Response to HM Treasury Consultation – A new approach to financial regulation: transferring consumer credit regulation to the Financial Conduct Authority
The National Franchised Dealers Association (NFDA) and Independent Garage Association (IGA) are associations within the Retail Motor Industry Federation representing the interests of Franchised Vehicle Dealers and Independent Garages within the retail automotive industry. The automotive sector is one of the largest sectors in the UK, employing 570,000 individuals in 70,000 businesses.The Retail Motor Industry sector alone has a turnover of £140billion. The RMI has 8,000 members representing the interest of New and Used Vehicle Dealers, Vehicle Repairers, Motorcycle Retailers, Petrol Forecourts and Vehicle Auction Houses.
We are pleased to have the opportunity to respond to the above consultation on consumer credit regulation. The ability of car dealers to be able provide consumer credit to their customers is key to the health and viability of the retail motor sector. Without access to credit at competitive prices many consumers would be unable to afford to purchase a car. The knock on effect would be a reduction in vehicle sales and a damaging impact on the wider economy.
We are pleased that the consultation shows that the Government have listened to many of the concerns raised previously about the proposals to move consumer credit from the OFT to the new FCA. The introduction of a ‘Limited Permission’ regime for ‘low risk’ firms and the non-mandating of the Appointed Representative regime for consumer credit firms are very welcome inclusions in both this and Financial Conduct Authority (FCA) consultation which runs in parallel.
Our responses to the consultation questions are as follows:-
Conduct requirements and rules
1. What are your views on the Government’s proposal to carry forward CCA conduct requirements which cannot be easily replicated in FCA rules? Do you agree with the Government’s intention to require the FCA to review these retained CCA provisions, with a view to moving to rules-based alternatives wherever possible?
We broadly agree with the proposal to leave the CCA conduct requirements which cannot be easily replicated in the FCA rules where they are. We would be more concerned if these provisions were made to fit into the FCA rules, as by doing so there is a real risk that the rules will become modified in a way that means they become onerous either for businesses to comply with or will reduce consumers’ protection. In our view it is better in the short term at least to leave these provisions in the CCA in their original format.
We agree that the FCA should be required to review the CCA conduct requirements. However, this should be done to ensure that the provisions are in the correct place rather than just as an exercise in moving them to the FCA rulebook. Although it may be ideal to have all the provisions in the FCA rulebook it could be better that they remain within the CCA. Many of the provisions involved relate to CCD requirements which may not easily be written into an FSMA style regime.
2. How, if at all, do you think industry codes can complement FCA conduct regulation?
We would support the use of industry codes to help underpin the regulation of the consumer credit market. They are an additional tool to aid compliance and best practice as well as boost consumer protection.
Authorisation
3. What are your views on the Government’s proposals for the two tier authorisation regime? Is the scope of the limited permission regime right?
We believe the proposal for a two tier authorisation regime is right. We have been very concerned for many of our members who are SME’s and provide credit as a secondary function. Many are not FSA authorised, although some were in the past before deciding not to continue with authorisation due to the cost and administrative burden involved.
The scope of the limited permissions regime appears broadly right. The inclusion of secondary credit brokerage by sellers of goods should be of benefit to our members and should alleviate some of concerns about FCA authorisation.
We are also pleased that debt counselling, debt adjusting and credit information services have been included as low risk where they are an ancillary activity for firms in the low risk category. This should help dealers where they carry out finance settlements on behalf of customers when a vehicle is part exchanged. Without this provision all car dealers would fall in to the high risk category which we believe is not what the Government intended.
4. What are your views on the proposed changes to the appointed representatives regime?
We agree that the changes to the Appointed Representative (AR) regime are sensible. Many of our members operate as ARs for insurance. This provides a cost effective and administratively less burdensome regime for dealers to operate under. However it is unlikely that many of our member will be able to be an AR for finance: either because they need a wide choice of finance providers; or because the providers they use are likely to be unwilling to act as principals and have ARs and will be expecting their clients to be authorised directly under the FCA.
The provision to allow dealers to be authorised for consumer credit and remain ARs for insurance is important. Without this provision dealers would need to be fully authorised with the FCA falling under the Tier 1 ‘Core’ Credit Model with its greater burdens of administration and cost.
In addition we feel it should be noted that more firms may require full authorisation than the FCA has anticipated if finance houses do not want to be Principals in the automotive retail market. This could lead to congestion in the application process both for ‘interim permissions’ and full authorisation. It may also lead to the FCA having to deal with very small firms that they would prefer not to have to supervise.
5. What are your views on the proposed approach for dealing with those currently covered by group licences?
Not Applicable
Scope of regulation
6. What are your views on the Government’s proposals for scope of regulation, including changes in respect of credit intermediation, tracing agents and credit reference agencies?
The merger of credit brokering and credit intermediaries appears to be a sensible approach.
