New rules governing the UK’s £200bn consumer credit market are to be introduced from 1 April this year, the Financial Conduct Authority (FCA) announced on Friday.
The FCA is responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA). It confirmed that new regulations will apply to approximately 50,000 companies or individuals that are offering overdrafts, credit cards and personal loans, selling goods and services on credit and offering goods for hire, as well as those providing debt counselling or debt adjusting services to consumers companies.
Under the new rules, consumer service will be monitored, to ensure that customers are treated correctly by payday lenders and debt management companies. Affordability checks will be mandatory for payday borrowers and the FCA will also have the power to ban any misleading adverts from payday lenders. Any issues that are identified will be responded to swiftly and there will be penalties for any firm or individual found not to be putting consumers’ interests first, including possible enforcement action and consumer redress.
Changes in the regulations for payday lenders and debt management companies will mean that the number of loan roll-overs will be limited to two, while the number of times a firm can seek repayment using a continuous payment authority (CPA) will also be restricted to two. Financial companies must also provide information to customers on how to obtain free debt advice.
Debt management firms will be required to pass on more money to creditors from day one of a debt management plan, as well as protect the client’s money, while consumer credit providers will need to ensure that their services meet consumer needs and that their customers are given correct information, so that they can make informed choices.
In addition, the FCA said that it will make sure people in difficulty are treated fairly. Companies involved in higher risk business, which can pose a potentially greater risk to consumers, will receive intense and hands on supervisory experience. An authorisation gateway will also ensure that any firm or individual authorised to do consumer credit business is fit and proper, as well as ensuring that finance companies have suitable and sustainable business models.
The FCA added that it will provide dedicated supervision and enforcement teams, which will crack down on poor practice, money laundering and unauthorised business.
Chief executive of the FCA, Martin Wheatley, commented:
“Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan. We want to be sure that the market works well when people need it – whether that’s for one day, one month or longer.
“Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line.”