The Financial Conduct Authority (FCA) today formally took responsibility for regulating the £200 billion consumer credit market.
50,000 businesses who offer some form of credit to the UK consumer will now be subject to the FCA’s consumer protection rules and Principles for Business. This means every person that uses a credit card, has an overdraft, seeks help from a debt management firm, or takes out a loan will be better protected than before.
Financial Conduct Authority Chief Executive, Martin Wheatley, said:
“We have a big task ahead; it’s our job to make sure firms put their customers at the heart of their business and don’t just see them as an easy target or a profit line.
“We won’t shy away from taking tough, decisive action to make sure that the people who rely on these products are treated fairly. There will be some firms that don’t get the message, or won’t play ball, those firms should know that we won’t let them carry on.”
From today, the FCA’s regulatory regime will now extend to:
- The £6,000 that, on average, 26.4m UK households each owe in consumer credit debt
- £200bn lent in consumer credit in 2013 and £158bn currently owed in consumer credit debt (Bank of England)
- Over 30 million current accounts with overdraft facilities, upon which £8bn is owed (source BBA)
- A £150bn credit card market with over 2.3bn credit card purchases each year
- Over 500 payday loan firms
- 50,000 businesses that will now be regulated by the FCA (in addition to the 27,000 already regulated by the FCA)
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 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
The UK’s relationship with credit – 9 million in serious debt
Today the FCA has published research into low income consumers, identifying three distinct borrower groups: survival borrowers, lifestyle borrowers, and reluctant borrowers.
The research findings will help the FCA to understand the drivers that push people into untenable financial situations and will also be used in its work with firms to ensure they are treating customers fairly.
The FCA’s focus is on the following key groups:
- Survival borrowers: due to very tight finances, often feel they have ‘no option’ but to borrow due to lack of income. Catalogue credit and home credit are very popular forms of credit with this group due to ease of access and low weekly payments.
- Lifestyle borrowers: use catalogue and home credit, but for different reasons. These borrowers generally have sufficient income for day-to-day expenses but use credit for larger purchases or one-off events, and feel in control when minimum payments are being met.
- Reluctant borrowers: tend to limit their use of credit, focus on paying back existing debts, often from more mainstream sources such as bank loans and credit cards.
The FCA’s research also highlights why debt becomes unmanageable for some people, including how unmanageable debt triggers both financial detriment and impacts on health and wellbeing.
Research by the Government’s Money Advice Service (MAS) revealed that 9 million Britons are considered in serious debt and facing serious problems with debt and just 1.5 million have sought debt advice – often leaving it late in the day which limits their options. Worse, 1.8 million people do not even acknowledge they are in debt.
Martin Wheatley said:
“Many people use credit in some shape or form and the majority manage their finances well, but there is a significant number who rely on credit as a means to an end.
“Last Christmas over a million people planned to use a payday loan to help with their bills, so the need for transparent and effective regulation of the sector is clear.”
In the run up to today the FCA has been assessing the market to understand where the worst detriment occurs, and has used this to inform its approach to regulation. The FCA’s consumer credit agenda for 2014/15 will include:
- a thematic review into the way payday lenders collect debts and treat borrowers in arrears
- action in four sectors that pose significant issues for consumers:
- credit cards (the FCA will conduct a market study)
- overdrafts (the FCA plans to publish research and work with the new Competition and Markets Authority)
- debt management (the FCA will closely supervise compliance with the new rules), and
- logbook loans (where the FCA will be assessing how well firms meet the conditions for authorisation)
Notes for editors
- The FCA’s low income consumer research
- In March the FCA announced a thematic review into payday lenders
- On 1 April 2013 the 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.