The Financial Conduct Authority has taken control of the consumer credit industry from today promising tough rules for short-term high-cost credit firms and debt management companies.
In its 2014 risk outlook, published yesterday, the regulator said its plans to enforce a price cap on payday loans may affect some firms’ appetite to remain in the sector if profits are damaged.
Speaking on Radio 5 live this morning, chief executive Martin Wheatley said: “Our processes will probably force about a quarter of the firms out of the industry and that’s a good thing as those are the ones that have poor practices.”
The £200bn-a-year sector, previously the responsibility of the Office of Fair Trading, contains approximately 50,000 firms.
These include credit card issuers, payday-loan companies, pawnbrokers,log book lenders, peer-to-peer lenders, and debt management and secured loan providers and brokers.
Any firm now offering some form of consumer credit will now be subject to the FCA’s consumer protection rules and Principles for Business.
Payday loan and debt management firms will be the see the biggest changes to the way they operate.
The new rules include limiting the amount of times a payday loan can be rolled over to the next month to two and providing consumers with information on how to obtain free debt advice.
Secured loan brokers and lenders are not expected to feel any major changes until the EU Mortgage Directive rules are passed into UK law at which time they are expected to be merged with first charge mortgages.
But Buster Tolfree, commercial director at Central Trust, said secured loan firms should act now to ensure they are lending responsibly.
“In the medium-term MMR-style affordability models will ensure all lenders follow a responsible approach to affordability over the term rather than simply relying on out-of-date, debt-to-income ratios,” he said.