John Glen is Economic Secretary to the Treasury, and is MP for Salisbury.
I very much welcome today’s publication of the Financial Conduct Authority (FCA) review of high-cost credit. The availability of credit is an economic imperative, and as Conservatives we are right to be wary of over-regulating financial services.
However, leaving the most vulnerable people in our society exposed to high-cost lenders, and without access to affordable credit, is not an option for those of us committed to developing a responsible and inclusive 21st-century capitalism.
As I set out on Conservative Home last month, the Government is serious about improving the economic climate for consumers and tackling practices which often leave the vulnerable most exposed. In April, we expanded the budget to tackle loan sharks, and I am pleased that this has been followed up this month by today’s FCA report on high-cost credit which sets out a series of recommendations for next steps to be taken.
In April 2014, the Government transferred the regulation of consumer credit to the FCA, creating a more robust regulatory regime than existed previously with the Financial Services Authority (FSA). The FCA report released today shows that we have created a regulator with real teeth, not a paper tiger.
I fully realise that ‘regulation’ is not the always the first bullet point on the average Conservative voter’s wish-list. But we need to make sure that capitalism works for everyone. This is not about succumbing to a Labour-lite agenda, but making our free market economy more robust. We must protect it from those like the Shadow Chancellor, who last week told us that his job is to overthrow capitalism.
I am very proud of our record in government of boosting financial inclusion and protecting vulnerable consumers. In March, alongside Guy Opperman, I co-chaired the first meeting of the Financial Inclusion Policy Forum, which brought together a range of key stakeholders from academia, civil society, and the financial services sector.
In April, in addition to redoubling our efforts to tackle the scourge of loans sharks, I also announced from the despatch box that the Government was committed to extending the breathing space debt respite scheme to assist those receiving NHS mental health crisis services.
Today’s announcement by the FCA covers a wide range of issues relating to high-cost credit, but I am particularly pleased that the review recommends some concrete steps in relation to the rent-to-own (RTO) sector and catalogue credit/store cards.
The FCA rightly points out that costs to consumers from RTO agreements are sometimes exceptionally high, even when compared to other forms of high-cost credit. The FCA therefore concludes that the case has been made, in principle, to consider a price cap to protect vulnerable consumers. Additional analysis will now be undertaken by the FCA to arrive at an assessment of how such a cap should be structured and work in practice. The FCA also considers that action can be taken now to tackle the selling of extended warranties alongside RTO agreements.
As well as looking at how the RTO sector operates, the FCA has also made a series of important points relating to catalogue credit and store cards. Of particular concern is whether consumers are fully informed in advance of charges that they could incur, and whether there is a lack of control of credit limit increases.
The FCA has therefore concluded that it will consult on whether companies offering store cards and catalogue credit should provide clearer explanations of the costs of not paying back within the offer period. They will also consult on whether companies operating in this space should identify people at risk of financial difficulty and take appropriate steps.
Today’s report is another important step in shaping the regulation of the high-cost credit sector to put the interests of consumers front and centre. The resilience of our economy is improved when we take concrete steps to protect individuals who are most exposed to financial harm from high-cost credit.
I firmly reject the idea that we should allow the social justice field to be monopolised by the Labour Party’s statist agenda. The Government welcomes the FCA’s conclusions and looks forward to further consultation on the major points raised over the months ahead.