The FCA has published a speech given by Linda Woodall (Director of Mortgage and Consumer Lending, FCA) at the BBA’s consumer credit seminar.

Objectives

At the beginning of her speech Mrs Woodall notes that the FCA’s strategic objective for consumer credit is to ensure that the market functions well for consumers. The three operational objectives the FCA applies are to:

• secure an appropriate degree of protection for consumers;
• protect and enhance market integrity; and
• promote effective competition in the interests of consumers.

Mrs Woodall states that as the FCA’s understanding of the consumer credit market has grown, it has been able to exercise judgment to understand the diversity of it and what the end user is experiencing as they engage with its different components.

Change in firm categorisation

When discussing the change from the OFT to the FCA Mrs Woodall mentions that some firms which were already FCA regulated before 1 April 2014 may see their category change when they apply for full credit authorisation. For example, a firm that has been a C4 firm so far, because its non-credit regulated activities have been relatively small, may find that it becomes a C3 or C2 firm once credit activities are included. Mrs Woodall explains that where this happens the change will be communicated by the FCA in “plenty of time” for the appropriate arrangements to be made.

FCA expectations

Mrs Woodall states that the FCA’s expectation is that consumer credit firms must comply with the letter and spirit of the rules and guidance as of 1 April 2014, not just from when they apply for full authorisation. She explains that the authorisation process is “an on-going journey for firms” and that it is an important opportunity for the firm to demonstrate that it is exhibiting attitudes and actions that benefit consumers and that they are central to the firm’s systems, business model and culture.

Regulation in practice

The way the FCA regulates firms is consistent with its approach to supervising other financial services. On a day-to-day basis this is centred on three key pillars – the Firm Systematic Framework, Event Driven and Issues and Products work. In relation to the latter, which is commonly known as thematic work, Mrs Woodall states that a current example includes the on-going thematic review into the forbearance practices of high-cost short-term credit providers. This thematic review is looking at how high-cost short-term lenders treat their customers when they are in difficulty, as well as examining the culture of each firm to see whether the focus is truly on the customer. Another thematic review which is underway looks at the quality of advice provided by debt management companies.

Recent issues and examples

In the final part of her speech Mrs Woodall provides a few examples of particular issues that the FCA has found and what it has been doing to address areas of concern.

One such example concerns financial promotions. In August the FCA issued a warning to consumer credit firms over their use of misleading adverts. At that time, it opened 227 cases against consumer credit firms concerning non-compliant adverts. Mrs Woodall explains that a quarter of these cases relate to advertisements for high-cost short-term credit, with many not prominently displaying a risk warning or representative APR. Other common areas included debt management firms that did not make it clear that services are not free of charge, and promotions that guaranteed firms would provide credit regardless of customers’ circumstances. Mrs Woodall states that firms have generally responded positively when contacted by the FCA and have been quick to make changes to promotions that do not meet the standards. However, the FCA is disappointed to see standards fall short of what it expects and believes that firms in this sector can do more to ensure that financial promotions meet the standards. The FCA expects firms to act in accordance with the spirit of the law as well as the letter and asks them to put themselves in the place of consumers when designing their advertisements.

View Consumer credit seminar, 21 October 2014