Features | 20/07/21

The regulation of consumer credit will be changing. That is the only certain thing we know. How regulation changes, or when it changes, are unknowns at this stage.

We are certain that there will be changes to the regulation of consumer because: the UK has left the European Union (EU), creating both a need and an opportunity for change in areas of regulation that were driven by EU rules; the Government is working to develop the future regulatory framework (FRF); a new CEO in in place at the Financial Conduct Authority (FCA) and a major transformation programme for the organisation is underway; the recent review of the regulation of unsecured credit (the Woolard Review) made 26 recommendations for change; and there is a longstanding commitment to review the remaining provisions of the Consumer Credit Act (CCA).

Following the UK exit from the EU, relevant EU laws and regulation have been ‘onshored’ as a short-term measure. In the longer-term the Government intends to use the UK exit as an opportunity to review and update the regulatory framework for financial services in the UK.

A recent consultation from the Treasury set out the Government’s proposed approach to the regulatory framework. The intention is for Parliament to set high-level policy objectives for financial services regulators, with much of the detail of regulation moving from legislation to the regulators’ rule books.

Moving regulation from law – both primary legislation and regulations – into regulatory rulebooks will be a mammoth task and will keep Government, Parliament and regulators busy for years to come. It could well be the financial services equivalent of painting the Forth Road Bridge.

But there were two glaring omissions from the Treasury consultation – specific regulation of consumer credit and the role of the Financial Ombudsman Service (FOS) in the regulatory framework.

Consumer credit touches the lives of the majority of ordinary working people in the UK. Given this, reviewing and updating regulation of consumer credit should be more of a priority for the Government and regulators.

Consumer credit regulation is split currently between the CCA and the FCA rulebook, resulting in an uneasy marriage of detailed rules – based on the way consumer credit worked many years ago –  and principles-based regulation by the FCA.

This creates a strong case for a comprehensive review of consumer credit regulation – a point we have made to the Government and to the Treasury Select Committee, which is also looking at the future of financial services in the UK.

The exclusion of the role of the FOS from the work on the future regulatory framework is both curious and disappointing. The impact of the FOS is significant, across financial services and the role of the FOS really needs to be considered as part of any work reviewing and updating the regulatory framework.

In tandem with the Treasury work on looking at the regulatory framework, Christopher Woolard (former interim CEO of the FCA) conducted a review of the regulation of unsecured consumer credit. The review resulted in 26 recommendations for change, including extending FCA regulation to cover unregulated buy-now pay-later (BNPL) products.

Historically, new products and services developing outside the perimeter of regulation – as BNPL has done – has been an issue. While the Woolard recommendations would deal with the particular issue of BNPL, it will still take time to implement. But it is also vital for the FCA to be able to act quickly to bring unregulated products into the scope of regulation, particularly where customers are at risk of harm.

Helen McCarthy 
Head of Policy & Deputy Chief Executive