News: New consumer credit proposals

[Legal Beagles]

New proposals for the regulation of solicitors doing consumer credit work have been drawn up by the Solicitors Regulation Authority (SRA).


The proposals would enable solicitors to carry out certain consumer credit activities as long as they are central to the legal services they provide. They would also ensure that law firms are not over-burdened with additional rules, and that client protections remain in place.



The SRA has been working with the Financial Conduct Authority (FCA) over the last 12 months to identify the best way to approach its regulation of solicitors providing these services. This follows the transfer of the responsibility for regulating consumer credit work from the Office of Fair Trading to the FCA on 1 April 2014.



Crispin Passmore, SRA Executive Director for Policy, said: "Our discussions with the FCA have produced a set of proposals that will ensure regulation is balanced. The proposals would focus regulation on the substantive activities undertaken by solicitors, in a way that would not be overly burdensome."



The SRA is consulting on its new proposals until 6 August and is keen to have feedback from across the sector. Following the consultation, final recommendations on the regulatory approach are expected to be presented to the SRA Board at its meeting in September.


SRA-authorised firms that mainly carry out consumer credit activities already require FCA regulation. The changes mean firms may now also require authorisation by the FCA if they undertake prohibited activities that are not considered central to their legal services practice.


These activities are listed in the SRA consultation document. The consultation is available on the SRA's website here:
Go to the consultation page



The SRA will also produce specific guidance around consumer credit work, and will hold a webinar to give those affected the opportunity to hear current thinking and pose questions directly to the SRA. Further information on the webinar is here:
Go to the webinar page



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[Amethyst]

Re: News: New consumer credit proposals

• 0.Therefore, we propose to amend the Scope Rules to prohibit those we regulate from carrying out the following consumer credit activities under Part 20:
  
  • entering into a regulated credit agreement as lender except where the regulated credit agreement relates to the payment of disbursements or professional fees;
  • exercising, or having the right to exercise, the lender’s rights and duties under a regulated credit agreement except where the regulated credit agreement relates to the payment of disbursements or professional fees;
  • entering into a regulated consumer hire agreement as owner;
  • exercising, or having the right to exercise, the owner’s rights and duties under a regulated consumer hire agreement; or
  • operating an electronic system in relation to peer to peer lending or entering into (or exercising or having the right to exercise rights and duties under) a peer to peer lending agreement.
  
  
• 11.It is proposed that restrictions will apply to firms carrying on permitted consumer credit activities. These restrictions will prevent firms from:
  
  • providing the client with credit card cheques, a credit or store card, credit tokens, running account credit, a current account or high-cost short-term credit
  • holding a continuous payment authority over the client’s personal account
  • taking any article from the client in pledge or pawn as security for the transaction (pawn broking)
  • entering into a regulated credit agreement as lender which is secured on land by a legal or equitable mortgage
  • entering into a regulated credit agreement, as lender, which includes variable rates of interest
  • providing a debt management plan to a client (a debt management plan is a non-statutory agreement between a client and one or more of the client's lenders, the aim of which is to discharge or liquidate the debts by making any payments to a third party which administers and reviews the plan and distributes money to creditors)
  • charging a separate fee for, or attributing any element of the firm's fees to, the provision of credit broking services.
  
  The proposed changes to the Scope Rules are set out in Annex 1.