Six months ago, the Financial Conduct Authority (FCA) published its final report on the premium finance market. It acknowledged what consumer organisations had long argued – charges are significant, the market is highly profitable, and the customers paying the most are disproportionately those who cannot afford to pay for their insurance annually. 

The FCA’s response was to use the Consumer Duty to drive improvement firm by firm, without writing new market-wide rules. This led to some APR reductions ahead of the final report showing that using Consumer Duty has real teeth when regulatory pressure is applied. But six months on, we are concerned that this approach has only tinkered at the edges of a market that we know has been creating a poverty premium for years. 

Which?’s most recent analysis found some insurance providers and brokers are still charging APRs close to 30 per cent on monthly motor insurance payments. This is more than the median credit card APR of 25 per cent. 

This comparison matters because credit cards rates reflect the risk of unsecured lending with a risk of no or partial recovery. Premium finance is fundamentally different as the insurer controls the underlying policy and can cancel it for non-payment. Charging credit card equivalent rates in a product structurally less risky than consumer credit, for a legal requirement (motor insurance), in a market the FCA has found to be highly profitable, is exactly the kind of question Consumer Duty was meant to resolve.  

The regulator says it is continuing to engage with firms to ensure they are offering fair value. Despite high APRs still being a feature of this market none of that engagement is published. This means that Parliament cannot scrutinise it and consumer organisations cannot track it. The FCA indicated it is considering publishing updates, and we’ve asked it to commit to that on several occasions.  

We’re also frustrated that the Study accepted practices it should have challenged using the Consumer Duty. The market study acknowledges that lower-income customers systematically pay more and then largely accepts this outcome on the basis that the practices involved are the status quo and permissible within current accounting rules. Examples of fair value being assessed timidly, rather than boldly, include not pushing for greater transparency to help customers understand what paying monthly is actually costing them; accepting that insurers can treat lost investment income as an opportunity cost to justify finance charges; and no visible consequences for firms that were found to be charging rates higher than a fair value. 

Consumer Duty was meant to shift that question from “is this allowed?” to “is this delivering good outcomes?” Six months on, we are not convinced the premium finance market study used it to its full potential. 

We are not calling for the elimination of premium finance charges or a blunt interest rate cap. We are asking the FCA to publish what its supervisory work is producing, to look again at what customers are told about the cost of paying monthly, and to reflect deeper about whether accepting market practices because they are the status quo is consistent with what Consumer Duty was designed to do. 

By Rebecca Deegan, Director, Fair By Design