Implications of Brexit for consumer finance

Is any new EU legislation expected to come into force and effect before the end of the transition period?

The consumer finance industry as a whole has experienced a great deal of change over the last 10 years, particularly as a result of the implementation of new EU legislation. This includes the Consumer Credit Directive (CCD) in 2011, the Consumer Rights Directive, which was implemented over a number of years between 2013 and 2015, the Mortgage Credit Directive (MCD) in 2016 and, most recently, the second Payment Services Directive from 13 January 2018.

When it comes to lending to consumers, we now have equivalent regimes across the EU Member States in terms of the requirement to provide consumers with certain information before entering into a loan agreement or mortgage.

As a result, we are not currently envisaging any new EU legislation being implemented before the end of the proposed transition period that specifically impacts the consumer finance industry.

Is a new regulator needed, or do additional powers to be given to an existing regulator?

No. The FCA will continue to regulate firms that provide loans and mortgages to individuals for non-business purposes post-Brexit.

Is there an existing “equivalence” or “recognition” regime for recognising Third Country regulatory regimes?

As we say above, the regulatory regimes for consumer credit and mortgage lending have been harmonised across the EU, with all member states being required to implement the CCD and MCD, as maximum harmonisation directives, into their own jurisdiction.

At present, there is no existing regime for recognising other countries’ regulatory regimes.

Does current UK government policy mean that (subject to the terms of a future trade agreement between the UK and the EU) material changes to regulation or enforcement are likely post-Brexit?

We do not anticipate the UK government making any material changes to the existing consumer credit or regulated mortgage regime immediately following Brexit, given the number of recent changes to legislation in this area.

However, given that a great deal of existing UK consumer finance law is based on the implementation of EU Directives such as the CCD and MCD, Brexit presents the opportunity for the industry to lobby the government and the FCA with its suggestions for simplifying the current consumer credit and mortgages regime in certain areas.

The government is more likely to be receptive to moving away from a single market approach in these areas, given that, ordinarily, borrowers look to obtain a loan or a mortgage in their home country, rather than shopping around abroad.

We anticipate that the FCA is likely to take a “wait and see” approach in relation to suggesting any changes to the existing rules and legislation in view of Brexit, to avoid requiring firms to make multiple changes to their systems, processes and documentation which could not only be costly, but could create confusion for borrowers.

What should businesses be doing now to prepare for Brexit?

From a UK law perspective, firms that are established in the UK and who only lend to UK-based customers, will not need to take any specific action to prepare for Brexit.

However, firms that currently rely on passporting rights under the Banking Consolidation Directive or the MCD to offer consumer finance from another Member State into the UK, or vice versa; will need to consider whether they wish to continue to provide these products in the relevant jurisdiction(s) post-Brexit.

If so, and in the absence of any agreement being reached between the UK and the EU in relation to an equivalence regime, firms will need to decide whether they should set up a branch or a subsidiary in the relevant jurisdiction, and what that might involve in terms of obtaining necessary regulatory permissions or licenses.