The Reform Rollercoaster

Consumer credit has been subject to a huge amount of regulatory reform in the last five years… but does the future hold even more ups and downs?

A relentless flow of reform has diverted the attention of lenders and all their compliance and systems resources have been focused on ensuring their service always measures up. The result is that consumers now have more rights than ever before – but there has been little time or capacity for the industry to develop new and innovative products.

This trend looks set to continue – always keeping one step ahead on the reform debate and building on the previous successes that have helped it become so well monitored and regulated.

This year, the government has been extensively consulting with the industry, with the aim of helping to shape what the regulatory framework for financial services will look like in the future.

Meanwhile, BIS has undertaken a review of consumer credit and personal insolvency and is set to release a report during the summer.

Many issues are under scrutiny, including rate caps for credit and storecards, as well as a seven-day cooling-off period when taking out a storecard. The industry itself has lobbied for changes to voluntary terminations, modifying agreements and multiple agreements on the basis these should not continue after a maximum harmonisation Consumer Credit Directive had been introduced.

However, the big question mark is over how readily the government will implement any changes. This is particularly relevant given the regulation of consumer credit is likely to move from the OFT to the new FCA.

Changing regulator is going to be herculean task – and one which could take around five to seven years if it is done properly. This is definitely an area that the government will be paying close attention to in the coming months.

One of the core issues is that the consumer credit market does not operate in the same way as other sections of the wider financial industry – so it has to be treated and regulated in a different way too.

The government needs to weigh up all the pros and cons to ensure that it makes the right decision. Their aim – to transfer regulation by 2014 – is possible if they adopt a staged approach to the process.

There is also ongoing discussion on how the FCA and the PRA and Financial Policy Committee will interact. Overlap needs to be identified and eliminated to prevent duplicating efforts.

Meanwhile the FSA has been working on changes to the current regulatory remit, which could eventually be applied to consumer credit when the FCA takes over responsibility of the portfolio.

What can the credit industry itself do to make this process as simple and effective as possible? Well, the clear message is that it needs to be closely involved in all consultations as these discussions could eventually impact on all the consumer credit products in place once the regulatory framework comes together.

Reform is set to dominate the industry for many years – as it has already done for half a decade – and the consensus is that all work should focus on the transfer to a new regulator, rather than developing an all new rulebook.

Any change that does not recognise the diverse nature of the credit sector – or that the risk rests with the lender and not the borrower – could undo a lot of hard work and damage the consumer credit industry for no good reason.

Original article courtesy of CCR.