The press release about a possible ban on overdraft fees was pretty confusing so we de-jargoned it
'High-cost short-term motor finance consumer credit APR interest rates, anyone?'
The people whose job it is to make sure finance-y firms behave themselves put out a press release on Monday about their latest master plan: they might, possibly, think about banning those fees that lenders charge people for spending more than they have in their accounts without telling the lender first.
It’s not the most firm-handed hard-hitting press release, but it’s got some perhaps-very-important-if-it-happens news for everyone who’s ever been frustrated by fees on money they don’t even have yet.
The idea behind fees like this is to stop people from spending more than they have, but it’s not always that simple, and it’s rarely explained in clear terms.
So this ban (if it happens) will probably be welcomed by a lot of people – if only they could understand it. We did some step-by-step de-jargoning, to the best of our abilities. It took a little more googling than it should have done, but hey, such is economics…
People who tell banks and other finance-y firms how to behave set out what they’re going to say about ‘free money’ (it’s totally not free and that’s kind of the problem)
The people whose job it is to make sure the financial industry behaves itself have published the outcome of a study they did into ‘high cost credit’ (basically money lent to you which you don’t have yet, with high fees attached if you don’t pay it back on time), which includes a look at how effective they think it’s been to put a limit on the amount that lenders can charge borrowers as a fee.
(They call this a ‘payday loan cap’, but that doesn’t mean a cap on the loan, it means a cap on the interest on the loan. Because why make it clear when you could make it… not clear?)
The FCA’s rules on what they call ‘high-cost short-term credit’ and everyone else calls ‘payday lending’ seem to have worked pretty well so far. Without the limit or ‘payday loan cap’. 760,000 people would have spent £150m on interest and fees for not paying back their loans on time. A lot of them would have gone to debt charities, who exist to help give people advice on managing their debts, but because of the cap, they haven’t had to. Yay!
So the FCA’s going to keep this rule, and check in again in 2020.
But things aren’t over yet. The FCA is still pretty worried about other forms of ‘free money’ lenders give out in questionable ways.
In particular, it may need to step in and make some changes to the way they let people spend more than they have in their account without planning to… and then charge them for it. Lenders tend to explain the situation in complex terms that confuse people out of engaging with the whole thing, and then they get charged for something they didn’t really understand in the first place, and then everyone’s mad at each other (not unusual but still highly unhelpful.)
The FCA are particularly worried about ‘free money’ we get as a head start to buying a house. All these different forms of credit sound almost the same but are actually very different in terms of all the T&Cs in teeny tiny font at the bottom of the page. The FCA’s trying to figure out how to make all this a bit clearer and will get back to us in Spring 2018.
Alongside the review, the FCA is also publishing proposals to clarify its rules on what makes someone ‘deserving’ of free money and how the lender knows the borrower can actually pay it back one day (because turns out the money totally isn’t free after all).
Most credit firms (lenders) understand the FCA’s rules on how you’re supposed to find this out ahead of time, but a lot of them are still ‘uncertain’ i.e. don’t actually know quite an important part of their job, so the FCA’s going to sort out what exactly it expects from them and send them a big bold caps lock email to get it across (or some other more effective way of making sure they know exactly what they’re supposed to do, because who even checks their emails anymore. Maybe a series of memes, or a video of a cat doing it. Suggestions welcome.)
…and who’s getting the bill for all this? Money is such a core part of the economy, and a lot of economic power lies in the hands of those who print it, earn it, and spend it. But money’s not just as a tool for exchange; it’s taken on a value in itself, and there’s a whole economy around money alone…