The Financial Conduct Authority took over regulation of consumer credit - including cards, loans and debt - on April 2014. It asked for your concerns and comments, particularly about payday loans.
The main focus was on payday loans and other high-cost short-term lending, as this is where many people have problems.
Read on for a summary of what the changes meant.
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How to have your say
You can tell the regulator what you think in several ways, and you can use as many of them as you like. They include:
Post your point of view about Payday loans in the MSE forum
The FCA is proposing tougher requirements for payday lenders, including limiting the number of times a loan can be rolled over to two.
Payday lenders use rollovers to continuously extend customer's loans, so while a loan may be advertised as lasting for a month at a small cost, it is often rolled over time and time again and will end up lasting much longer. Some lenders actively encourage borrowers who want to repay to do this.
It also wants lenders to provide information on free debt advice before customers 'roll over' a loan, affordability checks for every credit agreement, while it says all adverts and promotions should be clear, fair and not misleading. So for example, payday loans must have risk warnings.
Do the proposals go far enough? How should lenders check someone can afford to repay the loan? What advice should be given if someone gets into financial difficulty?
Tell the FCA what you think in the Regulation of credit and payday lenders forum discussion.
Give additional ammunition to make adverts clearer
One of the specific new proposals is that adverts should have a 'wealth warning' attached so borrowers are more aware of the perils of payday loans before they take one out.
MSE's working with Citizens Advice to find out what people think of the regulator's proposed wealth warning.
The following will need to appear on all ads:
Think! Is this loan right for you?
Over 2 million short-term loans were not paid off on time in 2011/12. This can lead to serious money problems.
If you're struggling, go to www.moneyadviceservice.org.uk for free and impartial help.
Would you find this useful? Would it put you off taking out a loan? What would you include in a wealth warning? Tell MSE and Citizens Advice in the Payday loan adverts forum discussion.
Help get irresponsible adverts banned, especially on kids' TV
After our shocking poll results which found almost 70% of under-16s have seen payday loan adverts, and nearly one in three parents say their kids see the ads as "fun", we've joined forces with Citizens Advice to get bad ads taken off the airwaves.
The Advertising Standards Authority (ASA) can ban irresponsible and misleading adverts wherever they appear, on TV, radio, billboard, magazine or internet. If you spot a bad ad, let the ASA know or tell us in the Payday loan adverts forum discussion so MSE and Citizens Advice an report it for you.
Also, please let us know if you've seen any of the Wonga film in a cinema near you, along with which movie you'd been to see and what you thought.
A payday loan could be irresponsible if:
- It's clearly aimed at children.
- It's targeted at vulnerable people.
- It shows payday loans being used for shopping or social activities.
- It suggests that a payday loan is a better idea than another type of loan.
Sign the 'Charter to Stop the Payday Loan Rip-off'
MP Paul Blomfield, along with debt, consumer and anti-poverty organisations, has launched a petition asking the regulator for tougher action and enforcement of payday lenders.
The petition adds: "We want action to support the growth of credit unions and other forms of more responsible lending; we want banks to increase the availability of credit to people on low and middle incomes; and we want new research on capping the total cost of credit undertaken now."
Read the full petition and sign it on the Change.org site.
Email the regulator with your views
Send an email with your overall concerns, general comments and/or personal experiences to firstname.lastname@example.org.
Read and respond to the full consultation
If you've lots of time on your hands and you want to read the full 193- page document, as well as respond to the complete set of 28 questions, you can find the whole consultation document on the FCA's website.
This is the official way to respond to the consultation and will go straight into the regulator's inbox but you can use the alternatives above if you prefer.
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How the FCA plans to regulate credit and what that means for you
As far as possible the following text has been taken word for word from the FCA's website. We've copied it here to keep all the information in one place.
From here, this guide is in the FCA's own words... It is important for us to know what you think about the way we work. This helps us to do our job, ensuring that you are protected in financial services markets and can access suitable products from firms you can trust.
We have published a consultation paper asking for your feedback on how we want to regulate the firms that lend you money. Read on for an outline of our plans and details of how you can send us your views.
Background - what's happening?
On 1 April 2014 we take over regulation of the consumer credit industry - this includes hire purchase, credit card issuers, payday loan companies, pawnbrokers, debt management and collection firms and providers of debt advice.
We already have a handbook of rules and guidance that other financial services firms have to follow and comply with, and we are now preparing to bring consumer credit firms into that same regulatory system. We are currently consulting on exactly how we plan to do that and how we think it will affect firms and consumers.
For example, we know that some consumers who take out a payday loan often have problems paying it back. This worries us because these loans are often used by people in financial difficulty, so we're proposing to apply tighter rules than before to make sure payday lenders treat their customers fairly.
We want to hear from you, whether it's about your concerns, general comments or based on your own experiences. See below for more information on how we propose to regulate consumer credit firms.
Authorisation - our gateway
Before a financial services firm can carry out any activity that needs to be regulated, it must become authorised by us.
Our authorisation process is a gateway that firms must pass through to enter the financial markets. By guarding this gateway, we can check that a firm meets the standards required and conducts itself in a way that puts consumers at the heart of its business.
Consumer credit firms will have to follow a similar authorisation process to other financial firms. This means they will have to comply with certain conduct standards depending on whether they pose a higher or lower risk to consumers. For example, we may check how much money a firm holds, the internal processes and controls it has in place and its management structure.
