In a recent speech the Financial Conduct Authority (FCA) unveiled its consumer credit priorities and emphasised its increased focus on consumer outcomes and needs, particularly for those in vulnerable circumstances.
In seeking to establish itself as an innovative, adaptive and assertive regulator, and with the intention of securing better outcomes for consumers, the FCA identified the following consumer credit priorities and next steps:
Introducing the Consumer Duty
The FCA elaborated on its proposals for the introduction of a new Consumer Duty which will require financial services firms to focus heavily on the outcomes for consumers of their products. Whilst the precise definition and parameters of the duty are yet to be finalised, the duty will set a higher expectation for the standard of care that firms provide to consumers.
The FCA will consult on proposed rules and set out its approach to supervision and enforcement under the new duty later this year. Firms can expect the FCA to take a more innovative, adaptive and assertive approach to supervision and enforcement than has been seen to date. The FCA intends to be nimble: it will intervene early as harm arises or markets change and nip poor practices in the bud.
Regulating unregulated buy-now-pay-later (BNPL) products
Although as we have previously written about here, certain BNPL products are not yet within the regulatory perimeter, the FCA is already at work on deferred payment credit and will intervene where there is a real risk of consumer harm.
The process for bringing unregulated BNPL products within the FCA's remit has been unexpectedly slow considering the urgency of the need for regulation expressed in February's Woolard Review. A Government consultation on the proposed regulatory framework is expected in the next few weeks and after that there will be a period of consultation on the proposed standards-setting FCA rules.
Meantime, the FCA is already inspecting marketing materials and methods of promotion of BNPL products and has highlighted its consumer protection powers under regimes other than the Financial Services and Markets Act 2000 (for example under the Payment Services Regulations and the Money Laundering Regulations) which it can apply to unauthorised firms engaged in poor practices.
The message is clear: while the regulatory framework itself may take some time the FCA is "not sitting back and waiting" and it will take action where it has the powers to do so.
Supporting borrowers in financial difficulty
Outcomes for borrowers in financial difficulty is another key area for the FCA, particularly as it is expected many people will remain or fall into financial difficulty as prices rise and the furlough and Universal Credit uplift come to an end.
In terms of next steps, the FCA's interim report on its Credit Information Market Study is expected early next year. Credit information can affect consumers’ access to various financial products (including loans and credit cards) and in some cases the price they pay for them. Particularly in the context of pandemic-related forbearance measures, consumers are concerned about the impact on their credit file of any support provided to them by lenders when they are experiencing financial difficulty. Credit information is relevant also to the FCA's work to design the appropriate regulatory framework for BNPL products discussed above.
Protecting those who use high-cost credit facilities
As a final priority, the FCA highlighted its intentions to protect consumers of high-cost credit facilities. The Financial Ombudsman Service's rate of upheld complaints suggests that these have been offered to people which they shouldn't have on a considerable scale in recent months.
Firms should note that the FCA is clear that while - in the right conditions - innovation and competition to serve these consumers' needs is desirable, the regulator will continue to maintain high lending and conduct standards to protect these vulnerable customers.
What can firms expect of the FCA going forward?
As announced more generally in its Business Plan, firms should expect a step change in the FCA's approach to consumer credit over the coming year. It is expected that the FCA will show itself to be more assertive in this space to ensure consumer protection.
The FCA is keeping a close watch on consumer outcomes in an environment where consumers are facing continued financial uncertainty and economic pressures. It is actively monitoring for emerging harm in a consumer credit environment where innovation, technology and evolving customer needs are all driving change.
The FCA will continue to set and maintain high standards of regulation in order to protect consumers and secure good consumer outcomes. Firms can expect to see a more agile and assertive FCA, especially where customers most at risk of financial harm are impacted.