The UK financial sector watchdog has announced fresh measures meant to protect consumers from increasing debt as official data showed that borrowing through credit cards, overdrafts and car loans has topped £200 billion for the first time since the global financial crisis.
The Financial Conduct Authority said it was cracking down on the high cost of overdrafts and conducting a review of the booming car loan market.
The step comes against the backdrop of credit ratings agency Moody's warning over the growing household debt mountain. Moody's said some borrowers would struggle to repay their debt as the economy weakened and inflation ate into their salaries.
Unsecured consumer credit, which included credit cards, car loans and overdrafts, peaked in the autumn of 2008 – just as the banking crisis was unfolding, and dropped in subsequent years, but has been rising again since 2014 and is now close to the level of the pre-crisis lending boom.
Data from the Bank of England yesterday showed that it grew by 10 per cent in the year to June, to almost £201 billion. It was above £200 billion last in December 2008.
The FCA published a paper yesterday in which it said that one in six people with debt on credit cards, personal lending and car loans – 2.2 million – were in financial distress.
According to the paper, the FCA is considering the scrapping charges for unarranged bank overdrafts.
"We believe there is a case to consider fundamental reform of unarranged overdrafts, and whether they should have a place in any modern banking market," the FCA said, in its review into the high-cost credit market.
In response, the banking industry pointed out that customers were usually warned if they were about to go overdrawn, usually via a text alert on a mobile app.
"When used sustainably, consumer credit is important for economic growth, and lenders work hard to ensure the balance is right between helping customers to borrow while ensuring longer term affordability," said Eric Leenders, head of personal banking at UK Finance, BBC reported.