For a list of the conditions that firms will have to fulfil, see Chapter 3 of our full paper.
How we will supervise firms to protect you
When we agree to authorise a firm, we decide how we are going to supervise it.
Our teams will have more contact with higher-risk firms that have a significant impact on the market. These firms will meet with a dedicated supervisor regularly and provide us with a wide range of information about their business.
Lower-risk firms that have less of an impact will be supervised in a way that is appropriate to the size of their business - for example, they may not need to send us as much information.
Consumer credit firms will go through the same supervisory process as other financial services firms. For more details on this see Chapter 4 of our full paper.
Rules and guidance for payday loan companies
Key problem areas
We have seen evidence of a range of problem areas among payday lenders (payday loans are one of the products that we call 'high-risk short-term loans'). For example:
- some firms do not properly assess whether a consumer can afford to pay back a loan before lending to them
- some use continuous payment authorities to take money from customers when they can't afford it
- some rollover loans repeatedly without taking into account the customer's individual circumstances
We are proposing rules for payday lenders that we believe will change these firms' behaviour and achieve better outcomes for consumers.
Clear and fair advertising
We propose that all advertisements (which we call 'financial promotions') for payday loans must come with a clear risk warning, highlighting the potential risks of taking out a loan to consumers. This should include information about where to find free debt advice.
This warning could help those consumers who are not aware of the costs of not paying back a loan on time.
Rolling over a loan
When customers do not pay off their loans it is common for payday lenders to roll them over to the following month. This is a simple process that can be useful to customers, as it means they won't default on the loan, or incur additional charges and their credit score won't be affected.
However, if lenders use it too much, it can mean that the cost of interest on the loan accumulates. Sometimes charges can be higher than the original loan. Also a number of rollovers may indicate that a customer is in financial difficulty, rather than experiencing a temporary change in circumstances.
To protect consumers, we propose to limit the number of times a firm can rollover a loan to two. For consumers in this position, lenders will also have to give them information about where they can find free debt advice.
Using continuous payment authorities
A continuous payment authority allows a firm to take a series of payments from a customer's bank account without the customer having to authorise it every time.
These are often used to collect renewal payments for things like car breakdown services, insurance policies, gym memberships, mobile and broadband services or magazine subscriptions. For payday lending, these authorities are used to collect payment usually on the customer's next payday.
However, typical problems with these include firms trying to take payments unexpectedly, or repeatedly trying to take payments when the customer has already explained that they don't have the money. This gives the firm a level of control over the customer's bank account.
We propose to limit the number of times a payday lender can seek a payment using a continuous payment authority to two. We believe that this allows customers some flexibility, while giving them more control to manage their way out of financial difficulty.
Implementing a 'price cap' on the cost of credit
We considered whether it would be appropriate to introduce a limit on how much interest firms can charge on a loan - so how much it costs a customer to have credit. However, at this stage we don't believe we have enough evidence or information to fully understand the implications of doing this.
When we start to regulate consumer credit firms next April, we will be able to collect more data from them and we will carry out more research into the effectiveness of price capping.
For full details of our payday lending proposals, please see Chapter 6 of our full paper.
Debt management companies and not-for-profit debt advice bodies
Holding a certain amount of money
We are the conduct regulator for financial services firms. This means it is our job to make sure that financial firms behave responsibly and generally with good conduct that results in good outcomes for consumers. We are also the 'prudential' regulator for the many financial services firms that are not covered by the Prudential Regulation Authority. For these firms, we must make sure they are behaving prudently - so they are sensibly and effectively managing the risks in their business to ensure that, if problems arise, consumers will not be unfairly harmed.
Some debt management companies and not-for-profit debt advice bodies will have to comply with a prudential requirement under our new system to protect consumers. Any firm that has held £1m or more over the last year, or estimates that it will hold £1m or more in the year to come, will have to hold a certain amount of money at all times. This is to make sure that if a debt management company or a not-for-profit debt advice body fails, their customers will be protected.
These companies will have to hold either £5,000 or 0.25% of the amount of debt they are managing - whichever is higher.
As some debt management firms and not-for-profit debt advice bodies hold their customers' money, and these can be large amounts, they will have to follow some extra rules to ensure that their customers are protected.
For example, they will have to:
- be audited every year by an independent auditor so we can make sure they are complying with our requirements
- regularly make sure that the information they hold is correct and up-to-date
- maintain their records to such a standard that it is possible to distinguish whose money they are holding, and information can be easily found if the firm fails
- have a process in place to return customers' money if the firm fails
We also propose to require firms to direct customers to free debt advice and to spread their set-up costs so that customers start paying off their debts as soon as possible.
Enforcing our rules
When firms break our rules, we have the power to punish them in a range of ways - for example fining them, banning them from carrying out certain activities or making them do the right thing. For more information on how we enforce our rules, see our enforcement pages.
Making complaints and claiming compensation
If you feel you've been treated badly by a financial services firm, you can complain to the Financial Ombudsman Service. It will investigate your complaint and decide whether you have a right to compensation. If you have a complaint about a consumer credit firm you will be able to raise it with the ombudsman.
The Financial Services Compensation Scheme (FSCS) may be able to pay compensation where a firm is unable to. However, consumer credit will not be covered by the FSCS. We will review this when all consumer credit firms are authorised by us.