The Financial Conduct Authority (FCA) has confirmed the final rules that will govern the £200bn a year consumer credit market, which includes approximately 50,000 firms, from 1 April 2014.
The new rules will result in changes for how payday lenders and debt management companies treat their customers including mandatory affordability checks for payday borrowers and giving the FCA the power to ban any misleading adverts from payday lenders.
Martin Wheatley, the FCA’s chief executive, said:
“Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan. We want to be sure that the market works well when people need it – whether that’s for one day, one month or longer.
“Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line.”
The FCA will take a tough approach to consumer credit with stronger powers to clamp down on poor practice than the previous Office of Fair Trading regime. Our supervision of firms will be hands on and we will closely monitor how providers treat their customers, in particular those operating in higher risk sectors such as credit cards, debt management and payday. We will respond quickly to any issues that are identified and there will be swift penalties for any firm or individual found not to be putting consumers’ interests first, including possible enforcement action and consumer redress.
The rule changes announced today will give consumers additional protection from rogue practices and put the onus on credit providers to ensure that they treat customers fairly at all times.
The biggest changes come for payday lenders and debt management companies, including:
- limiting the number of loan roll-overs to two
- restricting (to two) the number of times a firm can seek repayment using a continuous payment authority (CPA)
- a requirement to provide information to customers on how to get free debt advice
- requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money
Consumer credit providers will need to ensure that they give customers the right information to make informed choices, that their services meet consumer needs, and that people in difficulty are treated fairly. The FCA has also confirmed the following approach:
- Firms that do higher risk business and pose a potentially greater risk to consumers will face an intense and hands on supervisory experience
- A robust authorisation gateway to ensure that any firm or individual authorised to do consumer credit business is fit and proper, and that firms have suitable and sustainable business models
- Dedicated supervision and enforcement teams will crack down on poor practice, money laundering and unauthorised business. Firms that break the rules may face detailed investigations and tough fines
FCA regulation will apply to any firm or individual offering overdrafts, credit cards and personal loans, selling goods and services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers.
Notes for editors
- The FCA has published its final rules for consumer credit firms
- The FCA received 300 responses to its consultation paper on consumer credit proposals with most respondents welcoming the FCA’s approach
- The FCA estimates there are approximately 50,000 firms currently operating in the consumer credit space will move to FCA regulation on 1 April 2014
- To date 44,793 firms of an estimated 51,528 in the consumer credit space, have now registered for interim permission with the FCA
- Gross consumer credit lending for 2013 was £201.182bn (Source: Bank of England series LPQB3PU (consumer credit excluding student loans)
- On 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).
- 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.
- Find out more information about the FCA.