7/29/2019 FSA consultation on consumer credit - Parliamentary briefing.pdf

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Financial Services Authority consultation on consumer credit

Parliamentary briefing

Whats happening

In 2010 the Government announced it would move regulation of consumer credit from the

Office of Fair Trading (OFT) to the new Financial Conduct Authority (FCA) 1. Today (6

March) the Government published its consultation paper on the necessary secondary

legislation.

We are simultaneously publishing our consultation paper, which sets out our high-level

proposals for the new regime. We are talking to firms, trade associations, consumer groups,

the OFT, MPs and other stakeholders so that we can understand the risks in the market and

ensure the new regime is focused on the areas that pose the greatest risks to consumers. We

will publish a second consultation paper later in the year that will set out our proposals in

more detail: further information is provided in the next steps section below.

Protecting consumers

The FCA is committed to making sure that consumers can get the financial services and

products they need from firms that they can trust. To protect consumers, we will put in place:

1. Tougher authorisation we will put all firms and key individuals through our

authorisations process to filter out poor practice.

2. Earlier intervention we will analyse firms business models, forecasts and

strategies to establish where the risks to consumers may lie and take earlier

supervisory action before problems become widespread.

3. New powers unlike the OFT, we can make binding rules and we have a wide range

of enforcement powers to take action against firms that ignore them. We will also

have new powers to ban products if they are causing widespread harm to consumers.

4. More resource we have more resources to supervise firms and take action against

non-compliance. We will target our resources at riskier sectors, such as home

collected credit, debt management, and payday lenders.

5. Faster redress we can require regulated firms to reimburse consumers where firms

actions have caused widespread consumer loss. Consumers will still be able to use the

Financial Ombudsman Service to help resolve individual complaints.

A proportionate approach

The credit market is extremely diverse: from payday lenders, to car dealers, to gyms where

the provision of credit might be only a small part of activities. While there are clear problems

in some sectors, many of the firms that offer consumers credit do so without causing

problems. We will therefore only intervene in the market where we can directly benefit

consumers and will have reduced requirements for firms carrying out low risk activities.

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On 1 April the Financial Services Authority will split into the Financial Conduct Authority and the Prudential

Regulation Authority.

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Interim regime

Were proposing an interim regime so we can pass all firms through our authorisations

process. This will let us filter out firms that do not have the right systems in place to protect

consumers. Firms will be able to operate under their existing OFT licence so long as they

notify us by April 2014. They will then have to apply for full authorisation, which will see

more scrutiny of higher risk firms and significantly more scrutiny of the integrity and

competence of individuals in key positions. We will complete this process in spring 2016.

The interim regime will still see improved standards in the consumer credit market as, unlike

OFT guidance, we can make binding rules supported by our wide range of enforcement

powers, which will also act as a deterrent against non-compliance.

Payday lenders

Although only a small number of the firms that we will be regulating offer payday loans, we

recognise that this is a high-risk sector. We have been working with the OFT, which today

announced it is requiring 50 firms to take immediate steps to address non-compliance with its

rules. It is consulting on its provisional decision to refer the payday lending market to the

Competition Commission for a full investigation.

We are committed to taking a robust approach to tackling problems in this sector and will

look at identifying any gaps in the rules that need to be filled. In the coming months we will

examine the industry codes and consider whether they should be made into binding rules.

Where we identify areas that provide clear protections to consumers we will bring these into

force as soon as possible.

Were examining the new power to cap the cost of credit, but first we need to assess what the

impact of its use would be on the market and on consumers. We intend to continue looking

closely at this in the coming months. Bristol Universitys report on high cost credit

published today is an important piece of research that we will be examining carefully.

Next steps

The consultation is currently available on the FSA website: www.fsa.gov.uk/library/policy/cp

If you want more details or have any questions, on consumer credit or anything relating to the

FSA or FCAs work, you can contact a member of our Parliamentary Affairs team:

ewan.nicholas@fsa.gov.uk 020 7066 7648

Closing date for this consultation 1 May 2013

FCA publishes feedback on this consultation Summer/autumn 2013

Second FCA Consultation Paper: detailed rules for the new regime Autumn 2013

FCA starts to consider applications from firms for interim

permissions to take effect from 1 April 2014

Autumn 2013

FCA Policy Statement in response to the second consultation March 2014

Transfer to FCA regulation takes effect 1 April 2014

FCA starts to consider applications for authorisation from firmswith interim permissions

Autumn 2014

Authorisation process completed Spring 2016