The journey to a sustainable credit market

Speech by Christopher Woolard, Director of Strategy & Competition, FCA, delivered at the Credit Summit. This is the text of the speech as drafted, which may differ from the delivered version.

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Good morning.

When Martin Wheatley opened the 2014 credit summit, the FCA had been regulating consumer credit for a whole three days. While a lot has happened in the last year, the message he sent out then – that for the FCA credit regulation comes with a significant responsibility to both firms and consumers – remains true. Especially as we see continued growth in consumer credit borrowing.

As you may have seen from our business plan and risk outlook, published a couple of days ago – the responsibility for regulating consumer credit has fundamentally changed the FCA.

And – as you may have seen from our business plan and risk outlook, published a couple of days ago – the responsibility for regulating consumer credit has fundamentally changed the FCA.

We knew that it would – it almost trebled the number of firms we regulate and diversified the needs of consumers that we are responsible for protecting and the businesses we regulate.

By way of illustration, two weeks ago we held a firm event in Edinburgh, where the delegates included the usual high street banks and mortgage brokers, but also a holiday park, dentist and even a football club.

In the course of the first year I’ve experienced first-hand some horrendous examples of consumer treatment, such as a man with severe learning difficulties and no income offered multiple payday loans. But I’ve also met people for whom access to credit means the ability to buy their child a birthday present. And a car dealer who had been poorly advised by a compliance consultant to spend an enormous amount of time and money to put in place policies for our new regime, far in excess of what we require.

Building productive relationships with very different businesses is not a nice to have for us. It’s the only way that we can work together to enable the positive development of this vital sector.

The difference between the last credit summit and now, of course, is that these relationships are a year old.

And it has been a busy year. So today I’m going to reflect on the work we’ve done, where we find ourselves one year in, and look ahead to what’s next.

A busy year

50,000 firms

As I start by reflecting on our first year, the scale of the task deserves a pause. Nearly fifty thousand firms that had a consumer credit licence with the Office of Fair Trading registered with us for interim permission.

On a monthly basis we are inviting groups of those firms to decide what’s next for them – whether to apply for full authorisation, become an appointed representative, or exit the credit market.

Our experience elsewhere tells us that a change in regulatory regime is often a time when people stop and reflect on their business models, and some may choose to leave.

Inevitably through the natural life-cycle of a business, some sole traders will take the chance to retire, business models will change, and the government may make changes to exemptions – such as the extension of the instalment exemption announced last week.

In some areas where we have seen poor practice, we expect that some firms will not meet our requirements when we assess their applications.

So we are not expecting all 50,000 firms who have interim permission to either apply or become authorised.

However most will, and are, submitting their applications and will continue to thrive in this market. Seeing the opportunities that arise from change.

The important point to make is that are committed to delivering the right regulatory standards in a proportionate way. We are committed to providing helpful communications to every firm to help them prepare – from blogs on the Credit Today website, to webinars to jargon busters and checklists through the post.

We have already authorised over ten thousand firms, with thousands more applications being reviewed by our dedicated team of case workers.

So to those of you preparing, or advising others on preparing their applications, the message should be an encouraging one, as long as you can show that you meet our requirements and have a business model that treats customers fairly.

To those of you who have been authorised: Regulation tells your customers that you meet our standards and that you put them at the heart of your business.

If you have interim permission or are fully authorised, it’s important that you keep up with our standards – you are an integral part of the UK financial services industry, making a difference to the lives of millions of people every day.

Whether it’s about buying cars, solar panels or smart phones, credit has opened up new technologies and opportunities to all of us.  For many, it also provides a lifeline when unexpected situations arise.

The inherent risk, of course, is the potential for people to get into debts they find hard to repay.  It’s the responsibility of both firms and consumers to manage this risk.

It’s the responsibility of the regulator to make sure the right standards are in place and are upheld. And of course, one of the reasons for the transfer of credit regulation to the FCA, was significant concern that, under the previous light touch regime, standards needed to be raised in some areas of the market.

Raising standards

Much of our first year has been marked by our work to raise standards – particularly in high-cost short-term credit and debt management.

I think it’s fair to say that much of our first year has been marked by our work to raise standards – particularly in high-cost short-term credit and debt management.

These are small markets in terms of numbers of consumers, but significant in terms of potential detriment.  In our business plan last year, we said we would prioritise these sectors, and we have.

There were issues here that the OFT had not been able to resolve, and so we needed to act quickly with our greater resources and power to turn things around.

Our work on payday has, inevitably, attracted the most public attention. Our new rules restricting the use of continuous payment authorities and limiting rollovers, the cap on the total cost of credit and the work that we have done to secure redress for thousands of consumers have been well documented.

But as our review into forbearance and arrears in the high-cost short-term credit market showed, this was an industry that was simply not ready for FCA regulation.

Firms have been working to address regulatory failures over the last twelve months, but the steps that they have had to take to raise the bar have had to be significant. They’re not superficial tweaks – they are systemic and cultural changes. Firms have had to change senior management, re-train staff to deal with struggling customers and put better systems in place to improve monitoring, compliance and risk.

While it’s encouraging to hear from Mike O’Connor of Stepchange that they are seeing ‘signs of improvement’ in the payday loan sector, there’s no doubt that there is still some way to go.

This is also true of debt management. Our thematic review of the quality of advice in the debt management sector is coming to the final stages. Alongside that focused piece of work, our ongoing firm visits have been – frankly – disappointing. Some of the examples of consumer treatment we’ve seen are incredibly poor. And in September, we said so quite publically to send a clear message to the rest of the industry as they prepared for authorisation. We’ve agreed requirements with 13 firms and frozen the bank accounts of seven firms where client monies are at risk.

While our approach has been to set priorities and focus efforts on those, that doesn’t mean that we are inflexible, and it doesn’t mean that we are blind to emerging issues. We’ve had nearly 30,000 calls to our contact centre from consumers, and receive regular intelligence and alerts from firms, trade bodies and consumer organisations about harmful practices that threaten the integrity of the market.

That’s invaluable information for us.

One of the main flags raised this year was in relation to credit broking – particularly in relation to payday lending. Consumers were seeing payments being taken from their account with little understanding of what for or why. They were being misled about the purpose of giving payment details. Consumers around the UK complained to their banks, to us, to consumer bodies in large volumes.

In December, we took the rare step of exercising our powers to make new rules without consultation. Alongside that, we put dedicated supervision resource into systematically targeting the firms that caused the highest volume of complaints – to date 18 firms have voluntarily decided to stop taking on new business.

Conduct, culture and the regulatory relationship

However, it is important that we don’t fall into the trap of thinking that our findings from our work on these areas are reflective of the market as a whole. This is a diverse sector with thousands of firms running useful businesses vital to people’s everyday lives.

All firms should understand that paying lip service to compliance is simply not acceptable. Firm conduct and culture goes to the heart of our work as a regulator.

We will tirelessly continue to dedicate resources and use our powers to respond to complaints about the practices and financial promotions of individual firms. We will take it very seriously when firms do not disclose important information when they apply for authorisation. But that is of course not the end game.

As a regulator, we want to enable change, not to force it.

Our experience from our first year is that firms are getting used to the way we work – through dialogue, negotiation, holding senior managers to account to drive conduct standards from the top and constructive engagement when it has come to consultation.

At the FCA, we place a lot of emphasis on making sure we work together to be the sum of our parts. Alongside our supervisors and authorisations case workers, we have economists, statisticians, researchers, policy makers and communications specialists working together to build our collective knowledge of how the credit industry is working in the UK, and to connect us with you.

This is so that we are in the best place to work with the industry on strengthening the health and evolution of the credit market for the longer term.

As the regulator we are uniquely placed to bring together consumer research and industry data and analyse it on a large scale.

Not only to understand the impact of our regulation but to identify sector-wide issues and best practice. To understand how the role of behavioural economics can work to make our rules more effective. For example, earlier this month we published a paper showing that signing up to text alerts or mobile banking apps reduces the amount of unarranged overdraft charges incurred by 5% to 8%. And signing up to both services has an additional effect, resulting in a total reduction of 24%.

Our credit card market study will bring together the largest consumer survey the FCA has ever undertaken with the analysis of several gigabytes of customer data and analysis of financial promotions. A study of substantial scale which is fit for one of the largest markets that we regulate.

