Consumer Credit Regime – Are you getting ready?
28 June 2024 | Sharon Avis
The Government of Jersey published a consultation paper in July 2023 on a new regime which will require persons / entities that engage in lending or business ancillary to lending that involves consumers (individuals only, commercial lending will be excluded) (“Consumer Credit Firms”) to obtain authorisation from and to be regulated by the Jersey Financial Services Commission (JFSC).
This will be achieved by adding a new class of business “consumer credit business” to the Financial Services (Jersey) Law 1998 (FSJL) and a new Schedule 1A which will set out the activities to be considered “consumer credit business”.
Consultation feedback has been published on the proposed regulations for consumer credit. Following the feedback received, some amendments have been made to the draft regulations, including some core definitions. The feedback paper reflects that there are some areas where the Government has stated further work is required ahead of finalising the draft legislation and that it will consider alignment with Guernsey’s regime where possible.
The new regulations will apply to all new loans and will not be applied retrospectively.
Proposed activity
The consumer credit regime will apply to consumer credit provided under:
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Consumer credit agreements
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Consumer hire agreements, or
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Secured lending arrangements.
The proposed activity to be caught is wide, but following feedback some amendments have been made to exclude commercial lending and provide the potential for High Net Worth Individuals (HNWI) individuals to “opt-out”.
The proposed regime includes:
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Personal loans (including from banks)
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Credit extended by debt collection agencies
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Mortgages over Jersey properties which are the consumer’s primary residence
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Credit provided as part of debt-adjusting and debt administration services
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Personal contract purchase financing / balloon loan (typically used for car finance)
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Store credit
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Linked credit
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Hire purchase
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Pay day loans
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Overdrafts
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Buy-now-pay-later loans (will apply to schemes where interest is charged or longer than 12 months)
Proposed Schedule 1A – FSJL
The new Schedule will set out the relevant definitions and activity relevant to the consumer credit regime.
Part 2 will set out the regulated activities, these have been amended following the consultation process:
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Entering into and exercising rights under regulated agreements and agreements
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Advising on regulated agreements and arrangements
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Credit broking
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Debt (including debt adjusting, debt counselling and debt administration)
The feedback notes that Jersey’s proposals in respect of debt collection do not align with the approach taken in Guernsey, however the Government feels it is important to know who is providing debt-related activities to consumers. Debt collection will be regulated via secondary legislation which will set out any permitted exemptions, including for some consumer credit firms the requirement to be licensed, but will not be required to comply with the rest of the regime.
Schedule 2 – Exemptions
The draft law sets out a schedule of exemptions including:
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Telecom companies will be exempted where they enter consumer hire agreements covering the supply of telecommunications equipment
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“Lombard lending” – narrow exemption to be included
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Lending on buy-to let properties
Further work / consultation required
The feedback reflects that the Government will need to undertake further work in some areas on how regulations are to be applied, these are:
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Exploring the potential for HNWI to “opt-out"
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Working together with the JFSC and industry to develop arrangements that will exempt private lenders (depending on the activity undertaken) from full JFSC supervision, including relevant corporate governance and financial stability requirements
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Buy-now-pay-later - the Government will consider the best approach to implementing a limited form of buy-now-pay-later regulation via secondary legislation and Codes of Practice to be applicable only to credit provided for a period longer than 12 months or that is not interest free
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The Government is considering whether the exemption for lending by trustees should be expanded and is working closely with the JFSC, industry and JATCo to explore this
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Overseas lenders – a specific consultation took place in January 2024 around exemptions in secondary legislation, Codes of Practice and guidance that may apply to overseas lenders. Discussions will continue throughout 2024.
Codes of Practice
In addition to obtaining and maintaining a licence, consumer credit firms will be required to comply with corporate governance requirements and adhere to core principles set out in tailored Codes of Practice. It is anticipated that these Codes will be in line with the voluntary Code of Practice for Consumer Lending and the core principles in place for other regulated businesses.
New Consumer Credit Regulatory Requirements
It is anticipated that the JFSC will also put in place tailored requirements specifically for consumer credit firms regarding the following matters:
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Pre-contract requirements
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Disclosure of information
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Features of the agreements or arrangements
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Contractual requirements
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Vulnerability checks
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Affordability
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High set-up costs, high interest rates and unfair fees
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Cooling-off periods
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Unfair terms
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A new Article 31A will provide the States Assembly with the power, by regulations, to make further provisions to regulate the provision of consumer credit. It is anticipated that this power will be used to make provisions preventing unfair terms from being used in consumer credit agreements. Further consultation will take place.
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Remedies available to consumer credit firms in event of default or non-compliance by consumer
The proposal reflects that a consumer credit firm may in some cases need to take action, however the consumer credit firm will be required to undertake additional steps (to be set out in secondary legislation), including:
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Payment plans – no action to be taken where a payment plan is in place and being followed
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Debt collection – attempt to resolve repayment issues before legal proceedings are issued
Feedback on enforceability of unfair terms
The Government envisages that the non-exhaustive list of unfair terms will be similar to that found in Schedule 4 of Guernsey’s Consumer Credit Law Rule and Guidance - a proposal will be consulted on later by the JFSC.
Timeline
Consultation for the secondary legislation has commenced and will continue throughout 2024. Future consultations will include details around:
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Pre-contractual requirements
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Contractual requirements
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Unfair terms
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Additional exemptions
Legislation should be lodged with the States Assembly towards the end of 2024 to be debated in early 2025. There would be a 12-month implementation period once the draft Law has been enacted, therefore the new regulations would not be due to come into force until 2026.
Next Steps
If you or your business engages in any form of credit / lending you should be reviewing the activity undertaken against the proposed scope of this new regime to consider if you or your business will be caught.
This process should involve the entity's governing body, if applicable, and documented.
Where you determine that the activity will be caught, you will need to look at how the business will meet the new requirements and implement measures such as relevant corporate governance arrangements and internal systems and controls.
If you or your business undertake credit / lending activity and would like to discuss this new regime, please get in touch.