At the end of May 2018 the Financial Conduct Authority (FCA) published their initial findings following a review of the high cost credit industry in the UK. They also published proposals which they hope will protect millions of people who use overdraft and high-cost credit.
The report focussed on 4 main sources of high cost credit:
- Overdraft charges;
- Home-collected credit;
- Catalogue credit and store cards.
As a Credit Union, we don’t offer any of the types of finance which are under scrutiny. Like other lenders and providers of credit however, Credit Unions in the UK are regulated by both the FCA and the PRA (Prudential Regulation Authority). Credit Unions are often promoted as one of the alternative solutions to the problem of high cost credit, and although the report didn’t directly mention Credit Unions, the FCA believe one of the ways to tackle the issue is to ensure that there are enough reasonably priced alternatives available.
In assessing loan applications, our lending team regularly see members who are incurring high daily or monthly overdraft charges. Many members also use rent-to-own stores like Brighthouse and Perfect Home, which are a convenient but expensive way of purchasing household goods. We will continue to warn against the use of these high cost ways to finance essential purchases and try to ensure our product range is flexible enough to meet members’ differing needs.
In 2016 we ran a comparison showing how much it would cost to purchase a washing machine if you took a loan from Sheffield Credit Union of £379 to purchase the item from a well-known retailer. The total amount repayable if the repayments were set at £10 per week would have been £443. In comparison to this, a similar model was available from Brighthouse, also with repayments of £10 per week. Financing it through Brighthouse would have ended up costing £1,560 however, with it taking 3 years to pay for the item in full.
We recognise that sometimes our members may not be eligible for one of our existing loan products when disaster strikes (for example because they have not made the minimum number of repayments required before they can apply for a top-up).
With this in mind we hope to introduce a new loan product in the next few weeks to help members with the purchase of household goods and we are currently exploring a number of models for this.
Summary of FCA findings: