The regulation of consumer credit remains a priority for the FCA.  It has a wide ranging scope of work where it has identified actual or potential consumer detriment.  Some of the key initiatives are set out below, however other work is also ongoing in relation to areas such as 0% credit card deals and work on quotation searches.  

Staff incentives, remuneration and performance management

Having completed their thematic review into the nature of staff incentives, remuneration and performance management in the consumer credit market, the FCA has identified concerns with a significant proportion of firms from the sample.  In particular they found that:

  • firm practices were likely to encourage high pressure sales or collections;
  • controls were inadequate or ineffective; and
  • firms did not understand the risks that their incentive schemes posed and what controls were needed to mitigate those risks.

In light of its findings, the FCA consulted on a proposed new rule and guidance.  The rule would require firms to put in place adequate arrangements to detect and manage any risk of non-compliance with their regulatory obligations arising from their remuneration or performance management practices.  The Handbook guidance will help firms understand the purpose of the new rule.  In addition, the FCA is also consulting on new non-Handbook guidance which will provide more detailed assistance, for example by setting out examples of good and poor practice. We await the FCA’s policy statement which is expected in March 2018.

Retained provisions of the Consumer Credit Act

As part of the transfer of regulation, Parliament repealed some provisions of the Consumer Credit Act 1974 and some of these were replaced by FCA rules.  The FCA was required to undertake a review in relation to the remaining CCA provisions and to report on this to the Treasury by 1 April 2019, including any recommendations for change.

Review of the High Cost Short Term Credit price cap

The FCA is reviewing the HCSTC price cap that came into force in January 2015, looking specifically at whether consumers excluded from credit as a result of the price cap are turning to illegal money lenders.  The FCA has published an update on progress indicating the further work it is doing including consulting on proposals towards the end of 2018.

Final rules on persistent credit card debt

Final rules to address FCA concerns about the scale and persistent nature of some customer’s credit card debt have now been published in Policy Statement 18/4.  Included in this is a requirement for firms to tell customers about the potential implications of continuing low repayments, including the possibility that their account may be suspended and the ensuring impact on their credit file.   The FCA also state that they expect three to fours years to be a reasonable timeframe for customers to repay, a period slightly longer than this may be reasonable but in exceptional circumstances and where this results in no additional cost to the customer. The general expectation, though, is that if the debt cannot be repaid over this period, it is appropriate to give forbearance.  The final rules come into force on 1 March 2018 but firms have until 1 September 2018 to comply.

Assessing creditworthiness

The FCA has published a consultation paper that proposes changes to its requirements on assessing creditworthiness and we expect new rules in the summer of 2018.

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.

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