lenders to make money from the financially vulnerable. A cap on rent-to-buy prices may be the next step to prevent this kind of exploitation. The FCA are now considering the impact it will have on the rent-to-buy sector and how a cap could work. It is not expected to be in place until April 2019.

Established banks could be next

According to the Independent, many people are surprised by the FCA decision to challenge unauthorised overdraft fees charged by established banks. After all, it’s not so long since the vulnerability of the banking sector became abundantly clear. Now, they stand to lose 30% of the £2.3bn revenue they make from overdrafts if the FCA clamp down on massive unauthorised overdraft fees.

While the FCA consider their position, some are critical of the delay. Gareth Shaw from Which? said:

“Last summer, the FCA expressed serious concerns about how unarranged overdrafts work, and now almost a year later it is still refusing to take action.”

Meanwhile, just 1.5% of bank customers are paying the majority of unarranged overdraft fees. On average, those customers lose £450 per year to such charges. The FCA want to see more information about charges, including text alerts when people go into the red. They are also considering a ban on fixed fees that lead to high unauthorised overdraft charges.


Sources

1. http://www.bbc.co.uk/news/business-44307663

2. https://www.independent.co.uk/voices/editorials/fca-interest-rates-banks-retailers-payday-loans-andrew-bailey-a8377536.html

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