For the majority of firms, doing the right thing, we recognise that it’s been a year of hard work for you. Preparing a detailed authorisation application, making changes to systems and getting familiar with a new rule book and principles based regulation. For many of you, wider legislative changes are also coming into play – such as the Mortgage Credit Directive. As the industry is adapting to our approach, and we are learning more about how the market operates, in some areas, we’ve had to take more regulatory action than we anticipated.

And we will keep learning too

The road ahead


Consumer credit remains a priority for the FCA in the coming year.

Consumer credit remains a priority for the FCA in the coming year. We have to complete the transition from the OFT regime. The authorisation process will move forward, and the day to day business of regulation will continue. We will be keeping a close watch on the impact of this year’s changes – on the market and on consumers, and our work on debt management and credit card market will come to fruition.

We need to keep making sure that our rules are really working in the best way for the market and for consumers, and adjust them where needed.

As you may be aware, we are currently consulting on the credit broking rules that came into effect in January. We are also asking for suggestions on what our future policy approach should be to broker remuneration. Alongside that, we are proposing to require firms to provide adequate explanations to guarantors, assess their creditworthiness and treat them with forbearance. We also want to allow firms to introduce continuous payment authority to collect repayments where a customer is in arrears or default and the lender is exercising forbearance.

I do urge you to have your say on these rules. We are running events around the UK to get direct input from firms. Demand for these has been encouraging and they are all booked up – so if you couldn’t get a place, I’m pleased to say you can now watch the London event, which is on 17th April as a webinar.

New work

But there is new work to do.

If our first year was focused on particular ‘products’, if you like, in the year ahead we are going to be looking more towards addressing sector wide issues.

We will look at whether we should ban or restrict cold-calling, and also whether we can do more to facilitate the use of quotation searches across the sector as a whole.

Although we are still in the early stages of scoping, in our business plan we also announced our intention to carry out two new reviews.

One on the collection of unsecured debts will look at the ways in which consumer credit debts are collected and the extent to which firms involved in the recovery and collection of debts are following our rules.

The other will take a look at staff remuneration and incentives in consumer credit firms, to assess how firms are managing the risk that their reward arrangements could encourage potentially undesirable behaviours that might lead to poor outcomes for consumers.

A sharper focus

But the main risk that has come into focus for us this year is a market-wide one – that of affordability. As consumer debt is growing, particularly among younger people, we are concerned that poor culture and practice in relation to consumer credit affordability assessments may be one of the key factors driving unaffordable debt. Unaffordable debt that can be the cause of harm for consumers.

If we are going to build a sustainable and healthy credit market for the future, that works in the interest of consumers and firms with sustainable business models, getting affordability assessments right could be the most important factor in helping people avoid unmanageable debt.

So far, we have been applying our knowledge and experience to the question. But there is more to do.

We know that the answer isn’t necessarily a simple one – and firms have been seeking clarity on our approach as they weigh up whether their checks are proportionate – going too far or not far enough.

We’ve looked at this in terms of our work on payday, and are looking at it in the credit card market study. But as we move to looking at the market as a whole, we will also be conducting more research work so we can learn more about the size and scope of any risks.

We will be looking at several issues, including how a wide range of firms assess affordability, to build a deeper understanding. This will lead to proposals to mitigate the risks we find, which we will, of course, consult with you on. It is really important to us that this is a thoughtful and careful piece of work.


We are all on a journey with consumer credit.  But I want to be clear that our objective isn’t to achieve a smaller market.  It is towards a sustainable one.

We are all on a journey with consumer credit.  But I want to be clear that our objective isn’t to achieve a smaller market.  It is towards a sustainable one.

Yes, in the short term, as we find we cannot reconcile bad practices in some markets with our standards, we expect to see a reduction in the number of firms.

But our journey is towards a credit market where consumers continue to have access to the products and services they need, while protecting them from practices that could lead to harm. That sustainable market is one that needs to work well across the whole consumer journey – from transparent financial promotions, through to responsible lending, the fair treatment of customers when they get into difficulty and suitable debt solutions. All of those things must be underpinned by a culture of ‘doing the right thing’ for your customers. That’s a challenge for every firm in this sector as you look at your own business models.

And finally, I want to leave you with a commitment and a request. A year in we are still learning. We are still listening. We will continue to keep up an open and honest dialogue with you as we learn more, and please do the same with us through the authorisation and supervision process.

Between us we can get to a sustainable sector in the interest of consumers.

Thank you.