The Financial Conduct Authority (FCA) today set out its vision for the regulation of consumer credit when it takes over from the Office of Fair Trading (OFT) on 1 April 2014.
The proposed regime will allow the FCA to provide stronger protection and better outcomes for consumers than the existing OFT regime. There will also be tougher requirements for payday lenders, including a mandatory affordability check on borrowers, limiting the number of loan roll-overs to two, and restricting (to two) the number of times a continuous payment authority (CPA) can be used. There will also be tighter restrictions on what payday lenders can say in adverts, while the FCA will be able to ban any that are misleading.
FCA regulation will apply to any firm or individual offering credit cards and personal loans, selling goods or services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers.
Martin Wheatley, the FCA’s chief executive, said of the new regime:
“Our aim is to create a regime that protects consumers and allows businesses to operate. There is a balance to be struck here, and to make sure we get it right we want to hear from as many interested parties as possible.”
Commenting specifically on payday lenders, Martin Wheatley said:
“We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don’t want to stop that happening. But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower’s account. That is why we’re imposing tighter affordability checks, and limiting the use of rollovers and continuous payment authorities.
“Today I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking.”
The change in regulation will see the FCA take on responsibility for more than 50,000 firms who have existing credit licences. The consultation is open until 3 December 2013 and the FCA will publish its final rules and guidance in February 2014.
The FCA wants to ensure that consumers are given enough information to make informed choices, that the market is competitive and offers loans that meet customer needs, and that those in difficulty are treated fairly. The key elements of the proposed consumer credit regime are:
Peer to peer lending platforms must give borrowers explanations of the key features of the loan - including the key risks - before an agreement is made, and assess the creditworthiness of borrowers before granting them credit. A 14 day cooling off period will allow the borrower to withdraw if they have a change of heart.
The FCA is already considering how competition is operating in these markets in the interest of consumers and will launch market studies as appropriate to explore this further. The FCA will also take into account the findings of the Competition Commission’s study on payday lending when they are published.
The FCA is inviting all interested parties to provide feedback to the consultation so the final measures strike the right balance between consumer protection and allowing businesses to function.
A new rulebook, the Consumer Credit Sourcebook, will contain the new rules and guidance of the FCA’s regime. Included will be existing OFT standards that the FCA will carry across, turn into FCA rules and guidance, and be able to enforce upon.
The FCA recognises that this is a once in a generation change in regulation and therefore not all the new requirements will come into effect immediately.
In the meantime the FCA will keep listening and learning. As soon as the FCA gets its powers it will begin collecting information and adjust its approach as our experience in the sector grows.
|October 2013||Consultation paper on fees, including authorisation fees for consumer credit firms and how we propose to calculate periodic fees|
|October 2013||Consultation paper on our approach to regulated crowd funding, including the lending/investment aspects of peer-to-peer lending|
|Late 2013||Consultation on plain language guidance on the new consumer credit regime for firms and other stakeholders|
|Late 2013||Consultation paper on some further consequential changes to the Handbook|
|Early 2014||Announcement of dates (starting in autumn 2014) by when specific types of firms with interim permissions must apply for full authorisation|
|February 2014||Policy statement in response to this consultation, including final rules for the new regime|
|February/March 2014||Feedback on responses to the consultation paper on our approach to regulated crowd funding, including the lending/investment aspects of peer-to-peer lending|
|March 2014||Final version of plain language guidance on the new consumer credit regime for firms and other stakeholders|
|March 2014||Fees: proposals for periodic fee rates for 2014/15|
|Around the time of transfer (April 2014)||FCA paper on key risks in the market and our priorities for intervention|
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