The Financial Conduct Authority has confirmed the final rules that will govern the £200bn a year consumer credit market, which includes approximately 50,000 firms, from 1 April 2014.
The rule changes will give consumers additional protection from rogue practices and put the onus on credit providers to ensure that they treat customers fairly at all times.
The biggest changes come for payday lenders and debt management companies, including:
- limiting -overs to two
- restricting (to two) the number of times a firm can seek repayment using a continuous payment authority (CPA)
- a requirement to provide information to customers on how to get free debt advice
- requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money
Consumer credit providers will need to ensure that they give customers the right information to make informed choices, that their services meet consumer needs, and that people in difficulty are treated fairly. Read more here.
The FCA have also announced they will start a review of the market as soon as they take over responsibility on 1st April:
Payday lenders and other high cost short term lenders will be the subject of an in-depth thematic review into the way they collect debts and manage borrowers in arrears and forbearance, the Financial Conduct Authority announced on 12th March.
The review will be one of the very first actions the FCA takes as regulator of consumer credit, which begins on 1 April 2014, and reinforces its commitment to protecting consumers – one of its statutory objectives. It is just one part of FCA’s comprehensive and forward looking agenda for tackling poor practice in the high cost short term loan market. Read more here.
Money Advice Trust welcomed the rules saying:
We believe the transfer of regulatory control to the FCA will provide a boost for consumer protections. We especially welcome rules that require customers with high-cost credit in clear financial difficulty to be referred to free debt advice services. Nine out of ten people who speak to a National Debtline adviser say they feel more in control of their finances as a result.
The new two tier regime of regulatory scrutiny should help ensure consumers are protected from some of the worst practices in the industry. Mandatory affordability checks have the potential to prevent much of the harm we see in some credit markets, and so it is important these are rigorously enforced.
The review looked at how firms treat customers in arrears or financial difficulty. This is of particular concern as the possibility of interest rate rises looms. The review finds that arrears management in firms has improved since the last review. However, mortgage lenders and administrators need to place greater emphasis on delivering consistently fair outcomes for customers based on their individual circumstances.
FCA is working with industry to help them improve their practices. This includes better support and empowerment of front-line staff and greater flexibility to support fair treatment of individual customers, based on their specific personal and financial circumstances. FCA also wants firms to take proactive steps to identify borrowers who could be susceptible to potential interest rate rises and have strategies to treat these customers fairly.
Read more here.
Low levels of consumer switching characterise many essential services markets (think current accounts or energy suppliers) and mean that competition alone isn’t sufficient to drive improvements. Two new reports from Consumer Futures have tackled this issue head on, introducing the concept of a new form of intermediary.
Next Generation Intermediaries (NGIs) are services that enable consumers to get better outcomes from complex markets by doing very little themselves – effectively outsourcing engagement to a new kind of intermediary service that works on their behalf. They would empower any consumer who lacks the time or inclination to trawl around for a better energy, financial services, or mobile phone package to instruct the intermediary find the offer that best meets the consumer’s declared criteria, and then to instigate and oversee the switch for them.
Let’s call it ‘do it for me’. It envisages a world where any consumer who lacks the time or inclination to trawl around for a better energy, financial services, or mobile phone package can instruct a new kind of intermediary service to ‘do it for me’. What’s more, once that service identifies the offer that best meets a consumer’s declared criteria, the consumer can again say ‘do it for me’ and have the service instigate and oversee the switch to the provider of that offer. And the consumer can then keep saying ‘do it for me’ in relation to related services that require decision support.
This paper provides an overview of the Next Generation Intermediary (NGI) concept – outlining the potential that NGI type services offer and the qualities that set them apart from established intermediary services. It provides an overview of how NGIs would work in practice, the technological trends that make this kind of approach possible now, and some thoughts on who might come to offer NGI services.
T-Mobile’s service links a pre-paid Visa card to an app on the phone. Cards can be used at ATMs, in shops and to pay bills, and the app can be used to keep track of transactions and balances. Millions of Americans don’t have traditional bank accounts and T-Mobile claim that this service may provide a cheaper alternative to cheque-cashing services and payday lenders. Pre-paid cards are growing in popularity in the US. Read more here.
In the UK, O2 recently announced that it was shutting down its mobile wallet service which similarly offered a pre-paid card linked to an app. More here. Customers have until 31st March to spend funds stored on their account.