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FCA: Consumer credit understanding ‘not quite there’

Mortgage Introducer

September 7, 2015

From next April the FCA will require all brokers referring, arranging or advising on regulated consumer credit deals to have full or limited permissions.

Most firms have been given landing slots between now and April but the regulator is worried that some brokers remain “uneducated” about what permissions they need to apply for.

Speaking at today’s FCA mortgage conference Linda Woodall, acting director of supervision, retail and authorisations at the FCA, said educating brokers unused to FCA regulation was still “a work in progress” and admitted she had concerns that too many brokers still didn’t understand what was required of them.

She said: “The key thing in both the mortgage and consumer credit markets is an understanding of affordability.

“While we are confident that understanding is there in the mortgage market the level of understanding in the consumer credit markets is not quite there yet – it’s a work in progress.”

Her comments followed a warning from FCA director of strategy and competition Christopher Woolard earlier today who told conference delegates: “Because mainstay markets remain relatively tight there are a lot of consumers looking at alternative sources to find debt.”

Woolard said the FCA had to ask what impact that will have on the wider market, particularly given the fact that mortgage debt favoured stricter affordability and stress testing interest rate rises compared to other forms of credit.

Several separate regulatory regimes come into force between March and April 2016 which affect the permissions needed by commercial, buy-to-let, second charge and bridging brokers.

The European Mortgage Credit Directive will see the creation of consumer buy-to-let meaning any first-time landlord who inherited a property to rent or any borrower using let-to-buy will need fully regulated MCOB advice.

Additionally brokers will have to decide whether to consider second charge loans alongside first charge lending and disclose to borrowers the fact they do not cover the whole of market if they choose against.

Second charge will also become a fully regulated activity requiring various sets of permissions depending on whether brokers choose to conduct business themselves, use packagers or refer leads to a specialist.

Under another regime, consumer credit regulation, brokers will require either full or limited permissions from the Financial Conduct Authority in order to conduct, advise or refer consumer credit business.

Many brokers successfully got their interim permissions last year when supervision of consumer credit transferred from the Office of Fair Trading to the FCA following the former body’s closure.

But in order to get full permissions the FCA requires a much fuller disclosure of brokers’ business plans and scope of advice.

Limited permissions only allow for the referral of consumer credit leads to a regulated broker if those leads arise from a subsidiary business – as in the case of car finance leads referred by a car salesman.


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