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What the FCA's new consumer credit rules mean for car dealers

Is your dealership’s F&I operation customer-centric? Can you prove it? If not, can you afford to stop selling motor finance or face becoming one of the first motor retail groups to gamble on a potential multi-million pound fine from the Financial Conduct Authority?

On April 1, regulation of the consumer credit industry passes to the Financial Conduct Authority from the Office of Fair Trading (OFT). This means that by the time franchised dealers read this, they must have registered with the FCA for interim permission in order to legally continue offering motor finance to their customers. Dealers can still apply for permission after April 1, but will not be able to carry out any credit-related regulated activities until their application is approved, which could take up to six months.

Different credit activities require different categories of authorisation and dealers must ensure they have the correct permission for all the regulated activities they carry out, such as debt counselling (Cat E) and adjusting (Cat D) if they settle outstanding finance amounts due on customers’ part-exchanges. If dealers conduct such activities without the relevant authorisation they are in breach of Section 19 of the Financial Services and Markets Act 2000 and could receive an unlimited fine or two years’ imprisonment.

Christopher Woolard, the FCA’s director of policy, risk and research, explained the FCA’s approach to consumer credit: “The key issue here is that the current regime is struggling to protect consumers – the National Audit Office has talked of at least £450 million of potential financial harm not being addressed at the moment.

“In other words, the evolution of the UK consumer credit industry has outpaced its current regulation. That is why we find ourselves where we are today – with the FCA on the cusp of taking responsibility for some 50,000 consumer credit firms.”

From April 1, the FCA will be actively monitoring compliance and enforcing the regulations. It then provides a six-month transition period during which it will not take action, providing firms adhere to the existing Office of Fair Trading guidance and Consumer Credit Act requirements.

The need for an evidence trail

The next step will require firms to apply for full authorisation, which they can do as early as April 1,  although dealers will be allocated a “landing slot” by the FCA after October 1. The fees for authorisation will be tiered, based on the income a business generates from its credit activities, ensuring that the smallest firms pay the lowest fees.

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