The new Financial Services Bill was published in parliament recently leading to a few interesting changes for consumers of credit in the UK. The most significant is going to be the transfer of the responsibility for consumer credit from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA), a change that should take place by the end of next year.
But it does not appear to be just a shake up in responsibilities, reporting lines, and legislation – it looks like the government wants to change the culture of consumer credit in the UK and changing the industry watchdog is just the first step.
Martin Wheatley, head of the FCA, believes that a new era of tough regulation on consumer credit is required for a post-economic downturn era.
“You have to assume that you don’t have rational consumers. Faced with complex decisions or too much information, they default … They hide behind credit rating agencies or behind the promises that are given to them by the salesperson,” said Mr Wheatley to the Financial Times.
At present the FCA is being created within the existing Financial Services Authority with oversight of the retail market, but it will eventually be spun out to create an entirely new agency.
Martin Wheatley has made other announcements about the new approach and suggests that the government will become much more interventionist in the UK retail credit area.
Many will welcome this approach. Labour MP Stella Creasy has led a vocal and well-supported campaign against loan sharks and payday loans with outrageous interest rates in the UK. A recent example showed a company offering loans to students at over 4,200% APR.
But is the new authority going to take too long to set up – about two years from announcement to actual engagement – and will greater intervention in retail credit be beneficial now? Some might argue that the horse has already bolted, and others might say that consumer spending needs to be helped – not hindered – if we are ever going to see further economic growth. What’s your view?
Photo by Ken licensed under Creative Commons