As consumers many of us rely on credit to help fund our day-to-day lives, but the industry is notoriously under-regulated and, particularly in the wake of unscrupulous payday lenders, can leave many people in financial difficulty. Well, that may no longer be the case. As of yesterday the Financial Conduct Authority (FCA) formally took over regulation of the £200 billion consumer credit market from the Office of Fair Trading, meaning firms will need to abide by strict new rules – or face the consequences.
From now on, the 50,000 businesses involved in the consumer credit industry will be subject to the consumer protection rules and Principles for Business as set out by the FCA. It's good news for consumers as it means businesses will need to meet strict criteria, so every person that uses a credit card, overdraft, takes out a loan or seeks debt management advice will be much better protected than before.
As part of the new regulation, businesses will need to make sure they provide customers with sufficient information, that their services meet the customer's needs and that those in financial difficulty are treated fairly, and they've been warned that they'll be closed down if they don't "play ball". The biggest challenges are set to affect payday lenders and debt management companies, with them needing to:
Ideally it'll force payday lenders to only lend to borrowers who can truly afford it, while other providers will be subject to the FCA's scrutiny too, including providers of credit cards and current accounts.
As well as general oversight of the industry, the regulator's consumer credit agenda for 2014/15 sets out additional areas of focus and includes a thematic review into how payday lenders collect debts and treat borrowers in arrears, a market study on credit cards, research into overdrafts and detailed assessments of debt management and logbook loan providers.
Confirming the regulator's stance, the FCA's chief executive Martin Wheatley said: "We have a big task ahead; it's our job to make sure firms put their customers at the heart of their business and don't just see them as an easy target or a profit line. We won't shy away from taking tough, decisive action to make sure that the people who rely on these products are treated fairly. There will be some firms that don't get the message, or won't play ball; those firms should know that we won't let them carry on."
More regulation will be welcome by those consumers that are struggling with debt, particularly those that have come into contact with rogue payday lenders. The focus on excessive charges and the danger of consumers being pushed into an unmanageable debt cycle hopefully means fewer people will find themselves trapped, and even those that use credit responsibly will be safe in the knowledge that they're better protected should anything go wrong.
Charlotte Nelson, spokesperson for Moneyfacts, commented on the news: "At last payday lending is subject to the same FCA regulation and protection as mainstream credit, adding a layer of consumer protection that until now has been lacking. It shouldn't matter whether someone wants to borrow for the short or long term – everyone should feel equally protected.
"Unregulated forms of credit have been under scrutiny for some time, so it's welcome news that this ruling is now in place. It will be interesting to see how payday lenders adapt to these changes in the weeks to come."
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