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FCA Policy Statement on consumer credit

The FCA has published its Policy Statement and final rules/guidance on Consumer Credit.

The key points for ABI members to note are:

  • The FCA states that monthly instalments are considered to be a credit agreement as ‘a financial accommodation is being provided’. However, it goes on to explain that the Government is consulting on possibly extending the CCD exemption to cover monthly instalments without interest/charges (page 18).
  • Some key OFT guidance will now be categorised as FCA Guidance rather than FCA Rules in the Handbook (page 35).
  • A section on proportionality (page 36-37) explicitly deals with the FCA’s approach to insurance payments by instalments. It notes the Consumer Credit Directive requires a creditworthiness assessment, but the extent and scope of that assessment depends on and is proportionate to relevant factors, such as the type and amount of credit and the risks to the consumer.
  • The FCA then states that the risk of credit being unsustainable will be lower if the credit ‘is free of interest or charges, OR there are either no charges payable on default or these are insignificant”.
  • The FCA also states it has made clear the level and extent of the pre-contractual explanation should be determined by the type and amount of the credit and the associated cost and risk to the customer.

The ABI is encouraged that the Policy Statement does acknowledge the proportionality issue in the context of monthly payments for insurance.

In addition, the ABI has received a letter from FCA Director of Policy, Risk and Research, Chris Woolard in which he agrees that the monthly instalments option is a useful facility for consumers, and confirmed further FCA discussions with the ABI in March to address the interplay between ICOB and CONC rules.

We will now conduct a detailed analysis of the rules/guidance and will use the analysis to work closely with the FCA and members to get greater clarity on the application to monthly instalments before the April 1, 2014 deadline.

Last updated 01/07/2016