FCA is consulting on key further aspects of the way in which it will regulate firms that provide consumer credit and related services, when it takes over responsibility for consumer credit regulation in April 2014. The paper covers a range of regulatory issues, primarily:
- FCA's plans to carry across the provisions of the Consumer Credit Act (CCA) that will be repealed in April 2014 and OFT conduct standards into its rules and guidance;
- prudential and conduct standards for debt management firms, including capital requirements and rules on segregation of customers' money;
- reporting requirements;
- FCA's approach to enforcing the retained provisions of the CCA;
- how the appointed representative regime will apply in a consumer credit context; and
- requirements for approved persons.
Its proposals include:
- requiring firms to carry out affordability checks for every credit agreement to ensure that only consumers that can afford a loan can get a loan;
- extending its "clear, fair and not misleading" regime to all advertisements and other promotions. FCA has the power to ban misleading adverts;
- introducing a tiered supervisory approach so firms that do higher risk business and pose a greater risk to consumers will face more intrusive supervision. The proposals specifically address the payday lending sector and would:
- limit loan rollovers to two;
- also limit to two the number of attempts by a payday lender to use continuous payment authorities (CPAs) to pay off a loan;
- require firms to give any borrower that rolls over a loan information on where to get free debt advice; and
- require firms to place clear risk warnings on all adverts and promotions along with more information about debt advice;
- the Financial Ombudsman Service protections will apply in relation to consumer credit business, but the Financial Services Compensation Scheme will not cover the regime (although FCA will keep this under review);
- the authorisation process will include the fit and proper test for all firms or individuals authorised to do consumer credit business and will require firms to prove they have suitable and sustainable business models;
- FCA will assign dedicated supervision and enforcement teams to consumer credit firms and will use its range of enforcement powers against instances of poor practices, money laundering or breach of rules; and
- requiring peer-to-peer lending platforms to explain key features of the loan and assess borrowers' creditworthiness before an agreement is made, and also give the borrower a 14-day cooling-off period.
FCA will also, alongside the Competition Commission, monitor competition in the consumer credit markets.
Later this year, FCA plans consultations on fees for consumer credit firms, use of plain language and crowdfunding. Next year, as well as publishing the final form rules and Consumer Credit Sourcebook (CONC), it will announce the dates by which firms with interim permission must apply for full permission and, around April, will publish a paper on market risks.
FCA wants comments by 3 December 2013 and will publish its final rules and guidance in February 2014. (Source: FCA Consults on Consumer Credit Regulation)