UK: FCA Outlines High-Level Approach to Consumer Credit Regulation

    The government has announced plans to transfer consumer credit regulation to the Financial Conduct Authority (FCA) in April 2014, when the current regulator, the Office of Fair Trading (OFT) will cease to exist.

    A consultation paper published by the Financial Services Authority, on behalf of the FCA, outlines the FCA's proposed high-level approach to the new regulatory regime for consumer credit. Another consultation paper on the new regime, published by HM Treasury on the same day is blogged here.

    The FCA's proposed approach to the regulation of consumer credit

    The FCA is proposing to reduce the regulatory burden on those firms carrying on lower-risk activities. Lower-risk activities are those which the FCA considers pose a limited risk to consumers and include consumer hire (e.g. tool and car hire to consumers), and consumer credit lending where no interest or other charges are levied, and the main business of the lender is the sale of goods and non-financial services (e.g. a sports club that allows payment by instalment for membership without any additional charge).

    Lower-risk firms will not have to undergo the full authorisation process, and their supervision will generally be limited to reactive responses to problems that have already materialised, instead of the targeted proactive supervision intended for higher-risk firms. Reporting requirements for all firms will be limited, and the FCA will place a greater emphasis on assessing market-wide risks (rather than risks from individual firms). It does not propose to specify minimum capital requirements for firms (except for debt management firms) and there are no proposals for Financial Services Compensation Scheme cover.

    The FCA's proposed approach to payday lending

    The FCA will take a 'robust approach' to tackling problems in the payday lending sector. The FCA will have the power to cap the overall costs of these loans, as well as the power to restrict how long they can last for and how many times they can be rolled over. However, early use of the powers seems unlikely – in April 2014, the FCA will begin a detailed impact assessment to work out what effect the use of these powers may have on consumers and firms, before deciding whether and, if so, how to use its powers in due course.

    Our previous blog on government intervention in the payday lending sector is available here.

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