This article looks at the transfer of consumer credit regulation from the Office of Fair Trading to the Financial Conduct Authority.
From 1 April 2014 the FCA will regulate and supervise consumer credit firms. This will be a new experience for both parties – many consumer credit firms are small and have little experience of being regulated and supervised in a formal framework, with requirements to provide regular reporting information and be part of the approved persons regime. Equally, the FCA is more used to supervising banks and larger firms in a variety of financial services sectors.
Currently Interim Permissions are available for application. Any consumer credit firm applying before 30 November receives a discount on fees, so it is worth getting in order, checking the existing consumer credit licence and then completing the online application. Existing OFT licenses expire on 31 March 2014. However, to continue to trade after 1 April 2014 the OFT licence would have had to be valid at that time.
In early October the FCA issued a lengthy consultation paper discussing the proposed detailed rules for supervising consumer credit. The two main objectives of the regime are to protect consumers and deliver a proportionate risk-based approach to the supervision of firms.
A two-tier approach will be taken covering higher and lower risk activities. Consumer credit lending (as a main business) will be considered higher risk. There will be a six month transition period where, if a firm can demonstrate that it has acted in the accordance with the OFT/CCA regime (abiding by regulations and guidance) no action will taken against it.
As a result of the new regime it is expected that there will be significant market exit and a reduction in lending in the high cost credit market.
The proposals include transposing OFT Guidance into the FCA rule book, the consumer credit rule book will be prefaced “CONC” at present and will contain conduct rules for consumer credit firms. Specific areas being carried across from OFT guidance include the Irresponsible Lending Guidance, Mental Capacity and Guidance on Misleading or Otherwise Undesirable Names. The FCA has also decided to adopt certain elements of industry codes as FCA rules on a case-by-case basis.
For short term loans in the UK, the FCA is proposing that no more than 2 attempts are made using CPA, and that no more than 2 rollovers will be permitted.
Businesses will be permitted to apply for full authorisation from 1 April 2014. The FCA has just published its consultation on fees, this suggests that firms classed as higher risk will fall under the “complex” categorisation for application fees . For some consumer credit lending firms, the application fee may be significantly higher than that paid to the OFT for a licence application.