The Financial Conduct Authority (FCA) has published the rulebook that consumer credit firms will need to comply with when it takes over as consumer credit regulator on April 1. As expected, the final rules are very similar to the proposals on which the FCA has consulted in recent months. The regulator says that “those who responded generally welcomed our approach.”
The policy statement issued by the FCA runs to some 646 pages, of which approximately 500 are taken up by the consumer credit rulebook itself, known as CONC. Firms should not be daunted by the size of the document though, and should ensure that they read at least the executive summary, together with any chapters of the accompanying guidance which relate specifically to their business area. The executive summary includes Table 1.1, which shows a summary of the new rules and indicates which have changed since the start of the consultation and which have not.
For most firms, the rulebook is based around the requirements of the Consumer Credit Act and the guidance of former regulator the Office of Fair Trading (OFT). However, payday lenders and debt managers will be subject to new requirements.
The FCA uses the term high cost short-term credit, or HCSTC, to describe payday lenders and similar companies. Lenders will need to submit regular data reports to the FCA, there will be a limit of two both on the number of times a loan can be rolled over and the number of times Continuous Payment Authority (CPA) can be used in an attempt to recover a loan, lenders will be expressly forbidden from placing pressure on a borrower not to cancel a CPA, borrowers in difficulty will need to be provided with information about debt advice and advertisements will need to carry a risk warning. This risk warning is the subject of the most significant change to have resulted from the consultation – instead the required risk warning is much shorter and reads: “Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.”
Debt managers will be subject to new requirements regarding the handling of client money, and will also need to direct customers to sources of free advice in certain circumstances.
The requirements for payday lenders relating to rollovers, CPA and the risk warning (other than for online and electronic promotions) will come into force on July 1, however the risk warning requirement will apply for online and electronic promotions from April 1. All firms will be allowed a six-month transition period, where the FCA has said it will only take enforcement action for issues occurring prior to October 1 2014 if the firm was in breach of the requirements of the OFT.
In addition to the detailed rules in the CONC sourcebook, credit firms will need to comply with the 11 FCA Principles for Business, which include the need to treat customers fairly, the need to conduct business with integrity and the need to provide clear and not misleading information at all times.
The FCA has more resources than the OFT and can impose a wider range of penalties for non-compliance. It says that firms “should feel the difference under our regime from day one.”
Credit firms have only weeks left to apply for ‘interim permission’ from the FCA, which will be required in order to continue conducting credit activities after April 1.