Government policy and regulation
Until April 2014 consumer credit providers in the UK were regulated by the Office for Fair Trading (OFT). This regime was statute based, established by the Consumer Credit Act 1974 (CCA), as amended by the Consumer Credit Act 2006 and further in 2010 to implement the 2008 Consumer Credit Directive. Licences were granted by the OFT to providers judged to be ‘fit’ to hold a licence to trade. ‘Fitness’ was assessed with regard to compliance with the CCA and the competence of those running the business in question.
In April 2014 responsibility for regulating consumer credit passed to the Financial Conduct Authority (FCA). Consumer credit regulation was brought within the legal framework contained in the Financial Services and Markets Act 2000 (FSMA). This shift brought consumer credit into the same regulatory regime as other retail financial services.
Consumer credit firms who held an OFT licence and wished to continue in business were required to apply for ‘interim permission’ (to trade) with the FCA during 2013. The FCA will tell home credit firms (with interim permission) when to apply for full authorisation. At present firms with an interim permission are listed on the FCA's consumer credit register. The register is a public record that contains information including a firm's basic details, a list of the regulated activities that they have permission to carry on and its disciplinary history.
In the UK the regulatory framework for consumer credit comprises:
- The Financial Services and Markets Act 2000 and its secondary legislation
- Retained provisions in the CCA and its retained secondary legislation
- Rules and guidance in the FCA Handbook
The UK consumer credit regime also implements the 2008 Consumer Credit Directive.
Consumer credit providers must also comply with:
- The Data Protection Act 1998
- The Consumer Protection from Unfair Trading Regulations 2008
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 2006. 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 research1 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 decision2 by the then Labour Government not to introduce price caps in the UK.
- A two-year Competition Commission inquiry3 into the home credit market. The Commission concluded4 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, lenderscompared5, where would-be customers could compare the price of home credit loans from regulated providers.
- A review of the high cost credit sector6 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 concluded7 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.
- Government-commissioned research8 into the potential impact of introducing a cap on the total cost of credit. This research was carried out by the Personal Finance Research Centre at the University of Bristol. It covered home credit, pawnbroking, in-store and online payday, surveying 1500 individuals who had used these products. The survey highlighted clear distinctions between the characteristics and experiences of users of these three forms of credit. The Government response to the research was that it remained unconvinced at that point of the suitability of a cap on the total cost of credit as a general solution.
At the end of November 2013, the Government announced that it would legislate to introduce a cap on the total cost of credit for payday loans. An amendment to the Financial Services (Banking Reform) Act 2013 created a duty on the FCA to introduce a cap by January 2015. In the interim the FCA was tasked to determine the nature and level of the proposed cap in a process which was to encompass economic analysis; consideration of the international experience of introducing equivalent measures; and statutory consultation with parties likely to be affected.
- Policis for BIS 2004, The effect of interest rate capping in other countries (PDF 0.41Mb)
- Hansard source (Citation: HC Deb, 22 March 2010, c149W)
- Archived Competition Commission inquiry page (CC has become Competition and Markets Authority)
- Archived Competition Commission inquiry page - Final report news release (PDF 73 Kb) (30.11.06)
- About LendersCompared.org.uk
- Archived OFT website (regulation has shifted to the Financial Conduct Authority)
- Archived OFT website
- University of Bristol