7. Are there any exemptions that are to be carried forward that should be reconsidered?
Non Applicable
8. What are your views on the proposed new activity to capture the activities of peer to peer platforms?
Non Applicable
9. Do consultation respondents have any data on the activity of lead generators in the debt management sector? What detriment is being caused by these firms? And what are your views on a suitable regulatory response?
Not Applicable
Enforcement and redress
10. What are your views on the Government’s proposal to repeal many of the criminal offences in the CCA and make breaches of these requirements, once in rules, subject to the FCA’s enforcement toolkit?
Repealing the criminal offences in the CCA and including them in the FCA toolkit instead will give more flexibility when dealing with breaches. It will also help address the issue that some breaches may not be addressed adequately as the criminal sanction is seen as too draconian.
However, care needs to be taken once the breaches have been transferred to the rulebook. As the breaches will no longer be criminal offences the burden of proof of wrong doing taking place will be reduced and with this businesses will have less protection from overzealous enforcement. Although we strongly support action against business who willingly and knowingly break the rules, we also believe that education and advice is an important tool in ensuring compliance and consumer protection. We therefore urge that the rules for enforcement are written and used in a constructive way and that firms are given help where rules are broken unwittingly or because of a lack of experience or knowledge.
Interim permissions
11. What are your views on the proposed interim permissions regime?
Broadly we are in agreement with the proposals for the interim permissions regime. However we would like to make the following points:-
· It is essential to ensure that all businesses involved in consumer credit are aware that they will actively have to apply for interim permission and know when this needs to be done by. They also need to know what will happen if they do not take action. Therefore a strong awareness campaign needs to be undertaken by the FCA in conjunction with trade associations and finance providers.
· We are also concerned thatthe timeframe and resources available to cope with dealing with the applications for interim permissions will not be sufficient. The timeframe for applying for interim permission is likely to be constrained due to short notice given for the move of consumer credit to the FCA and the considerable amount of work this is likely to generate for both the FCA and consumer credit firms alike. Considerable resource will need to be put in place to cope with the number of applications that will need processing in a short space of time. It is still not clear when the application process will open but looking at the consultation time scales we suspect that it will be Q4 2013 at the earliest. It should be noted that FSA authorisation for general insurance back in 2004/5 had a 15 month window for applications and this still proved very tight. Admittedly the interim process is to be streamlined and will not involve full applications until after 1 April 2014. However, the number of firms involved in consumer credit is far more considerable than for insurance and with this in mind their is likely to be a bottleneck of applications particularly towards the end of the process.
12. If you are operating a peer to peer platform and do not hold an OFT licence, what are your views on the transitional arrangements for peer to peer platforms?
Not Applicable
General Comments on the Consultation
We have a few additional points that we have not included in the above responses relating to the proposed move of consumer credit to the FCA.
Timescales
We are very concerned that the timeframe given to execute the move of consumer credit will not give firms time to adapt to the new regime. The new FCA rulebook will not be published until March 2014. This will give firms no time to implement the rules before the transfer of consumer credit on 1 April 2014. The style and format of the new regime and rulebook will be quite different to the existing regime and will take time for firms to understand and adapt to. We understand that the FCA believes that firms who are compliant with the current CCA regime on 1 April 2014 would be compliant with the new rules. However, we are less convinced if only because the style of the rulebook will be very different to the CCA. There will be a need for a transition period for firms to implement the changes. We would suggest this should run for the two years up to April 2016 when all firms will have been granted full authorisation.
Documentation
One of the major issues around compliance will be documentation. Firms will need to have time to ensure that all their documentation is compliant. The added problem with this will be the need to make several changes to documentation over a short space of time. Firms will be expected to make changes for 1 April 2014 to reflect the new ‘interim permission’ regime. Documents will then need updating once full authorisation is granted sometime between April 2014 and April 2016. This has huge implications for firms that need time to make changes and not to mention the costs of printing and resources required to carry out the change.
Consumer Credit Licences
It has been made very clear in both this consultation and in the FSA consultation CP13/6 which is running concurrently that firms will need a valid consumer credit licence on 1 April 2014 to be allowed to operate under the interim permission regime. It is also becoming apparent that the OFT will be wanting to wind down the processing of new licence applications ahead of the transfer to FCA . This raises the very serious question of what will happen to those firms whose licences come up for renewal in the few months before the change. These firms will need a licence to continue providing consumer credit after 31 March 2014 but could be in a position that obtaining one becomes difficult. Provision needs to be made for these firms.
We are also concerned that there could be an influx of licence applications prior to the transfer. We know finance houses are currently informing dealers to review their licences to ensure they are correct and that details on the licence are accurate. This is likely to increase the number of applications the OFT will see over the next few months.
Fees
The FCA are not consulting on fees until the Autumn and will not publish the final fee structure until next year. Although the FCA have indicated that fees for limited permission firms will be lower than for firms in the Core Credit Model, we are concerned that there is no current indication of what these fee levels maybe. Firms are going to be expected to make some very key decisions in the next few months as to whether to continue providing consumer credit or whether to move to be an Appointed Representative. They will be doing this without knowing the fee levels and as such will be making decisions without the full facts.