New rules have been introduced by the Financial Conduct Authority (FCA) today to tackle poor practice in the credit broking market which is causing serious detriment to consumers.
The rules will ban credit brokers from charging fees to customers, and from requesting customers’ payment details for that purpose, unless they comply with new requirements ensuring that customers are given clear information about who they are dealing with, what fee will be payable, and when and how the fee will be payable. The rules come into force on 2 January 2015.
Martin Wheatley, chief executive of the Financial Conduct Authority, says:
“The fact that we have had to take these measures does not paint this market in a particularly good light. I hope that other firms will take note that where we see evidence of customers being treated in a blatantly unfair way, we will move quickly to protect consumers from further harm.”
The new rules have been made without prior consultation because the FCA considers that the delay arising from the time it would take to consult would be prejudicial to the interests of consumers. The FCA also believes that enforcement action alone is not sufficient to protect consumers from the poor practices identified in the market.
The FCA’s concerns relate to:
Today’s announcement is part of a package of measures which will also require credit brokers to:
Consumers will also have a 14-day right of cancellation where credit broking contracts are entered into as distance contracts, for example online.
Over 40 per cent of consumer credit complaints received by the FCA relate to credit brokers, 80 per cent of which relate to firms who charge upfront fees. The FCA has also received relevant intelligence from consumer groups and others who are seeing increasing complaints from people who have had money taken from their accounts unexpectedly and often by more than one broker.
The FCA is investigating a number of credit broking firms; seven firms have been stopped from taking on new business and, to date, three further cases have been referred for enforcement action.
1. The key changes for credit brokers are as follows:
Information notices and customer confirmation: a ban on credit brokers charging fees, or requesting payment details for that purpose, unless:
Each broker will have to send its own information notice, and receive its own customer confirmation, before being able to charge a fee. The information notice and customer confirmation must be on paper, by email, or in another durable medium, and the broker will have to keep records of them.
Transparency: credit brokers will need:
Right to cancel:
3. On 1 April 2014, the FCA became responsible for approximately 50,000 consumer credit firms, including credit card providers.
4. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
5. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
6. Find out more information about the FCA.
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