Our regular digest of the most salient news and opinion on consumer credit, lending and regulation.
Bank of England raises alarm over surge in high-risk lending | The Guardian| 17.10.18
The Guardian reports on a warning from the Bank of England after it equated certain forms of high-risk lending today with what had happened just before the 2008 financial crisis. It warned about global lending to indebted companies. Known as leveraged loans, these are loans to firms that already have debts worth more than four times their earnings. The BoE drew parallels between this leveraged loan market and the US’ sub-prime mortgage market. Risky investing is on the rise as investors look to make higher returns because of low interest rates. As interest rates are put up by central banks, the concern is that companies will not be able to repay this debt.
High street banks charge overdraft users £640m more than challengers | Credit Connect | 24.10.18
In this piece by Credit Connect, online comparison and switching site, uswitch.com, says that consumers of high street banks are paying undue amounts on overdraft fees, when actually there are cheaper alternatives. One example they cited within the article is if a person was overdrawn by £285 (the average amount for which overdraft users are in the red each month) then they would pay £87.36 in annual fees with a Natwest account, while with First Direct they would pay just £1.56 if they were overdrawn for nine days per month (again the average time in red for consumers each month). This article comes at a time when the FCA’s consumer credit review includes reviewing bank account overdraft charges.
Money Statistics: October 2018 | Credit Connect | 23.10.18
Credit Connect report on the Money Charity’s monthly statistics on the UK’s money situation. Some interesting figures we thought we would highlight include:
- The average interest rate on credit card lending bearing interest was 18.38% in August 2018. This is 17.63% above the Bank of England Base Rate of 0.75%.
- In the year to July 2018, consumer credit increased by 8.5% according to UK Finance, while outstanding levels of credit card borrowing grew by 8.9%, a rate that has been fairly constant over the last year.
- – £29 billion Change in Public Sector Net Debt (excluding RBS and debt to Bank of England) in the year to August 2018 [source]
Price caps – now in vogue? | Deloitte |18.10.18
In this thought leadership piece the author, discussed the FCA’s use of price caps. In previous years the author states that the city watchdog did not consider its role as a moderator or manager of the prices that regulated firms charged clients and customers, only as a moderator of fair competition and market integrity. However the author goes on to document examples where the FCA has been increasingly leaning towards price caps and in some cases, such in the case of payday loans, implementing them. The author goes on to discuss the implications for firms.