Consumer credit firms are now subject to regulation by the Financial Conduct Authority (FCA). Its regulatory regime is undoubtedly tougher than that operated by the previous regulator, the Office of Fair Trading.
OFT Consumer Credit Licences have now lapsed, and since April 1 2014, former licence holders who wished to continue trading have held ‘interim permission’ from the FCA. The process has now started upgrading these firms to either full permission (higher risk firms) or limited permission (lower risk firms). All firms have been allocated a three month application period, dependent on the type of business they transact. When applying to upgrade their authorisation, firms are required to provide information similar to that required from any other financial services firm that might apply for authorisation.
The consistent theme of the switch to FCA regulation is a tougher regulatory environment. Not only is the application process more rigorous, but many credit firms are now subject to additional rules. There are new requirements regarding the handling of client money for debt managers; and requirements for payday lenders relating to rollovers, Continuous Payment Authority and risk warnings on promotional material.
The FCA also has more resources to scrutinise firms than the OFT did. In many cases, the OFT only acted when complaints were received about a firm, or it came into possession of other evidence indicating issues of concern. However, the FCA has a formal supervision programme whereby every firm will be subject to some form of monitoring at least every four years, and where higher risk firms can expect to be monitored more frequently.
The FCA regards payday lenders, pawnbrokers, credit reference agencies and debt collection firms as posing a higher risk than certain other credit sectors, and firms in these areas can expect close scrutiny. In the six months since the FCA became the credit regulator, the action of one form or another has been taken against payday lenders Wonga, Dollar Financial and The Cheque Centre.
Firms can expect that action may be taken against them should they:
- Breach FCA rules and/or principles
- Breach any associated consumer credit legislation
- Breach anti-money laundering legislation
- Conduct business without the required permissions
The FCA can impose a wider range of enforcement penalties than was the case under the OFT. It can issue fines and warnings, ban individuals from working in financial services or withdraw a firm’s authorisation to trade. It can take action regarding conduct that occurred prior to April 1 2014, but only in accordance with the legislation that applied at the time.
Any firm seeking guidance on the new regulatory regime is advised to seek expert assistance. Contact us for more information on these new consumer credit regulations or visit our other pages for additional details.