FCA urged to impose 1950s-style credit restrictions

The Financial Conduct Authority (FCA) has been urged to impose credit controls in an attempt to stem the current tide of debt.

Speaking to the Guardian, the former head of the now-defunct Financial Services Authority, Lord Turner, claimed the current levels of reform were not fit for purpose. In addition, he claimed the reliance on quantitative easing, mortgage subsides and record-low interest rates could create another financial crisis in the future.

Among a raft of measures he proposed was to implement restrictions on mortgage lenders that will see them only take into account whether borrowers would be able to pay back the loan out of their cash flow, rather than considering whether rising house prices will make it more affordable. On top of this, he called for greater control of payday loans companies to stop their aggressive marketing campaigns. 

He argued it would be possible to achieve a system where credit allowance and income increase at the same pace. To achieve this, however, would require extensive reforms to current banking practice and legislation. 

Lord Taylor attacked the current view that controlling inflation and adopting a soft approach to regulation is all that is needed to achieve economic success. He said: "What I am suggesting takes us back before those assumptions were in place, and what's wrong with that? The 1950s and 1960s were a golden age of steady growth without crises."

The news comes as a new report by the EY Item Club revealed consumer credit in the UK is expected to rise by more than three per cent this year. This is anticipated to be as a result of an increased demand for credit cards and high-end items. However, the study showed rates of lending were still 27 per cent lower than in 2008. 

By Amy White