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As part of the transfer of regulation to the FCA, Parliament repealed some provisions of the Consumer Credit Act 1974 and some of these were replaced by FCA rules.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 an Interim Report which sets out their initial views and whilst the report does not include proposed recommendations it sets out the general direction of travel. The final decision about the future of the CCA provisions will sit with 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.
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.
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. The FCA has identified a number of key questions which they are now focusing on:
- Are firms taking the right steps to ensure that they lend responsibly, in particular by appropriately assessing whether potential customers can afford the product in question?
- Are there conflicts of interest arising from commission arrangements between lenders and dealers, and if so are these appropriately managed to avoid harm to consumers?
- Is the information provided to potential customers by firms sufficiently clear and transparent, so that they can understand the risks involved and make informed decisions?
- Are firms managing the risk that asset valuations could fall and ensuring that they are adequately pricing risk?
The FCA expects to finish its review by the end of September 2018 when it will publish details of its findings, identify any areas of concern and explain how it intends to tackle them.
Most recently the FCA sent out a warning to motor finance firms in their monthly regulatory round-up to ensure they comply with the financial promotion rules in CONC 3. They are particularly concerned about promotions on social media and firms are also reminded to refer to their social media guidance.
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.