Retained provisions of the Consumer Credit Act
As part of the transfer of regulation to the FCA, Parliament repealed some provisions of the Consumer Credit Act 1974 and some of these were replaced by FCA rules. The FCA was also asked to review the remaining CCA provisions to consider whether they should also be replaced by FCA rules and guidance and to report back to the Treasury by 1 April 2019. The FCA has now published its Final Report which covers three themes:
- Right and provisions: The FCA’s view is that the protections offered are important and should be retained in some form. However most provisions could not be repealed without adversely affecting consumer protection because the FCA is not currently able to replicate this within its current rule making powers. The FCA therefore sees merit in retaining the current provisions.
- Information requirements: Here the FCA’s view is that there is merit in repealing the current requirements and replacing them with FCA rules but only where this does not result in a corresponding loss of sanctions.
- Sanctions: In relation to sanctions, the FCA takes the view that a combination of CCA sanctions, regulatory powers and a private right of sanction under FSMA is the right approach.
The Final Report does not include formal recommendations to HM Treasury as the final decisions about the future of CCA provisions will fall to the Government.
High Cost Short Term Credit
The FCA continues to investigate different areas related to high cost short term credit including:
The regulator has identified harm to consumers from the disproportionate burden of high charges and the repeat use of overdrafts. CP18/13 considered arranged and unarranged overdrafts and this has now been followed up with CP18/42. This proposes rules to simplify the pricing of overdrafts and end higher prices for unarranged overdrafts by:
- aligning the pricing of arranged and unarranged overdrafts;
- banning fixed fees for borrowing through an overdraft (other than refused payment fees);
- requiring clear pricing in terms of a simple, single interest rate;
- updating the financial promotion requirements;
- issuing guidance on the costs of refused payment fees; and
- telling banks to do more to identify customers who are showing signs of financial difficulties.
CP 18/42 also includes a policy statement setting out the competition remedy rules which aim to address low awareness and lack of engagement in the market. This includes a requirement for firms to provide tools that assess the eligibility for overdrafts to reduce the barriers to switching. The FCA aim to publish final rules by June 2019 and for them to become effective by December 2019.
Credit card fees and charges
In April 2019 the FCA published a Dear CEO letter setting out their concerns about credit card fees and charges. They fond that customer were being charged fees on multiple occasions and sometimes multiple fees in a single billing cycle. They suggest that this means firms are not adequately identifying or dealing appropriately with signs of actual or possible financial difficulties and they now expect firms to review their policies and procedures to ensure they deliver fair treatment for customers.
Rent to own and buy now pay later offers
CP18/12, CP18/35 and CP18/43 all consider rent to own, home collected credit, catalogue credit, store cards, alternatives to high cost credit and buy now pay later offers. In addition the FCA has confirmed that it will introduce new rules on extended warranties including a two day cooling offer period. This comes into effect on 22 February 2019. Most recently PS19/6 (following on from CP18/35) has been published which confirms the introduction of a price cap in the rent to own sector. The price cap will:
- set a total credit cap of 100%;
- introduce a benchmarking requirement for product base prices against retail prices; and
- prevent firms increasing their prices for other goods and service sold with a rent to own agreement.
In its business plan for 2017/2018 the FCA announced that it was looking at the motor finance market to develop its understanding and assess whether it was functioning properly. It has now published a report setting out its findings with a focus on commission arrangements, information disclosure and affordability assessments.
The regulator has identified serious concerns in relation to commission arrangements, particularly those models which allow brokers discretion to set the customer interest rate, and thus earn a higher commission. As a result the FCA is considering changes to the current rules around commission or taking steps to actively ban certain types of arrangement. The FCA also expects all relevant firms to review the report and consider whether they need to review or update their policies and procedures and will be following up specific identified concerns with individual firms.
Thematic review debt management sector
In March 2019 the FCA published their second thematic review looking at the debt management sector. Whilst improvements have been made, the regulator still identified issues particularly around the appropriateness of debt management plans. Following on from this the FCA will consult on further guidance on the identification and treatment of vulnerable customers in 2019 and continue its work in this sector.
Review of the Consumer Credit Directive
At a European level, the Commission has decided to carry out a full-fledged evaluation of the Consumer Credit Directive in line with the Better Regulation principles. The consultation document was launched on 14 January 2019 and the aim is to conclude the evaluation by the end of the year.
How we can help
Bovill have worked with a wide range of consumer credit firms, ranging from banks to brewery companies, payday lenders to technology companies and rent-to-own firms to estate agencies. We can help with FCA authorisations, regulatory gap analyses and health checks, regulatory training and other regulatory change projects. Give us a call.