In this month’s instalment of Compliance Corner, Tim Chapman considers the impact the FCA will have on consumer credit monitoring activities when they take over from the Office of Fair Trading in April 2014.
Our monthly Compliance Corner series looks at the latest hot topics and trends within compliance and risk. Each issue covers a different topic and includes our insights into the impact it may have on the industry.
In November’s issue, Tim Chapman looks at the impact the FCA will have on consumer credit monitoring activities when it takes over from the Office of Fair Trading in April 2014.
Consumer credit: the clock is ticking…
From April 2014, the FCA will take over all consumer credit monitoring activities from the Office of Fair Trading, in a move to further increase the regulatory oversight of consumer credit operators and providers.
The FCA will oversee any firm that is “offering credit cards and personal loans, selling goods or services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers”.
Interestingly enough, these are the types of firms that have seen a sharp spike in their margin and circulation activities since the downturn. Payday loans in particular have become increasingly noteworthy as interest rates and APRs seem to be spiralling out of control, whilst seemingly preying on those individuals in the most vulnerable financial positions.
What will the FCA do differently to the OFT?
Since the FCA’s inception, the financial services market has increasingly felt its presence in all areas of their businesses, safeguarding the interests of millions. With the focus being heaped on investments, the FCA is now casting its eye on payday loans and various other credit and debt consolidation providers, and highlights how all products and areas of the market will come under their scrutiny.
The FCA feels that previous oversight and monitoring activities have not been stringent enough and aims to make various changes to the way credit and affordability checks are conducted. Here are the main points:
- Mandatory ‘affordability checks’ that will ensure that only those who can afford to repay loans are eligible for them.
- Financial promotions will have to follow much stricter requirements, with the FCA holding the prerogative to ‘ban misleading adverts’.
- High risk businesses will come under much higher scrutiny.
- Enforcement teams and reviews will come into play for firms that repeatedly mis-sell and follow poor practices.
These points highlight how the FCA will now be taking a hands-on approach in this area. In comparison to the OFT, the FCA is taking a much tougher stance on how credit is provided and the sustainability for the customers and the businesses themselves.
Will it work?
Only time can tell. The increasing presence of payday loan providers and companies of similar ilk in the marketplace, and particularly the media, make it apparent that these businesses need to be much more closely guarded to protect those most vulnerable. As has been proven in other areas of the market, the FCA has definitely taken a more proactive stance on most regulatory issues, rather than being a ‘toothless watchdog’.
Even with the premise of what is to come from next April, firms are already analysing the way they operate to ensure they can continue to do so with as little disruption as possible. But with the FCA looking to pose these new directives into the consumer credit market, we may be seeing payday loan and credit providers featuring much more heavily in the news.
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