A major change in consumer credit regulation is coming, affecting approximately £260 billion in outstanding credit and approximately 50,000 firms, and that is without counting bank lenders whose distribution or direct services will be affected. The market’s current regulator, the Office of Fair Trading (OFT), will be disbanded in 12 months, its statutory underpinning will move from the Consumer Credit Act to the Financial Services and Markets Act and, finally, regulatory responsibility will move to the Financial Conduct Authority (FCA) from April 2014. No mean feat.
Consumer credit firms will not have much time to get used to their new regulator given the short timetable until the OFT is disbanded. There will, however, be a phased approach to the transfer: an interim period starting in April 2014 with full implementation by April 2016. The high level timeline can be found here.
Martin Wheatley has his eye on this market, stating:
“Consumer credit inhabits every corner of our day to day financial lives. It is a broad church spanning everything from overdrafts to hire purchase to credit cards to debt advice, provided by tens of thousands of firms of all shapes and sizes. We will focus our efforts on the areas of highest risk…[we] will give consumers the protection they expect without placing an undue burden on the firms that service them.”
The consumer credit landscape is indeed wide given the inclusion of firms receiving continuous payments such as gyms. The Treasury has quipped, however, that dating agencies will not come under the FCA’s regulation. Not just yet, anyway.
Regulatory focus will be on payday lenders, pawnbrokers, credit reference agencies and debt collection, given their higher risk to consumers. Credit broking will also be targeted, e.g. those retailers and motor dealers introducing customers to lenders. Firms’ differing risk categories will impact which authorisation procedure is appropriate: limited or full.
There remain questions about the impact this change will have. What is certain is that the FCA will have its full suite of powers available including product intervention and redress for consumers. In most cases, the FCA will require higher standards than the OFT but the strict liability and criminal offences under the Consumer Credit Act will be no more. For the first time, however, the power to put a cap on interest rates will apply.
Prior to new rules being published in September 2013, firms should focus on the following:
- Alignment to the FCA handbook within PRIN, GEN and SYSC (as outlined in CP13/7)
- Firms’ plan for the authorisation process
- Approved persons: who should be appointed?
- How robust are your financial promotions? The supervision of credit advertising will be subject to the FSMA financial promotions regime, alongside existing credit promotions
- The monitoring of OFT provisions, guidelines and recommendations for changes in interpretation as they transfer to the FCA handbook
In anticipation of the new rules and regulation – look out for a Consumer Credit Conduct of Business Sourcebook (possibly CCCOBS) – proactive work should be undertaken by firms new to the FCA.
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