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 described below.
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As part of the transfer of regulation to the FCA, Parliament repealed some provisions of the Consumer Credit Act 1974 and some of these were replaced by FCA rules.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 However most provisions could not be repealed without adversely affecting consumer protection because the FCA is not currently able to replicate this within its current rule making powers.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. PS19/16 and final rules have now been published and are designed to simplify the pricing of all overdrafts and to end high prices. New requirements include:
- Stopping firms from charging higher prices for unarranged overdrafts than for arranged overdrafts (including overdraft facility fees for arranged overdrafts up to £10,000;
- Banning fixed fees for borrowing using an overdraft;
- Ensuring the price for each overdraft is set out as a simple single annual interest rate – there will be no fixed daily or monthly charges;
- Advertising rules which mean arranged overdraft prices are promoted in a standard way allowing easier comparison;
- Issuing new guidance to reiterate that refused payment fees should be a reasonable reflection of the actual cost; and
- Requiring banks to do more to identify customers who are showing signs of financial strain or difficulty and to develop and implement a strategy to reduce repeat use.
Along side the FCA has also published a Consultation Paper with proposals on requirements for firms to publish quarterly APR and overdraft prices and to make minor changes to their competition remedies. The changes come into effect as follows:
- Immediately: Revised guidance on refused payment fees;
- 18 December 2019: Repeat use and competition remedies;
- 6 April 2020: Pricing rules.
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
BNPL offers are credit offers with a product feature that gives the consumer a promotional period during which they are not generally required to make payments. Usually if the consumer repays the amount in full and on time no interest is charged, however if they do not repay on time then interest will be charted on the original credit amount or the unpaid part. Typically this sort of credit is offered by catalogues, stores and retailers at the point of sale.
The FCA’s changes are designed to reduce the harm experienced by consumers caused by unclear information and the practice of backdating interest on amounts that have been paid during the BNPL offer period. PS 19/17 brings these new rules into effect. The disclosure rules and guidance come into effect on 12 September 2019 and the rule preventing backdated interest from being charged on repaid amounts by 12 November 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. 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.
Credit information market study
In June 2019 the FCA launched a market study looking at the credit information market. The regulator has identified concerns about the coverage and quality of credit information, the effectiveness of competition between credit reference agencies and the extent of consumer engagement. They aim to publish a report setting out their preliminary conclusions in spring 2020.
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.