CP18/12 and CP18/13: Consultations on High-cost Credit and on Overdrafts

As part of our ongoing review of high-cost credit products, we are publishing our proposed rules and guidance for consultation. We have also identified a number of areas for discussion.

Show CP18/12 (PDF)

Show CP18/13 (PDF)

These documents follow on from our Feedback Statement (FS17/2), published in July 2017 , and then our update, published in January 2018 . These publications identified our key areas of concern and the way we are thinking about high-cost credit.

We have focused on arranged and unarranged overdrafts, as well as rent-to-own, home-collected credit and catalogue credit products. We have also included store cards.

We are also working on alternatives to high-cost credit. These are designed to increase choice and encourage the availability of alternatives.

Who this applies to

This update will be of interest to:

banks and building societies that provide overdrafts

consumer credit lenders that provide overdrafts, home-collected credit, rent-to-own, and catalogue credit and store cards

credit unions and community development finance institutions and commercial innovators in alternatives to high-cost credit

trade bodies representing these firms

social investors, foundations  and other investors with an interest in alternative credit

local authorities and other social landlords

consumer organisations

Publication

We are publishing two consultation papers:

High-cost credit: CP18/12

This paper addresses rent-to-own, home-collected credit, catalogue credit and store cards, and alternatives to high-cost credit. It includes:

proposals for consultation (chapters 2 to 5)

a discussion on rent-to-own pricing (chapter 2)

cost-benefit analysis for the proposals (annex 2)

Error: In Appendix 2 of the version of CP18/12 published 31 May 2018, we have updated the reference to the ‘by way of business test’ in paragraph 2.4. We have also inserted a footnote in para 2.3 to our perimeter guidance and an additional sentence in para 2.5 concerning the criminal offence of engaging in credit broking if unauthorised.

Overdrafts: CP18/13

This paper addresses arranged and unarranged overdrafts. It includes:

proposals for consultation (chapter 3)

a discussion on changes to overdraft charges (chapters 4 and 5)

cost-benefit analysis for the proposals (annex 2)

a review of the monthly maximum charge for unarranged overdrafts (annex 3)

Next steps

This consultation has now closed.

On 18 December 2018, we published an update on our work on high-cost credit. This includes:

a consultation on proposals to radically reform the ways banks and building societies charge for overdrafts and final rules and guidance we have made to address low awareness and engagement in this market ( CP18/42 ),

feedback on CP18/12 with final rules and guidance, and consultation on Buy Now Pay Later offers ( CP18/43 ) and

our finalised guidance on helping tenants find alternatives to high-cost credit and what this means for social housing landlords ( FG18/6 ).

We also published our Strategic Review of Retail Banking Business Models final report .

Background research

We have used the following research and occasional papers to create our proposals:

FCA Occasional Paper 36 : looks at the impact of unarranged overdraft and refused payment alerts on consumer behaviour.​​​​​

FCA Occasional Paper 40 : Time to act: A field experiment on overdraft alerts

Consumer research on usage and experiences of High-cost Credit by PwC : qualitative research to explore consumer use and experience of high-cost credit.

Technical annex on usage and experiences of High-cost Credit by PwC : technical annex to the qualitative research exploring consumer use and experience of high-cost credit.

Consumer research on overdrafts by Atticus: qualitative research to explore consumer use, experience and understanding of overdrafts.

Consumer research on prompts and alerts by Collaborate Research: qualitative research to identify which prompts and alerts have most potential to increase customer awareness and encourage shopping around.

Research on prompts and alerts using online experiments by Decision Technology: online experiment to test the most effective messages to increase customer awareness and encourage shopping around.

Personal and business current account prompt pilots findings : prepared by Accent Research on behalf of the FCA.

Designing effective current account prompts : a summary of key findings from our research.

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