The Financial Conduct Authority (FCA) has confirmed the final rules that will govern the credit market from 1 April 2014.
The new rules will result in changes for how payday lenders and debt management companies treat their customers including mandatory affordability checks for payday borrowers and giving the FCA the power to ban any misleading adverts from payday lenders.
The consumer credit market is worth £200bn a year and includes approximately 50,000 firms.
Martin Wheatley, the FCA’s chief executive, said: “Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan. We want to be sure that the market works well when people need it – whether that’s for one day, one month or longer.
“Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line.”
The FCA says it will take a tough approach to consumer credit with stronger powers to clamp down on poor practice than the previous Office of Fair Trading regime. Its supervision of firms will be “hands on” and it will closely monitor how providers treat their customers, in particular those operating in higher risk sectors such as credit cards, debt management and payday.
The regulator claims it will respond quickly to any issues that are identified and there will be swift penalties for any firm or individual found not to be putting consumers’ interests first, including possible enforcement action and consumer redress.
The biggest changes come for payday lenders and debt management companies, including limiting the number of loan roll-overs to two and restricting (to two) the number of times a firm can seek repayment using a continuous payment authority (CPA).
There will also be a requirement for them to provide information to customers on how to get free debt advice and a requirement for debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money.
Meanwhile, firms that do higher risk business and pose a potentially greater risk to consumers will face an intense and hands on supervisory experience, the FCA claimed, with a robust authorisation gateway to ensure that any firm or individual authorised to do consumer credit business is fit and proper, and that firms have suitable and sustainable business models.
The regulator will have dedicated supervision and enforcement teams that will crack down on poor practice, money laundering and unauthorised business. Firms that break the rules may face detailed investigations and tough fines.