Out-Law News | 05 Mar 2014 | 11:12 am | 2 min. read
The regulator has now finalised the initial rules that will apply to the £200 billion consumer credit market, which includes approximately 50,000 firms. All firms and individuals 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 will fall within the new regulatory regime.
"Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan," said FCA chief executive Martin Wheatley. "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," he said.
The FCA has promised a tough approach to consumer credit regulation, backed with stronger powers to clamp down on poor practice than those available to the Office of Fair Trading (OFT) under the current regime. Firms and individuals looking to offer consumer credit services will have to show that they are fit and proper, and have suitable and sustainable business models, before the FCA will authorise them. In addition, credit providers will have a responsibility to ensure that they treat customers fairly at all times, and to carry out affordability checks before any credit agreement can be entered into.
Firms that break the rules could face detailed investigations and enforcement action, overseen by the regulator's dedicated supervision and enforcement teams. Penalties could include heavy fines and the need to compensate consumers.
As previously announced, some of the biggest regulatory changes will apply to the payday lending and debt management sectors. The number of times a company will be able to use a continuous payment authority (CPA) to seek repayment from a customer's bank account will be limited to two, as will the number of times an unpaid loan can be 'rolled over' to the next month. Payday lenders will be required to provide information to customers on how to get free debt advice before approving or rolling over a loan, while debt management firms will face new requirements to protect client money and pass on more money to creditors from day one of a debt management plan.
OFT-licensed consumer credit firms that wish to continue consumer lending and related activities after 1 April must register for interim permission with the FCA by the end of this month, or slightly later if they have only just received a licence. According to the FCA, 44,793 firms of an estimated 51,528 operating in the consumer credit market have already obtained interim permission, but those that have not could be breaking the law if they continue to carry out consumer credit activities after the changeover takes place.