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Consumer Credit Under FCA Rule

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On April 1st of 2014 the finance industry is set to change in a big way as a result of changes to the governing bodies. The FSA (Financial Services Authority) has been disbanded, replaced by two separate regulatory authorities – the FCA (Financial Conduct Authority) and the PRA (Prudential Regulation Authority). For the motor finance industry, the main regulator will be the FCA, who are responsible for the regulation of the financial services industry in the UK. The focus of the FCA is on protecting the much maligned consumer, ensuring that the industry remains stable and promoting competition between financial service providers.

This is where the motor finance industry comes into play. From small independent dealerships to larger car finance specialists like Creditplus, anyone involved in the industry should expect to make some changes to the way that they sell and promote their finance products.

Everyone involved in the motor finance industry will be required to apply for a temporary license by the 1st of April in order to continue selling financial products legally. Following this, the companies will need to obtain their full license within two years, which will be issued subject to a review of the company, their risk level, accountability and previous dealings with regulatory bodies. Most dealerships will find the process to be fairly smooth – they are viewed as low risk companies due to finance being a secondary product for their business. For lenders though the change will require a bigger change with regards to their general practice.

The proposed consumer credit regime (which is yet to pass through parliament) outlines and number of ways that the consumer credit industry will have to adjust their practice to ensure that the consumer is protected and the industry remains competitive. In addition to old guidelines and rules, the FCA has laid out a number of new requirements.

Authorisation

In order to obtain interim permission from the FCA, companies will be required to show proof of the relevant OFT permissions and some accountability, however in order to obtain full permission they will have to be authorised by the FCA, as mentioned earlier. The standards that they will have to fulfil depend on the assumed risk that the firms pose to consumers. The FCA may check how much money a firm holds, the internal processes used, how its employees are managed and the controls it has in place. Fees to become fully authorised will be proportionate to the type and size of the companies and the risk it poses to consumers.

Supervision

Once a firm becomes authorised, it is the responsibility of the FCA to supervise that company. The way in which this is done once again depends on the type of company and the risk that it poses to consumers. As expected, higher risk firms with a large impact on the market will be subject to a higher degree of FCA scrutiny than low risk firms such as dealerships. All firms will be asked to report varying amounts of data to the FCA. This will also give the FCA an insight into the way a market is functioning, thus giving them the opportunity to assess the market and make adjustments when necessary in order to maintain competitive trading.

Enforcement

The FCA will have the power to enforce their rules and punish companies for what is deemed inappropriate corporate behaviour. There are a number of ways that companies can be penalised, depending on the severity of their crimes. This includes fines, bans, and obligatory changes to they way that they operate.

What this means for our customers

Here at Creditplus our focus has always been on getting the best and fairest deal for the customer. This is why we have a strict ethical lending policy in place, and why 9 out of 10 of our customers would recommend us.

The FCA have made their proposals public, and sent advice to all firms who are affected by the changes – that is, all financial services companies. The full proposal for consumer credit can be found on the FCA website.

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