THE HEAD of the City regulator has re-iterated his concerns about the risks that the rapidly growing personal debt market poses to consumers.
Andrew Bailey (pictured), chief executive of the Financial Conduct Authority, said in a speech at Mansion House on Wednesday evening that the watchdog is concerned about the cost and terms of various forms of high-cost credit.
He warned that credit cards have become “a source of long-term expensive debt, something for which they were not designed,” and said that firms lacked incentives to tackle this “as these customers are profitable”.
He cited the latest assessment of the consumer credit sector by the Bank of England’s Financial Policy Committee, which called it “a pocket of risk” in an otherwise benign domestic credit environment.
However, the regulator emphasised that consumer credit is not a material risk to economic growth as a whole and singled out personal contract purchase (PCP) lending as an area that was not of concern.
“We are not at all complacent about the overall consumer credit situation, but I don’t regard, for instance, the shift to PCP based lending as per se bad,” he said. “It seems to me to recognise the nature of a car as an asset, that is, consumers are comfortable renting rather than owning the car.
“That said, there are issues that we seek to understand on the terms of such lending and how well they are understood by consumers, so we are not complacent on such terms.”
The UK’s consumer credit market comes in at £200bn, according to Bailey. This comprises £68bn of credit card debt, £58bn n motor finance and £15bn in various forms of higher cost credit. Overdraft credit by the main high street banks accounts for around £7bn and the rest is mostly unsecured personal loans, he said.
Other challenges that Bailey outlined were regarding retirement provisions and long-term savings. He said that many people are not saving enough to meet their expectations for retirement and highlighted issues for older people in terms of managing their finances.