LONDON (Reuters) - Britain’s financial watchdog rejected calls to cap interest rates charged on credit cards on Monday, saying that planned measures to help people avoid excessive debt should be given time to work.
“We are not there at the moment,” Andrew Bailey, chief executive of the Financial Conduct Authority, said in response to calls from Britain’s Labour opposition party for a cap on interest payments on consumer credit card debt.
Bailey told the Reuters Financial Regulation Summit that the watchdog has been doing a “lot of work” on consumer credit cards and was finalizing measures following public consultation.
“Our general approach is look, we would rather like to see what the effect of those measures is,” Bailey said at the Reuters office in London.
The Bank of England’s Financial Policy Committee, on which Bailey sits, told British banks on Monday they will collectively need to find an extra 10 billion pounds in capital to cover potential losses from consumer credit, a sector which has seen heady growth.
Most economists expect the BoE to raise interest rates to 0.5 percent from 0.25 percent in November, which would increase pressure on people with large credit card debts.
Bailey said the focus of the FCA was on people who are unable to pay down their credit cards in a timely way.
The watchdog renewed a cap on the very high interest rates charged on payday loans in July, and now faces pressure to introduce a similar cap on credit cards.
“An interest rate cap in some parts of (the) credit market would not work because the credit is not structured in a way that lends itself to a cap. The most obvious case is rent-to-own, where it would not work,” Bailey said.
“I am concerned we don’t choke off all access to credit.”
Credit has a role to play for those in the “gig economy”, where income is erratic, as it can help smooth out earnings, Bailey said, while social housing usually needs furnishing when people move in and therefore credit is needed to buy appliances.
“Cutting them off has consequences. Leaving them in the hands of payday loans has consequences,” Bailey said.
The FCA’s CEO said he was no rush to intervene in the car financing sector where “personal contract purchase” or PCP loans offered by the financing arms of automakers, a model common in the United States, have increased rapidly in Britain.
Under PCPs, the customer pays a fraction of the car’s price as a deposit, and then regular monthly installments, with the ability to buy the car at a price agreed at the start.
“I am not persuaded that per se the structural shift in car credit in this country towards PCP is a bad thing,” Bailey said.
Follow Reuters Summits on Twitter @Reuters_Summits
Reporting by Huw Jones, Anjuli Davies and Andrew MacAskill, editing by Alexander Smith