“Strive to do better for people using credit in Scotland and beyond”

22 March 2018

In his speech Christopher Woolard, FCA Executive Director of Strategy and Competition: “There’s a danger, when you’re up to your neck in policy proposals, economic analysis and focus group findings, that you could forget that regulation of the credit sector is not a cold academic exercise. Those of us engaged with this issue know the truth: that for millions of people credit is woven through the fabric of everyday life. In Glasgow 41% of adults have outstanding, non-mortgage debt, with 11% of adults in particularly high-cost credit debt.”

While across the UK as a whole, there are over 24 million people with debt on credit products. For the millions of people behind these stats, credit represents very different things. From a convenient means of collecting air miles on your daily spending to keeping your car on the road; from improving your house to needing to borrow to be able to cook the kids’ tea; from a sum that is easily repaid month on month to a constant worry.

The task of regulating an industry of this complexity can be a daunting one. When the ramifications for ordinary people are so profound, how do we strike the balance between protection and access? Between demanding rigorous standards while leaving some space for original thinking? It would – seemingly – be easy for us to simply reach for a regulatory stick, but the use of credit in many cases is fundamental to people’s lives, unavoidable even.

A market like this, where the consequences of our decisions are so acute, requires us to get under the skin of a series of complex problems and think creatively about the solutions we apply to them. They say necessity is the mother of invention, after all.

But in order to be truly effective we also have to look beyond our own four walls, and beyond what might normally we expected of a regulator. Our approach has four components:

  • We authorise, supervise and enforce against our existing rules.
  • We intervene and propose new rules where they are needed.
  • We work with others to address failure in the market and influence demand.
  • And we promote competition and innovation in the interests of consumers.

I’d like to talk today about what this looks like in practice.

Putting things right

Regulating day-to-day is the most obvious thing people would expect the FCA to do.
We know that customers in this sector are amongst the most vulnerable, with a median annual income of around £16,000  in 2016, about £4,000 a year less than the typical individual income. Evidence suggests people who use rent-to-own products have fewer options available to them. But, the impact of repayments, which can dwarf the cost of the item itself thanks to extra charges, is a concern, as is the degree to which consumers consider them when making a purchase. And then there’s the way in which consumers are treated when engaging with this sector.

Filling in the gaps

In total, we’ve secured £900 million worth of redress for consumers from firms across a number of sectors whose lending practices didn’t meet our standards – a not inconsiderable sum to have been collected in only four years. It shouldn’t be a surprise that we are taking such action – it’s the bread and butter of our job. But that job is not only about enforcing our rules; it’s also about looking beyond existing regulation to identify any gaps. We’ve already made some significant changes. Only last month we announced new rules for credit card firms following our market study, in which we analysed the accounts of 34 million credit card customers. These rules focus on persistent credit card debt. Debt of this type, when customers pay more in interest, fees and charges than they do of the actual amount borrowed, can have a corrosive impact. And by our estimates, 4 million accounts are affected. Customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing – but are profitable for firms. The new rules will tackle this head on.

Another significant change we’ve made in the market is our regulation of high-cost short-term credit, commonly called pay day lending, including the price cap we introduced in 2015. This has substantially reduced the cost of borrowing. In fact, our research shows that since the cap was introduced the amount consumers pay per loan has dropped from over £100 to £60, saving roughly £150 million for users of high-cost short-term credit every year. We’ve taken great strides to ensure the market is fairer, cleaner and more sustainable. But I am not naïve enough to suggest that everything in the garden is rosy.

For example, a startling finding to come out of our Financial Lives survey is that 4.1 million people are in financial difficulty in the UK . That’s 4.1 million people who have failed to meet credit commitments or pay domestic bills in three or more of the last six months.

Beyond regulation

So we’re taking action on behalf of consumers but we know there’s more work to do. As I’ve just described, we see a case for intervention in a number of markets – and we are prepared to propose new rules where necessary. But in order to be effective, we also have to accept that there is a limit to what can be achieved through traditional regulatory interventions. Authorising, supervising, enforcing and writing new policy have their place, and we’ll not flinch from taking action against players who don’t meet our standards, including removing them from the market. But classic regulation can’t provide all the answers. In order to have the greatest impact we also need to recognise the limitations of our powers. We need to draw on the abilities of others to drive change forward. This is the third part of our approach – working with others to influence demand in the market – and high-cost credit is a clear example of how this can work.

So we have to look at business models and the supply of capital in this market. What we hope to see is more models emerge in this market that can provide commercially sustainable, mid-cost lending. The economics of this do not operate in a vacuum, either. If you look at firms like Five Lamps, they couple lending with money advice – which is about long term outcomes, not just lending. Commercially, it means lower default rates. Indeed, in the wider thinking and partnership needed here, we would see debt advice as an important part of the picture. This is particularly true for vulnerable consumers who may find themselves shut out of financial services, without the access or resources many of us take for granted. On this issue in particular we are seeing positive movement.


To conclude, be it though intervention or innovation, the FCA’s commitment to ensuring fair outcomes for users of consumer credit is absolute. Our guiding principle is, and has always been, that markets must work for those who use them. But to do that we have to think with imagination, working with and learning from others, breaking new ground and drawing on the technological opportunities of our time. Much progress has already been made. But we still have work to do. We’ll roll up our sleeves and get stuck in where action is needed. And with the support of partners like those in the room today, we can continue to shape a market that genuinely serves the millions of people who rely on it.

This is an summary of the speech. You can read the full version on the website of the FCA.


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