The regulator has confirmed the final rules that will govern the £200bn-a-year market and apply to more than 50,000 firms from April.
The FCA is keen to show its teeth following a wave of criticism and political pressure over easy consumer lending, particularly payday lenders, such as Wonga or QuickQuid, which typically advance quite small sums for short periods, but at high cost. In some cases loans can charge annual interest rates of up to 6,000%.
The new rules will result in changes in how payday lenders and debt management companies treat their customers, including mandatory affordability checks for payday borrowers. They will also give the FCA the power to ban any misleading adverts from payday lenders.
Martin Wheatley, the FCA’s chief executive, said, “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.”
The FCA says its new supervision will be “hands on” and says it will “closely monitor how providers treat their customers, in particular those operating in higher risk sectors such as credit cards, debt management and payday”. Companies that are involved in higher risk business will face a much closer level of supervision, with an authorisation process to assess firms and individuals operating consumer credit businesses.
So far, 44,793 firms of an estimated 51,528 in the consumer credit space, have now registered for interim permission with the FCA.
The biggest changes come for payday lenders and debt management companies, including: limiting the number of loan roll-overs to two; restricting (to two) the number of times a firm can seek repayment using a continuous payment authority; a requirement to provide information to customers on how to get free debt advice; and requiring debt management firms to pass on more money to creditors from day one of a debt management plan.
The FCA will also introduce dedicated enforcement teams to crack down on poor practice, money laundering and unauthorised business. Firms that break the rules may face detailed investigations and fines.
FCA regulation will apply to any firm or individual offering overdrafts, credit cards and personal loans, selling goods and services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers. The new regulation follows a consultation last October, which brought in 300 responses and response from ten roadshows.
The FCA is taking over the regulation of the consumer credit market from the Office of Fair Trading.