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.
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, including lower application and ongoing fees, a shorter application form and reduced frequency 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 combined with existing requirements in the FCA Handbook, but a good deal of the existing provisions remain. The destination table published by the Treasury last March and FCA Instruments are useful to track exactly which have gone where.
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 made 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. There has been some talk of retrospective enforcement of the new rules, but this is not on the cards.
As well as rule changes, firms will be subject to a different style of supervision. The new regime requires careful consideration by consumer credit firms.