Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, what steps his Department is taking to promote safer forms of credit for the most financially excluded.

The government transferred the regulation of consumer credit to the Financial Conduct Authority (FCA) in 2014. The FCA’s rules are binding, and the FCA has a wide enforcement toolkit to take action wherever these rules are breached. The FCA’s rules already set out that firms should assess each customer’s creditworthiness and treat their customers fairly. The FCA’s recent announcement that Brighthouse will pay over £14.8 million in redress to 249,000 customers in respect of agreements which may not have been affordable and payments which should have been refunded demonstrates the effectiveness of FCA regulation in this sector.

The FCA is also consulting on further clarifying these rules. On 31 July, the FCA published a consultation on new rules and guidance on assessing creditworthiness and affordability. The FCA proposes to clarify in its rulebook that firms should consider not just whether a customer will repay, but whether a customer can repay affordably and without significantly affecting their wider financial situation. The government welcomes this clarification, and the ongoing work of the FCA to review the high-cost credit market, including the rent-to-own sector.

The government is committed to facilitating sustainable financial services that give consumers greater access to credit. This includes support for the credit union sector, which provides an accessible alternative to high-cost credit. From 2018, a greater proportion of funds recovered from illegal money lenders will be allocated to incentivise vulnerable people to join, save, and borrow with a credit union instead of turning to loan sharks.