Top ten things you need to know about the new consumer credit regime

Consumer credit is changing.

Here's Comet's at-a-glance, 'ten things you need to know', wake-up call for the new regime.

From our experience, most of those businesses affected by it have started sorting things out. However, this post is for those of you that haven’t starting doing anything yet or for those of you that would like a gentle reminder of what it is all about.

One: Time is ticking down. 111 days and counting...

Blink and its Christmas. A week later and it's 2014.

January, February and March will no doubt fly by and then, before you know it, 1 April 2014 appears on your calendar.

If you haven't started thinking about the new consumer credit regime, it isn't too late—honest!—but time is no longer on your side. You need to start the ball rolling now!

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Two: More, not less, legislation

Unfortunately, the new regime is more complicated. New regimes are invariably more complicated. Why does it always seem to be this way?

Well, I'm afraid that I can't answer that. Such is modern life, I suppose.

The fact remains, however, that the new consumer credit regime doesn't just comprise the Consumer Credit Act 1974 and accompanying bits and bobs (as always, click on the picture for a bigger version of it) ...

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... it now also comprises:

  • the Financial Services and Markets Act 2000 (FSMA),
  • accompanying FSMA statutory instruments, and
  • the relevant books of the FCA Handbook such as CONC (pronounced 'conk'), PRIN, SYSC ('sisk'), GEN and UNFCOG (just a collection of vowels and consonants that should never be placed together, to be fair) ...

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A fair whack of new legislation to digest and get your head around!

In 111 days.

Three: Key dates

D-Day is 1 April 2014, a date that really ought to be in your diary.  

Businesses (or 'firms' in FCA-speak) without interim permission on 1 April 2014 (and which are currently authorised by the OFT) must apply for full FCA authorisation before then so that they can legally continue consumer credit activities. On this date the rules (including CONC) will come into force.

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The FCA says that in principle it will not take any enforcement action between 1 April 2014 and 1 October 2014 so that businesses have enough time to get accustomed to the new style and structure of CONC.

This doesn't mean that you can 'go rogue' during this transition period as you will still need to operate in accordance with the equivalent existing rules under the Consumer Credit Act 1974 etc.

As for the 2016 date in the above graphic, I am readying myself for disappointment. When I was a child I thought that we'd be living on the moon and wearing sleek, silver-foil suits by this date (à la Buck Rogers).

This now looks unlikely.

However, we need to consider the next most exciting thing in life after space travel: full FCA authorisation.

Before 1 April 2016, firms will need to have transferred from interim to full authorisation by the FCA in order to continue to carry out consumer credit activities.

As for living on the moon, you'll have to ask NASA.

Four: Full or limited authorisation (or am I exempt?)

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As you can see from the graphic above, there are different forms of authorisation.

Make sure that you know what type of authorisation applies to your business. You may even be exempt (certain consumer credit firms may be able to avoid the need to be authorised by becoming an ‘appointed representative’ of an authorised firm).

Five: Business reorganisation

Any new regime can often challenge a business' existing business structure.

Post 1 April 2014, will your business be structured appropriately? Does it need to adapt? Will certain higher risk activities need to be hived off into separate companies for example? So many questions!

.... which, of course, need to be considered before 1 April 2014, not after!

A group of companies can't be reorganised in an afternoon, no matter how strong the will is to do this. Even a few months to reorganise a group can be tricky, to be fair. The more time that you have to do this, the better.

Six: Stationary

Don't forget about your stationary: any new change in a regulatory regime typically means pulping lots of existing notepaper and the like.

Sadly, this new regime will be no different. A lot of paper will be heading to an untimely demise at the local recycling centre in the months to come, only to be replaced by almost identical notepaper with a slightly different statement on it about who regulates the business.

Seven: A complicated timeline

My esteemed colleagues in Lexis®PSL Financial Services have produced an embarrassment of information on the relevant dates to know on their blog. Click here for more info.

Eight: Enforcement

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Well, I think that this graphic says it all really.

Whether the FCA has the time to truly bite as opposed to just bark, only time will tell. The amount of businesses that it will be regulating in under four months from now will increase massively. The amount of blinking dots on its radar will be like the skies over Heathrow during the Christmas getaway.

That said, the FCA has many civil and criminal powers at its disposal. I would ignore these at your peril!

Nine: Complexity, uncertainty and volatility

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The new regime has not simplified things (you may very well have noticed this already). A fair amount of the new terminology used is confusing.

What's more, it has added complexity into an already complex regime which means that consumer credit businesses will have to get used to a more uncertain and volatile business environment.

Ten: Act now!

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(This is just a repeat of tip one, if truth be told.)

So there you go: a rough guide to what you need to know.

The FCA is not used to dealing with consumer credit so, unfortunately, we don’t really know how competent it will be in this important industry. In the first instance, during 2014, it is likely to focus on areas of greater concern to it, such as pay-day lending, debt management companies and peer-to-peer (P2P) lending.

Whatever you do and in whatever sector you operate in the consumer credit sphere, the FCA will be the organisation in 2014 that you cannot ignore…

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