FCA director speaks at credit seminar
The impact of consumer credit regulation on the regulator, the changes firms should be seeing in the regulatory supervision regime, key areas of concern and the process of upgrading firms’ interim permissions were all covered in a speech made on October 21 2014 by Linda Woodall, Director of Mortgage and Consumer Lending at the Financial Conduct Authority (FCA).
Addressing the Consumer Credit Seminar of the British Bankers Association, Ms Woodall began by saying that there was “still a lot to do to ensure we have a fair consumer credit market that delivers good consumer outcomes.”
She highlighted that bringing consumer credit into the FCA’s remit had taken the number of authorised firms to over 70,000, and that two thirds of these were credit firms.
Next, Ms Woodall highlighted the ‘treating customers fairly’ principle, and stressed that this should mean customers experience good outcomes at every stage of their dealings with a firm, including:
- Financial promotions
- Clarity of terms and conditions
- Customer service over the lifetime of the product
- Debt recovery practices
- Handling of complaints when these are made
Firms were reminded to double check when their application period is for upgrading their interim permission to either full permission or limited permission, and to ensure that they do not miss their deadline. It was also stressed that firms need to be complying with the full FCA rulebook right now, and cannot wait until they have obtained full permission before embracing the new regime.
Next, mention was made of the way the FCA supervises firms, and the ‘three pillars’ approach. These ‘pillars’ are:
- Proactive firm supervision – its regular programme of supervision. Debt collectors and pawnbrokers were warned to expect possible visits in the near future.
- Event-driven, reactive supervision – what happens once issues of concern have been identified, such as large numbers of complaints or evidence of mis-selling. If the additional supervision of a firm carried out at this stage confirms the FCA’s concerns, enforcement action may follow. Credit broking, debt management, debt collection, payday lending, unsecured lending and credit cards are the areas that have given rise to the most issues in the first six months of credit regulation.
- Issues and products supervision – supervising business sectors to identify areas of concern. Examples of this form of supervision include the ongoing thematic reviews on the forbearance practices of payday and other high cost short-term lenders; and on the advice given by debt managers.
Ms Woodall then gave details of the enforcement actions the FCA has already taken against credit firms, including:
- Two application refusals
- Seven firms having their bank accounts frozen
- Seven being forced to appoint a ‘skilled person’ to carry out a review of their operations
- 14 agreeing to stop accepting new business
Several issues were then highlighted, which firms might like to pay particular attention to. Regarding financial promotions (where the FCA has already identified 227 cases of credit promotions which breach its rules), mention was made of payday lenders failing to disclose the Annual Percentage Rate, debt managers making misleading statements about the cost of their service and firms of all types implying that credit was guaranteed regardless of circumstances.
Firms were reminded that if they outsource any activity which is FCA-regulated, then the third party firms used must also be authorised. The example given in the speech is of outsourcing firms who are engaged to provide administrative support, but then stray into handling queries about a customer’s credit position.
Towards the end of the speech, Ms Woodall explained that the FCA was not seeking to prevent firms from operating, but was simply trying to improve standards within the market. “We’re not clamping down on the credit market, but on unaffordable lending and unfair treatment of consumers,” said the FCA director.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.