Consumer Credit Market to face rigorous regulations says FCA
The consumer credit industry will be expected to conform to high standards as new regulations set out by the Financial Conduct Authority come into place from 1 April 2014.
The new rules will govern the 50,000 firms who operate in the industry, aiming at protecting borrowers with measures such as providing them information on how to receive free debt advice and protecting clients’ money.
Payday lenders are amongst those who should expect much tougher regulations including a limit to the amount of interest charged and rigorous checks on adverts that some analysts felt mislead borrowers into taking out loans without much consideration for the high interest payments they would incur afterwards.
The government has specifically asked the FCA, which takes over regulatory responsibility from the Office of Fair Trading in April 2014, to impose limits on the amount of interest lenders can charge as a more tough approach will be enforced throughout to ensure standards are met and appropriate protection for borrowers.
The FCA said credit providers would need to educate consumers about the products to help them make an informed choice, provide a service they actually require, and treat people facing financial difficulties with sensitivity.
This also includes:
· Firms that do higher risk business and pose a potentially greater risk to consumers will face an intense and hands on supervisory experience
· A robust authorisation gateway to ensure that any firm or individual authorised to do consumer credit business is fit and proper, and that firms have suitable and sustainable business model
· Dedicated supervision and enforcement teams will crack down on poor practice, money laundering and unauthorised business. Firms that break the rules may face detailed investigations and tough fines
Martin Wheatley FCA Chief Executive said: “"The FCA will take a tough approach to consumer credit with stronger powers to clamp down on poor practice than the previous OFT regime," he said.
"Our supervision of firms will be hands-on and we will closely monitor how providers treat their customers, in particular, those operating in higher-risk sectors such as credit cards, debt management and payday.
The Consumer Finance Association which represents the lenders responded through Chief Executive Russell Hamblin-Boone by emphasising on the importance of “clarity and consistency” when applying the rules across all the lenders.
He Continued: “The CFA has been at the forefront of the industry, driving improvements and raising standards in order to pave the way for the FCA’s regulation."
According to figures released by The Bank of England, firms in the consumer credit industry lend more than £200bn last year.