Alexander Hill-Smith reviews the new regime for high-cost short-term lending
In recent years, there has been increasing concern about the scale of high-cost short-term borrowing (HCSTC). The volume of transactions is large; borrowers entered into 10.2 million loans of this type totaling £2.8bn in the calendar year 2012/2013. Since then, there has been a decline, perhaps on account of the adverse publicity HCSTC has received, but the volume and amount lent is still considerable. Many of the loans are for small amounts, the average being £260, but there is no financial ceiling on the size of a HCSTC loan.
Public concern is fully justified. These agreements are inevitably expensive in proportion to the size of the advance. While the Financial Conduct Authority (FCA) has recognised that a legitimate role exists for such agreements to cater for situations of temporary financial emergency of a non-recurrent nature, it is plain that hardship has occurred because too many agreements have been entered into in the past. In particular loans have been made to persons unable to repay
