On 1 April the Financial Conduct Authority celebrated its third birthday as regulator for consumer credit. This seems an opportune time to look at what it has achieved, the impact it has had on consumer finance and what we can expect from it in the next 12 months.
Of the 50,000 firms that were invited to become authorised, 35,000 have now been successful. With a small number of applications outstanding this means that the sector has lost 15,000 businesses who no longer offer consumer credit. Some of these made a conscious decision not to apply for authorisation whilst others withdrew after realising that they would not make the cut. Very few applications were actually refused by the FCA but it is clear that the Regulator has had a significant influence on the sector.
The Regulator made no secret of the fact that its initial focus would be on the organisations which it considered to be high risk. Top of the hit list were the payday lenders – the FCA capped interest rates and restricted the use of rollovers (where a new advance is made to refinance a previous loan). This has severely impacted on the profitability of the payday sector – and has also affected our TV as their once-common adverts have all-but disappeared from our screens.
Changes that have already occurred
The new regime has brought a wide range of other changes including:
- more emphasis on funders assessing the affordability of facilities
- greater awareness of the need to treat vulnerable customers with particular care
- the implementation of the Mortgage Credit Directive for most loans secured on residential property
- greater promotion of consumer’s rights and remediation, PPI being a prime example
- greater uncertainty as to what funders must do to achieve compliance, due to the move away from black letter law to a principles-based regime
- a change in the types of regulated finance products that most funders are prepared to offer. A good example is in car finance where the FCA has noted a recent significant rise in the use of Personal Contract Plans (PCP) and has indicated that this is now receiving its scrutiny
- increased compliance costs for funders
Coming over the horizon
The pace and range of the FCA’s activities shows no signs of slowing. 18 April will see the publication of their Mission Statement and Business Plan which will outline how the FCA interprets its objectives and its key priorities for the next 12 months. What we already know is that these will see:
- publication of its views on issues of creditworthiness and affordability and how firms need to respond
- action taken on competition issues in the financial services sector
- new rules on insurance renewals and the need for insurers to advise the amount of the previous year’s premium by way of comparison
- investigations into the practices of crowdfunding platforms
- proposals as to how to deal with the parts of the Consumer Credit Act which survived the introduction of the FCA’s Consumer Credit Sourcebook
- a consultation on the Senior Managers Certification regime and its introduction to all regulated firms in 2018
Authorised firms will no doubt have quietly celebrated on the day when they received notification from the FCA that their application had been successful. At that stage the FCA and much of the new regulatory regime was something of an unknown quantity. Things haven’t stood still in the intervening period and, with Spring now here, it would make sense to dust off the policies that were sent to the FCA as part of the application for authorisation and update them in the light of what we now know the Regulator will expect. It would be a bit of a giveaway if version 1.1 still appears at the bottom of these!
For further information, please contact:
Philip Alton, partner, Credit Finance and Leasing Unit
T: 0121 234 0076