Research suggests

‍

Research by the Money Eduction Foundation reviews the Impact of FCA Regulation on the UK credit sector. The FCA has been tasked by Parliament to ensure market integrity and consumer protection of the consumer credit sector.

‍

Over the last ten years there has been a clamp down on sub prime credit providers. Industry experts now consider that the actions taken by the FCA against lenders in the sub-prime sector have inadvertently created a dangerous "credit vacuum." This credit vacuum has now resulted in three million households being unable to access any  form of credit.

‍

In 2021, Lord Woolard conducted a review of the unsecured credit market, highlighting the necessity and availability of credit for sub-prime consumers:

‍

"Only a small proportion of all consumer credit debt is held by subprime consumers. The availability of credit for these consumers when it is needed is essential.”

‍

The Woolard review recommended that the FCA should promote a market where affordable and sustainable credit is accessible, including in sub-prime markets.

‍

Despite these recommendations, the pace of regulatory action against sub-prime lenders increased, leading to questions about how these actions align with the FCA's statutory duty to promote effective competition as outlined in the Financial Services and Markets Act 2000:

‍

"The competition objective is: promoting effective competition in the interests of consumers in the markets for regulated financial services."

‍

The FCA's focus on imposing fines and ordering large redress schemes has coincided with a lack of new entries into the high-cost short-term credit market. From June 2019 to June 2024 the CCTA found by way of a Freedom of Information Request that no new licenses for HCSTC were issued by the FCA, contributing to a massive contraction in this sector.

‍

The conclusions

‍

The Woolard Review recommended that the FCA should adopt a clearer, outcome-based regulatory approach, setting transparent standards for the market:

‍

The unintended consequence of the actions taken by the FCA has reduced competition and resulted in three million sub prime consumers now having no access to any type of licensed credit.

This has created a dangerous credit vacuum where formal credit options once existed, affecting millions of households' ability to manage essential purchases or unexpected expenses.

This has potentially pushed a significant number towards unregulated, and illegal, lending sources like loan sharks.

The FCA's regulatory actions have undeniably reshaped the landscape of consumer credit, particularly for sub-prime borrowers. As the situation evolves, the need for an increase in financial inclusion and lending options for the sub prime sector is essential and more critical then ever before.

‍

‍