Government policy

Government policy and regulation

Legislative framework

The main legislation which determines how Provident home credit can be provided is the Consumer Credit Act 1974 (CCA). This has been significantly amended since it was first brought in1. However it retains its main purpose, namely to ensure that the UK consumer credit market operates in the interests of consumers in a fair, clear and competitive way.

The CCA and its supporting regulations cover:

  • advertising, canvassing and the provision of pre-contract information to customers;
  • the form and content of credit agreements;
  • cancellation rights and early settlement rebates;
  • debt collection procedures; and
  • the granting of licences to consumer providers.

As well as the CCA, Provident home credit must comply with other legislation including:

  • The Data Protection Act 19982
  • The Consumer Protection from Unfair Trading Regulations 20083

Changes were made to the CCA in March 2010 to implement the 2008 Consumer Credit Directive4. The new rules came into force on 1 February 2011.

The OFT has issued Guidance on a number of regulated areas including debt collection, debt management and responsible lending. The Guidance has the effect of refining or enhancing how consumer credit providers should interpret the CCA and therefore how they should behave, run their businesses and interact with customers and others.

The home credit sector is licensed by the Office of Fair Trading (OFT)5. Licences are granted to those whom the OFT considers are ‘fit’ to hold a consumer credit licence. In assessing ‘fitness’, the OFT takes into account matters such as compliance with the CCA and the Guidance and the competence of those running the business in question. When necessary, the OFT takes action against consumer credit licence holders where it feels the fitness of a licence holder is called into question. The OFT monitors the behaviour of consumer credit licence holders on an ongoing basis.

Government & regulatory reviews

There have been a number of reviews of the entire UK consumer credit market, sectors of the market and specifically the home credit market by the UK government and regulators in recent years. They include:

  • A major three-year consumer credit review based on a government White Paper. The outcome of this was the Consumer Credit Act 20066. This modernised the 1974 Act and enhanced consumer protection. For example it enabled customers of the consumer credit sector to take any unresolved complaints they had with providers to the Financial Ombudsman.
  • Government-commissioned research7 on the impact of interest rate ceilings in other countries. This research was carried out as part of the review of the above mentioned consumer credit review. The findings of this review informed a decision8 by the then Labour Government not to introduce price caps in the UK.
  • A two-year Competition Commission inquiry9 into the home credit market. The Commission concluded10 that price caps could lead to financial exclusion, would be difficult to implement and could limit price competition. Instead, the Commission instructed home credit providers to alter other aspects of their service provision to increase transparency for their customers and boost competition in the sector. One of these was the creation of a website, lenderscompared11, where would-be customers could compare the price of home credit loans from regulated providers.
  • A review of the high cost credit sector12 by the Office of Fair Trading. The final report summarising how the OFT found this market to be working was published in 2010. Like the Competition Commission, the Office of Fair Trading concluded13 that price controls were not a viable consumer protection tool. It concluded that they could reduce the supply of credit to would-be borrowers and that there would be practical problems with their implementation and effectiveness.

Latest reviews

In October 2010 the Department for Business, Innovation and Skills (BIS) launched a Review of Consumer Credit and Personal Insolvency14 by issuing a call for evidence. BIS was seeking input from interested parties to highlight which components of the life cycle of credit required attention. Informed by the evidence submitted in November 2011 BIS announced the next steps to be taken in this review. Of most significance for home credit was the confirmation that a contract to research the potential impact of introducing a cap on the total cost of credit had been awarded to the Personal Finance Research Centre at the University of Bristol. This research is currently ongoing with a final report due in July 201215.

Following a consultation launched in 2010 H M Treasury announced in January 2012 that the Government intended to transfer responsibility for consumer credit regulation from the OFT to a new regulator, the Financial Conduct Authority (FCA)16. The Government has said a transfer will only take place if and when it has identified a model of FCA regulation that is proportionate for the different segments of the consumer credit market. Currently it is not clear if the current regulatory regime based on the Consumer Credit Act will be transferred to the FCA (an option sometimes referred to as “lift and shift”) or if an entirely new regulatory format for consumer credit is being planned. The Government is considering these issues, working closely with the Financial Services Authority (FSA), OFT and stakeholders.

Notes

  1. Department for Business, Innovation and Skills
  2. Office of Information Commissioner home page
  3. Department for Business, Innovation and Skills
  4. Department for Business, Innovation and Skills
  5. Office of Fair Trading home page on consumer credit licensing
  6. Department for Business, Innovation and Skills
  7. Policis for BIS 2004, The effect of interest rate capping in other countries (PDF 0.41Mb)
  8. Hansard source (Citation: HC Deb, 22 March 2010, c149W)
  9. Competition Commission inquiry home page
  10. Competition Commission press release on remedies
  11. About LendersCompared.org.uk
  12. OFT High Cost Credit Review home page
  13. Press release from OFT on its High Cost Credit Review Final Report
  14. Department for Business, Innovation and skills
  15. H M Treasury Financial services
  16. Department for Business, Innovation and Skills