New FCA regulations in the UK: How is it beneficial to the people?

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The Financial Conduct Authority (the FCA): It is responsible for the regulations in the matter of conducts in wholesale, as well as retail, financial markets and also the related infrastructure that is to support these mentioned markets. 

As well as all of the individual rules and requirements the FCA is also responsible now for asking and requiring the firms to efficiently put the well-being and good will of the customers essentially at the heart of the solution to the question that how will they run their business, also promoting enough effective competition and at the same time ensuring that the markets are operating with proper integrity.

The when it comes to Consumer Credit, and in particular Payday Loans the newly introduced regime promises to allow the FCA to ensure better protection and much better outcomes for their customers much more efficiently than the previous OFT regime. Now the payday lenders face some tougher requirements, which includes an affordability check which mandatory on the borrowers, in the process limiting the number of loan roll over to two while also restricting the current number of times the CPA (Continuous Payment Authority) that can be used. Also, there will be much tighter restrictions on exactly what the payday lenders can communicate in the adverts and teh FCA will be able to ban those that are misleading the others.

These FCA regulations apply to any and all the firms or individuals that are offering credit cards and other related personal loans, selling services on credit or selling goods, providing counselling for debt, offering some goods for hire or the debt adjusting compatible services to the consumers.

The FCA's, Martin Wheatley has previously quoted the new regime in very nice words as follows: 

“Our aim is to create a regime that protects consumers and allows businesses to operate. There is a balance to be struck here, and to make sure we get it right we want to hear from as many interested parties as possible.”

He also said:

“Today I’m putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking.”

This change in regulation takes responsibility of more than 55,000 firms that have valid and existing credit licenses. The FCA desires to make sure that the consumers are equipped with more than enough information required to make the correct and informed choices, the fact that the market is tough and very competitive and that it offers loans which meet the customer's needs and also that the ones in difficulty are very much treated fairly.

The very key elements of this cumulatively proposed consumer credit system are:

  • Regular affordability checks shall be performed for each and every credit agreement in order to ensure that those consumers only can get a loan who can afford a loan.
  • All the advertisements and the related promotions should be fair, clear and not misleading. The FCA would have the right to ban the misleading adverts.
  • Firms that pose a greater risk for the consumers and are involved in higher risk business shall face a much tougher and rigorous supervisory approach. 

The specific rules related to the payday sector are very well formulated and consist of the following:

  • Liming the maximum number of attempts to use CPAs by a payday lender to pay off a possible loan to two.
  • Capping the daily interest, default charges and total cost of Hight Cost Short Term loans
  • Limiting the loan roll overs to two.
  • Clear and precise risk warning should be apparently displayed on the relevant promotions and adverts along with some debt advice and more information.
  • Information and guidance on where and how to get the free debt advice shall be provided to each and every borrower that possibly rolls over a loan.

1. A very robust authorization gateway in order to ensure that any of the firm or the related individual who is authorized to execute some consumer credit business is proper and fit, and also that firms under consideration have the suitable and very much sustainable business models.

2. The consumers will uninterruptedly continue to have much access to the concerned Financial Ombudsman Service but it is to be noted that there are possibly no current plans to include the consumer credit into the scope of the corresponding Financial Services Compensation Scheme. The FCA will keep checking this regularly under review.

3. There will be enforcement teams and staff that will be solely responsible for cracking down on the poor practices, unauthorized business and money launderings. The firms that violate the rules shall be penalised and may face some very detailed investigations.

So the good news for consumers is that the have already seen, and will continue to see vast improvements in the way consumer credit products are offered and managed by lenders. For lenders there is also good news, those who want to change their business to follow the new rules will have a level playing field, while those that don't will be forced to leave the marketplace.