Nikki Bond, Research Assistant, Money and Mental Health

FCA high-cost credit review: moving towards a fairer system

19 December 2018

Yesterday the FCA published their high-cost credit review, which set out proposed changes to make the overdraft market simpler and fairer.

Here at Money and Mental Health, we fed into the consultation earlier in the year, making a number of recommendations on how overdraft facilities can be improved to support people with mental health problems – from better communication options, to a closer recognition of the challenges people in this position can face.

Personally, from my experience of working with vulnerable customers in financial services, changes to the overdraft market that would benefit vulnerable consumers could not come soon enough. Too often I talked to customers who were experiencing mental health problems, who often had little understanding of how their account worked or how to avoid overdraft charges, and each and every month were incurring huge charges they could ill afford.

Therefore, we were pleased to see the FCA propose the following changes, which will go far in ensuring customers experiencing mental health problems are not disadvantaged choosing and using overdraft facilities:

  • Plans for reducing the high level of fees in the unarranged overdraft market, by aligning prices for arranged and unarranged overdrafts
  • Changes to the way information about overdrafts is presented to consumers so that it is clear and prominent
  • Changes to displayed balances, ensuring overdraft funds will not be included within available funds.

Do proposed changes go far enough?

These are all really positive steps, although some of the proposed changes could have gone further to cater for vulnerable consumers. That’s particularly true for people experiencing mental health problems, where the cognitive and psychological changes that accompany many mental health conditions can affect budgeting, planning skills, memory and perception – all of which affect the way people chose, use and pay for services.

Read on to find out more about the proposed changes – and the other steps we’d like the FCA and financial service providers to take to better support people in financial difficulty who are experiencing mental health problems.

Communication channels

The proposed online overdraft eligibility and calculator tools, which will indicate the likelihood of consumers eligibility for an overdraft and the cost of having one, are a great start. But if vulnerable groups are not to be disadvantaged, the FCA must ensure that similar tools are made available to customers who may not have the means, skills or confidence to access them online.

We also would like to see firms giving consideration to people’s communication preferences. Mental health problems can mean people struggle with certain communication channels – some people find online easier to deal with, others can’t face the post or have difficulties talking on the phone. As our research shows, three-quarters of people who have experienced a mental health problem struggle to engage with essential services firms through at least one communication channel. Allowing customers to choose their preferred channel would be a huge step forward in ensuring people can access and receive information in a manner best suited to them.  

Overdrawn balance alerts and signposting for support

It’s great that firms will be required to alert customers via text when they enter an arranged or unarranged overdraft, or a payment fails. However, one opportunity that has been missed is that of alerts routinely signposting customers to debt advice. For many people experiencing mental health problems, financial difficulties may be persistent and prolonged, and finding funds to bring an account back into credit once alerted is often incredibly difficult – and for some an impossibility. As such, we would like to see firms using alerts to signpost people to debt advice organisations as part of these notifications.  

“Automatic alerts would be useful as often I can’t deal very well with my finances and take my eye off the ball. But on the other hand, it may increase my anxiety, especially if there’s nothing I’m able to do to rectify the issue.” Expert by experience

Repeated overdraft use

The FCA report that repeat overdraft use leads to a very high total cost of credit, and that charges are highly concentrated among a small group of consumers. This focus is incredibly welcome, particularly for those people experiencing mental health problems who are often on lower incomes and can find themselves persistently living in their overdraft facility – and beyond. We were pleased to hear the FCA is planning to issue guidance on the factors firms would be expected to consider in monitoring and assessing customer usage, and to set out an expectation for firms to identify problematic use earlier.

While none of these changes will come into effect until late next year, they should have a welcome impact in reducing the harm to vulnerable consumers that can arise from financial difficulty. However, there is still much more that can be done to support people experiencing mental health problems and financial difficulty – we will be working hard in the coming year to continue to push for these changes.