Feedback on Consumer credit: proposals in response to the CMA recommendations on high-cost short-term credit

In this Policy Statement the Financial Conduct Authority (FCA) report on the main issues arising from Consultation Paper 15/33, Consumer credit: proposals in response to the Competition and Markets Authority‘s (CMA) recommendations on High-Cost Short-Term Credit (HCSTC) (October 2015) and publish final rules for Price Comparison Websites (PCW) comparing HCSTC products. These come into force on 1 December 2016.

Why are the FCA publishing this policy statement?

In February 2015, the CMA published a final report on its market investigation into payday lending. This contained a package of remedies, some of which were to be implemented by the CMA, while others were recommendations to the FCA.

The FCA set out our response to these recommendations in CP15/33, published in October 2015. In that paper, we consulted on the following proposed new rules and guidance for PCWs comparing HCSTC products.

Application: The rules would apply to firms that own or operate a website displaying any terms concerning HCSTC products, and that holds itself out to be, or describes itself as, a price comparison service or price service, or gives the impression that it does one of those things.

Commercial relationships: The order or prominence in which products are displayed on PCWs must not be affected by commercial relationships that the PCW may have with lenders or intermediaries.

Search functionality: PCWs must allow users to search by amount and duration of the loan.

Rankings: Firms must return relevant results based on the search criteria, and display all HCSTC products in ascending order of price by the total amount payable (TAP).

Additional advertising: Additional financial promotions, such as sponsored links, should not appear in or among the rankings; the results of a search must be clearly distinguishable from other financial promotions; and guidance making clear that all results must comply with the Consumer Credit Sourcebook (CONC)3 requirement to be clear, fair and not misleading.

Market coverage: PCWs must list in one place on the website the brand names of lenders they compare.

The FCA also discussed in the CP their response to the CMA’s other recommendations on:

  • lead generators and credit brokers
  • improving shopping around
  • the use of real-time data sharing
  • improving disclosure of the costs of borrowing

The regulator received 17 responses to the consultation, which closed on 28 January 2016. Respondents included firms, trade bodies, consumer bodies, a PCW, and a credit reference agency.

Most responses were supportive of the proposed new rules, guidance and general approach. As a result, the FCA have decided to only make minor changes to the Instrument they consulted on to ensure its policy intention is reflected more clearly (some responses indicated a misinterpretation of their proposals).

The final text of the rules and guidance they have is in Appendix 1 of the document. These come into force on 1 December 2016. If your firm is affected, you should consider the changes you need to make.

PS16/15: Feedback on CP15/33, Consumer credit: proposals in response to the CMA’s recommendations on high-cost short-term credit (PDF)

Who should read this paper?

This Policy Statement will be relevant to:

  • authorised firms with permissions relating to HCSTC lending and credit broking, including firms with interim permission
  • firms that are applying for, or considering applying for, authorisation to carry out these activities
  • firms offering or developing quotation search tools
  • trade bodies representing consumer credit firms

This paper will be of interest to consumers and consumer organisations as the final rules the FCA are publishing will help ensure PCWs act in a fair and transparent way, enabling consumers to compare HCSTC products and shop around more effectively.

The FCA have also provide an update on work to improve the quality and use of quotation search tools across credit markets so that consumers are more able to shop around before making a full application for credit.

Further reading:

 

Source: FCA website