On 1 April 2014, the FCA took over the regulation of consumer credit from the Office of Fair Trading. In the run up to the transfer, the FCA has issued some fairly stark warnings to consumer credit firms. In particular, in its October consultation on detailed proposals for the consumer credit regime, the FCA stated that “the clock is ticking” for those firms that harm consumers.
On 31 March 2014, OFT consumer credit licences expired. By 1 April 2014, consumer credit firms needed to have identified the credit activities they wished to carry out and notify the FCA that they wish to apply for interim permission and pay a fee (£350 for most firms and £150 for sole traders).
When granted, the interim permission will be valid until 1 April 2016, by which time consumer credit firms will need to have applied for authorisation from the FCA. A firm can apply for full authorisation or, if it is carrying out certain lower risk activities, limited permission. Firms that qualify for limited permission will be subject to a reduced regulatory regime, which will include: lower application and ongoing fees, a shorter application form and reduced frequency or complexity of reporting to the FCA.
The previous consumer credit regime comprised the Consumer Credit Act 1974 and its secondary legislation, as well as OFT guidance. After 1 April, the regime became more complex. Some of the requirements in the CCA, its secondary legislation and OFT guidance are carried across and combined with existing requirements in the FCA Handbook. However, a good deal of the existing provisions remain where they are. Tracking which provisions have gone where can be difficult, but the destination table published by HM Treasury last March and FCA Instruments are useful in this respect.
A key new element of the FCA Handbook is the Consumer Credit sourcebook (CONC), which combines elements from the CCA/OFT regime and the existing FCA regime. For example, chapter 3 of CONC covers financial promotions and the fundamental approach that they should be fair, clear and not misleading will apply to advertisements for regulated consumer credit. Some of the BIS guidance on the Consumer Credit Advertisement Regulations have been incorporated as FCA guidance.
However, the FCA has also taken the opportunity to make changes to the existing consumer credit regime. Most notably, the number of times payday loans can be rolled over has been restricted to two, and the number of failed attempts at extracting full payment by continuous payment authority is limited to two. There is a total ban on using continuous payment authorities to extract part payment of the full amount.
The new regime requires careful consideration by consumer credit firms. In addition to the rule changes, firms will be subject to a different style of supervision. In some parts of the media, it has been suggested that the FCA will be a much more active regulator, taking a far more aggressive approach using its wider range of enforcement powers. There has been some discussion in the market of retrospective enforcement of the new rules, but this is not on the cards. The FCA will be able to investigate conduct that occurred prior to 1 April, but only apply sanctions that were available at the time.
Simon Lovegrove is a lawyer with the financial services team at Norton Rose Fulbright LLP.
