The FCA’s final Consumer Credit Sourcebook (CONC) was published on 28 February, a matter of weeks before it will apply to the consumer credit industry. Firms will be allowed a six-month grace period during which they can continue to comply with the pre-FCA regime while they make the changes necessary to comply with CONC.
Most of the detailed obligations set out in CONC replicate existing Consumer Credit Act provisions and OFT guidance although, as part of the FCA Handbook, they will be enforceable in a different way. Under 1.2.2R of CONC, firms must ensure their employees and agents comply with CONC and must take ‘reasonable steps’ to ensure other parties acting on their behalf comply, which will be a major area of work in terms of training, oversight and monitoring.
There are notable changes from the current regime, both in terms of new provisions and the removal of discretion where OFT guidance has been upgraded to rules.
Advertising has been brought within the FCA’s financial promotions regime, which has broader application than the existing regulations carried over to CONC 3. There is also new guidance on the requirement for communications to be ‘clear, fair and not misleading’, which includes presenting a balanced view by highlighting risks associated with a product each time its benefits are communicated.
Under CONC 5, firms must consider sufficient information to assess sustainability of payments as part of the creditworthiness assessment they carry out before entering into regulated agreements. This has been carried over from OFT guidance but, as of 1 April, will be enforceable as a rule. The scope of the assessment should be proportionate to factors which may include one or more of those listed at 5.2.3G, including the amount, type and cost of the credit and the customer’s existing and future financial commitments. This will impact on underwriting within the motor finance industry, and providers will need to review the adequacy of their systems and lending criteria.
Under CONC 7, OFT guidance relating to treating customers in arrears with forbearance has again been upgraded to a rule which, according to the supporting guidance, could include suspending interest and charges, accepting token payments and allowing ‘breathing space’ where a customer is developing a repayment plan. 7.3.3G specifies that a firm should allow for arrears to be repaid within the original term of the agreement, unless it reasonably believes terminating the agreement will mitigate adverse consequences for the customer.
It remains to be seen how this will work in practice within the motor finance sector, where there is often a commercial need to recover a depreciating asset. Motor finance customers may face higher APRs and deposits as a result of tighter restrictions on when cars can be repossessed.
This is all overlaid by the FCA’s Principle 6, ‘treating customers fairly’, which will be central to the FCA’s approach to consumer credit regulation. The FCA will expect firms to demonstrate customers’ wellbeing is at the heart of their culture and decision-making.