Vulnerable could lose out under new consumer credit regime, panel warns

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17 August 2015


People relying on credit or debt services “particularly vulnerable”

Vulnerable people could lose out under the latest plans by the Solicitors Regulation Authority (SRA) for the regulation of consumer credit work, the Legal Services Consumer Panel has warned.

The panel said that although credit was important in “giving people greater flexibility”, some consumers may “get into problems and suffer detriment trying to pay back debts.”

The panel was particularly concerned by the proposal to extend the exemption from regulation by the Financial Conduct Authority (FCA) for consumer credit activities undertaken by solicitors in the course of contentious business to pre-issue work.

“This brings a large number of law firms that carry out debt-collecting work outside FCA regulation.

“The panel’s view… is that this is inappropriate due to the fact that it is recognised that those who access credit and debt services may be particularly vulnerable, due to their individual circumstances.

“These issues are especially acute in relation to debt collection, where consumers are particularly vulnerable and where has been historic poor practice.”

The panel, which originally argued for consumer credit regulation to be handled entirely by the FCA as the “specialist regulator” in the area, said the presence of two regulators could lead to “new challenges” for monitoring.

“We would expect the FCA and the SRA to share data around any poor practice by solicitors, particularly as these proposals could potentially drive more SRA-authorised persons to seek dual regulation”.

The panel said the situation where SRA-only authorised persons sent their consumer credit-related complaints to the Legal Ombudsman while dual-regulated firms sent them to the Financial Ombudsman Service was “potentially confusing” and needed clear signposting.

The panel added that the SRA’s existing rules failed to reflect some of the FCA’s “key fairness principles”.

In its response to the SRA consultation, launched last month, the Law Society called for greater clarity over the issue of legal fees paid by instalments.

The society said solicitors did not need FCA authorisation if, at the outset of instructions, an agreement was made for the client to make up to 12 payments by instalments over a period of not more than 12 months, where the client could not pay in full at completion.

However, the society said this exemption did not remove the need for compliance with the Consumer Credit Act 1974, and for the agreement to be in the form prescribed by the Act. The society said the solution was for the SRA to lobby the Treasury to widen the exemption.

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