FCA Chief Predicts Significant Reduction in Credit Market Following Regulatory ChangeTerohan Nula February 17, 2014 0 COMMENTS
Financial Conduct Authority (FCA) chief executive Martin Wheatley has predicted that a substantial proportion of the firms currently operating in the consumer credit market will cease trading as a result of the forthcoming regulatory changes.
Regulating Credit Firms
The FCA takes over responsibility for regulating interim permission of credit firms on April 1 2014 from the Office of Fair Trading (OFT), and will have additional resources to supervise firms and will be able to impose a wider range of enforcement penalties. New rules will be imposed on payday lenders, debt managers and certain other types of firm. FCA regulated firms also need to keep comprehensive records to evidence that they comply with their obligations, and submit comprehensive reports to the regulator.
It has always been anticipated that a certain number of firms would leave the market, not wanting to take on the increased regulatory burden. But during the FCA’s appearance before Parliament’s Treasury Select Committee (TSC) in early February 2014, TSC member Andy Love MP asked Mr Wheatley directly what level of reduction he was expecting.
Improving Practices and Procedures
Mr Wheatley’s reply not only revealed his thoughts on the likely numbers, but also suggested that many of the firms leaving the market would be payday lenders. “Between 18% to 30% of available consumer credit may withdraw from the market based on changes to rollovers, continuous payment authority and affordability,” said Mr Wheatley. 19 of the leading 50 payday lenders have already left the market in recent months as a result of the OFT’s compliance review, which required all 50 lenders to make improvements to their practices and procedures.
Limiting the Total Amount
Mr Wheatley also told the TSC it would be a “tough ask” to complete its assessment of the level at which the cap on the cost of credit will be set in time. The Government has announced that it intends to introduce a limit on the total amount a lender can charge from January 1 2015, and it will be the FCA’s responsibility to decide the level of the cap.
At the same session, TSC chairman Andrew Tyrie MP told the FCA that he believed there was a “strong case” for them to re-imburse firms who were overcharged as a result of the way they were allocated to fee blocks. The session also heard that FCA chairman John Griffith-Jones was “more confident” about the Money Advice Service (MAS) than was the case in December 2013, when an MPs report described it as “not fit for purpose”. However, Mr Griffith-Jones added that the MAS budget may need to rise to take account of an increased need for debt advice.