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LONDON – Andrew Bailey, Britain’s top markets regulator, warned on rising levels of debt being accrued by Brits, saying the government must take action to stop the problem spiralling out of control.
According to a report in the Guardian newspaper on Tuesday, the Financial Conduct Authority chief is “concerned about the sheer number of people who need loans to make ends meet,” with those on zero-hours contracts and those working in the gig economy a cause for particular concern.
In both those forms of work, staff have no guaranteed hours, and many frequently have to turn to payday lenders such as Wonga to make ends meet. These firms allow consumers quick, easy access to credit, but in return offer extremely high interest rates, which if not managed properly can cause big problems for the people taking the loans.
“There is a really big question around how do you provide credit. There is a case for people [needing loans] having access to credit, particularly in a world where earnings are more erratic,” Bailey told the Guardian.
“Credit is a means of smoothing [erratic incomes] but the question is how do you structure it in a sustainable fashion.”
The FCA has previously taken steps to address the payday loan industry, and in 2015 capped the rate of interest payday lenders are able to charge to 0.8% per day.
Payday lending is just one facet of the FCA’s concerns however, with the regulator also looking into credit card debt and car financing, both areas that have seen significant growth in recent years.
The scale of the problems means that “government involvement” is needed, according to Bailey, who has put consumer credit at the top of the regulator’s agenda for the year ahead, according to the Guardian.
The FCA is not the first body to express concerns about the state of credit in the UK, with ratings agency Moody’s downgrading the outlook on four out of five types of UK consumer debt investments at the beginning of August.
British people have too much debt, not enough savings, their incomes are in decline, and that is creating “a real macroeconomic challenge,” Moody’s said.