Val Smith, credit authorisations director at the FCA, reviews the application process for consumer credit firms ahead of a milestone in March.
Responsibility for regulating the consumer credit sector transferred to the FCA from the Office of Fair Trading in April 2014.
Our aim was to create a more robust regulatory regime that protects consumers while encouraging innovative businesses that meet our standards. We want firms to treat their customers fairly and operate with integrity in a competitive market.
Recognising that existing consumer credit firms must be able to continue to operate while we assessed their applications, we invited them first to register for interim permission. In itself, this was a major undertaking – telling roughly 50,000 firms that they were going to be regulated in future by the FCA and helping them to register for interim permission. This was just the start of our journey.
Consumer credit is a large, diverse sector. We regulate firms that introduce people seeking credit or loans to lenders, firms that offer credit to people wishing to buy goods and services, firms that actually provide loans and others that provide a range of debt services, including debt collection and providing debt advice.
These are some of the firm types that we regulate. Obviously this covers banks, payday lenders and debt management firms. It also includes advice bodies, peer-to-peer lenders, pawnbrokers and retailers, including motor traders, as well as a range of less obvious firms and organisations, including sports clubs, dentists and vets.
Regulating such a broad range of businesses presents challenges. We recognised that the vast majority of consumer credit firms would not be familiar with the FCA regime and that while some have staff dedicated to dealing with their regulator, most do not. We have worked hard to help firms, in particular the smaller ones, to understand the new regime and to navigate our systems and processes.
As well as giving information and advice through our website and contact centre, we have run roadshows around the country, and broadcast videos and webinars to help firms tackle the authorisation process.
We regularly introduce new ways to help firms understand how we operate and our expectations from them. I recommend that consumer credit firms sign up for our regular emails to receive the latest news and information.
Firms are finding that their relationship with the FCA is different to the one they had with the OFT. We have a broader range of powers and more resources than the OFT, which enables us to take a much more proactive ‘hands on’ approach particularly in areas where there are higher risks to consumers.
The first key difference that most firms notice is the process by which they apply for permission to carry on regulated activities.
We will authorise a firm only if it demonstrates, to our satisfaction, that it meets – and will continue to meet – our high-level principles and a set of minimum standards, which we call ‘threshold conditions’.
We require firms to provide more information, reflecting the tougher regime for which we are responsible. We do so in a proportionate way, however. This means that we require firms operating in higher risk areas, such as payday lenders and commercial debt management firms, to provide more information than those operating in less risky areas, for example retailers of goods that offer credit to customers.
Consequently, it takes us longer to assess applications from higher risk firms than those that operate in lower risk sectors.
I am pleased to say that some firms have responded positively to our more robust approach, taking steps to put right previous problems, in some cases paying redress to customers, and to ensure that customers are treated fairly.
Many have made changes to how they operate in response to problems that we have identified during our consideration of their applications.
Others, concluding that they are not ready to be authorised, have withdrawn their applications.
A full version of Val Smith’s update on the authorisation process featured in Credit Today’s February edition