Today we’re calling for the cap on the cost of payday loans to be extended to doorstep loans and other similar markets.
As the UK’s financial capability charity, we think the cap will provide consumers with protection and clarity over the cost of their payday loan. But by creating a loophole for doorstep lenders, the Financial Conduct Authority (FCA) is only addressing one part of the high-cost credit market. This would let lenders who collect their money from people’s home reclaim more than double the amount someone has borrowed (the proposed limit for payday lenders) – even if the loan was otherwise identical to a payday loan.
We are also concerned that setting the same maximum default fee any size of loan could have unintended consequences. If someone borrows a smaller amount but goes into default, their incentive to repay early is reduced because the default fee is a bigger part of the total fees and charges. This is counter-intuitive, and undermines people who want to do the right thing and get back on their feet.
Finally, we want the FCA to make sure it has fully considered the wider effects of the cap – including the full impact on what people who won’t be able to borrow from anywhere once the cap is introduced.
The recommendations were made in our response to the FCA consultation on a cap on the cost of high-cost short-term credit, which will apply from January 2nd 2015. You can read the full response HERE.