Transfer of consumer credit to the Financial Conduct Authority. Sam Stoakes 1
1 April 2014 Financial Conduct Authority takes over consumer credit regulation from the Office of Fair Trading This creates a single regulator for conduct in financial services 2
The FCA s objectives Overall objective - to ensure markets work well To secure an appropriate degree of protection for consumers To protect and enhance the integrity of the UK financial system To promote effective competition in the interests of consumers 3
The journey to the consumer credit transfer We have consulted on how we will regulate consumer credit engaged with firms, trade bodies and consumer groups held roadshows throughout the country Published the final rules in February: key OFT regime protections maintained FCA high level rules new rules for debt advice and high cost short term credit 4
Interim permission Stage one: Firms register for FCA interim permission Stage two: Apply for full authorisation Streamlined to cater for up to 50,000 applications 5
The FCA s approach to regulation Greater regulatory powers and more resources devoted to credit regulation An early intervention philosophy Risk-based approach 6
A proportionate approach: lower-risk and higher-risk Different requirements for lower and higher risk firms. Lower-risk activities Consumer credit lending (where the main business is selling goods and non-financial services and there is no interest or charges) this excludes hire-purchase and conditional sale Consumer hire Credit broking (where the main business is selling goods or non-financial services and broking is a secondary activity) Credit broking in relation to the Green Deal Not-for-profit debt counselling and debt adjusting Not-for-profit credit information services Local authorities (lending within the scope of the Consumer Credit Directive) Higher-risk activities Consumer credit lending (including personal loans, credit card lending, overdrafts, pawnbroking, hire-purchase, conditional sale, etc) Credit broking (including introducing consumers to lenders as a main business activity) Debt adjusting Debt counselling Debt collection Debt administration Providing credit information services Providing credit reference agency services Peer-to-peer lending 7
Better regulation: making sure firms meet our standards Proactive Contact with all firms frequency depends on risk Judgement based Event-driven (reactive) Identify issues ourselves or through stakeholders Firms have to tell us when problems arise Issues and products Thematic work Can lead to new rules, guidance or advice for consumers Public outcomes Examples of sanctions we can impose: Variation of permission Fines Order consumer redress Fine or ban regulated individuals 8
Improving standards in payday lending: reduce unaffordable lending Affordability assessments Our rules require all firms to assess affordability. This assessment will need to take into account other financial commitments We will look at firms affordability assessments Real-time data-sharing Data-sharing in the UK is through Credit Reference Agencies (CRAs) Recently CRAs Callcredit and Experian announced products that will update credit information daily or more than daily. We continue to talk to the industry and CRAs. If we are best placed to act, we will. Limiting use of CPAs Lenders use Continuous Payment Authority (CPA) to repeatedly access bank accounts New rule means lenders can only use CPA twice before contacting the customer We ve banned use of CPA to take part payment Limiting use of rollovers Rolling over loans means lenders don t need to be concerned about whether the customer can pay back the whole loan. We are capping the number of rollovers at two. Loans should not be rolled over if a firm knows it isn t in a customer s interests 9
Improving standards in payday lending: increase borrowers awareness of risk Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk This warning will appear: on email and online from 1 April on other adverts from 1 July 10
Improving standards in payday lending: capping the total cost of credit Cap on the total cost of credit: Now: research and analysis July: consultation November: publish rules January 2015: implement cap 11
Any questions? Further information from: Our website fca.org.uk Guide for firms and details of future webinars 12