The Financial Services Bill means “business as
usual” for the car finance sector for the time being, the Finance
& Leasing Association (FLA) has confirmed.
The bill, published on 27 January, will
transfer consumer credit regulation to the
nascent Financial Conduct Authority (FCA). The government is
undecided how, or even if, it will apply FSMA to the motor finance
market or whether the FCA will regulate the CCA in the same way as
it is currently regulated by the Office of Fair Trading (OFT).
Go deeper with GlobalData
The moving of credit law oversight from the Office of Fair Trading
(OFT) to the FCA will include a tougher stance on payday loans
and providers, although how the government will decide which
elements of the CCA may be applied is yet to be seen.
Russell Hamblin-Boone, head of communications
at the FLA said: “Work will now start on what a new regime might
look like.
“The government has said nothing about the
timetable but it is likely that design work on a new regime will be
time-consuming. We are already talking to the government about that
process.”
Customer-representative bodies such as
Consumer Focus and Which? have welcomed the bill and Michael McKee,
head of financial regulation at law firm DLA Piper has said that
the power available to the FCA “is likely to lead to a higher
standard of regulation.”
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By GlobalData£20bn at risk
The publication has also been welcomed as a
fillip for the car finance industry, according to the FLA, which
has campaigned heavily against the use of an FSMA model by the FCA
in a market where the risk lies with the lender, not the
borrower.
Although the government has said that it wants
the FCA to apply FSMA to credit markets, it has accepted the FLA
argument that such a regime would have to be carefully tailored to
such a sector. Given the scale and difficulty of doing so, the
government is expected to fall back on the CCA.
Speaking to Motor Finance, Paul
Harrison, head of motor finance, and Russell Hamblin-Boone, head of
communications, at the FLA said they were “happy” and that “the
government has recognised consumer credit under the FSMA model is
problematic and recognised the FLA’s points about where risk
lies.”
Stephen Sklaroff, director general of the FLA,
has
written in Motor Finance of the FLA’s concern over using
the FSMA, repeated to delegates at the association’s
8th Annual Motor Finance Convention in November 2011
when he said such a model would not work in the “highly
intermediated” market of motor finance, thus
posing a threat to £13bn worth of businesses.
Of particular note to those in car finance or
intermediated markets are sections 4.19 – 4.23 of the
bill’s policy document regarding consumer credit regulation:
- 4.19 Respondents to the Government’s consultation
…also emphasised the diversity of firms and activities covered by
CCA and the need for a proportionate, risk-based approach. They
also noted that the consumer credit industry has only recently had
to adapt to changes to the CCA… - 4.20 Further engagement with stakeholders in recent
months has made clear that many would welcome an outcome that
brings consumer credit firms, particularly providers of high-cost
credit, within FCA regulation, while maintaining the core rights
and protections provided by the CCA. - 4.21 …the Government is now working to develop a model
that …reflects the particular characteristics of the consumer
credit market, and remains proportionate. - 4.22 …a full transfer of consumer credit regulation to
the FCA, with retention of substantive CCA provisions …if and when
it has identified a model of FCA regulation that is proportionate
for the different segments of the consumer credit market… - 4.23 …the Government retains the option to improve
consumer protection by enhancing the regulatory powers and approach
under CCA, should it conclude that a model for consumer credit
regulation under FSMA and the FCA cannot be delivered in a way that
improves consumer protection while delivering good regulatory
proportionality and value.
“We’ve led the change. We’re pleased to have
got a response that recognises different markets,” said Harrison,
who added that £20bn of essential credit was at risk.
Ahead of the curve
The current situation, before it is known
which elements of the CCA can be applied, should be taken as a
“pause for breath” after which “there has to be a more-detailed
conversation,” added Harrison.
The FLA will also be briefing MPs ahead of the
second reading of the bill on Monday, which will further
require approval by the House of Lords.
“There’s a huge amount of uncertainty but
we’re happy with where we are, considering where we could have
been,” said Harrison.
With the publication on Wednesday of the new
FLA lending code, which is expected to emphasise self-regulation
and, therefore, greater flexibility compared to the intransigence
of the bill at present, Hamblin-Boone said the FLA was “ahead of
the curve”.
A collection of industry-wide predictions
for car finance regulation in 2012 will be published in
February’s issue of
Motor Finance
magazine.
richard.brown@vrlfinancialnews.com
