The CONC Sourcebook: An Overview
With the introduction of GDPR and next year’s roll-out of the Senior Managers and Certification Regime impacting upon the consumer credit sector this year, 2018 has brought a number of regulatory challenges and changes to current practice. With the Christmas break just around the corner, this month provides a good juncture to get back to basics, and ensure current and new staff training is up to date. This week, we’ll be recapping the specialist sourcebook for consumer credit firms, CONC.
The Financial Conduct Authority took over the regulation of consumer credit in the UK in April 2014, introducing a new regulatory approach which required wide-ranging changes to the authorisation process and the business practices of a number of firms. In 2013, the FCA consulted on its proposals for the regulation of consumer credit, and the CONC sourcebook came into force on 1 April 2014.
Principally covering parts of the Consumer Credit Act 1974 and the Consumer Credit Act 2006, CONC also includes obligations set out in other legislation, such as the Financial Services (Distance Marketing) Regulations 2004.
However, CONC does not represent a ‘catch-all’. Firms also need to be aware of obligations contained in other Handbook sections (especially PRIN, SYSC and DISP), and of other applicable legislation, including anti-money laundering regulations, however, CONC does cover the detailed obligations specific to credit activities.
Firms should read the CONC rules in detail. The following sets out a brief overview of the main sections.
CONC1 outlines the application and purpose of the rules, setting out that CONC applies to any firm carrying out credit-related regulated activities. Guidance is provided that CONC does not apply directly to a firm’s appointed representatives, but given that a firm is responsible for the actions of its appointed representatives, firms should ensure that their appointed representatives comply with CONC. This section also provides some guidance on financial difficulties.
CONC2 sets out rules and guidance on business standards, including a reminder that firms’ abide by Principle 6: ‘A firm must pay due regard to the interests of its customers and treat them fairly.’ This section provides some examples of practices that would be considered to contravene the requirements, including:
Targeting customers with credit agreements that are unsuitable for them
Subjecting the customer to high-pressure selling, aggressive behaviour and coercion
Not allowing customers who are unable to make repayments a reasonable time in which to make repayments
Taking steps to repossess a customer’s home, other than as a last resort.
Additionally, this section covers distance marketing, and the requirement for firms to provide clear and comprehensible information to consumers in good time before the customer is bound by the contract or offer. Distance marketing information must set out the name and nature of the firm, provide information on the service offered including the total price, information on the contract, and how to complain. This section also includes the rule that customers are able to request that they receive the terms and conditions on paper, and to change the means of distance communication.
Section 2.10 provides mental capacity guidance, summarising mental capacity as ‘as person’s ability to make a decision.’ The guidance offers a reminder that firms should assume a customer has mental capacity to make a decision unless they have good reason to know or suspect otherwise, and should not conflate capacity limitations with the inability to make a decision on a product or service, and should take reasonable steps to ensure that the customer is provided with support to enable them to make the decision. Ultimately, however, if the firm believes the product is unsuitable for a customer with mental capacity limitations, it should ensure they are not provided with credit.
CONC3 covers financial promotions and communications; financial promotions are defined as any ‘invitation or inducement to engage in investment activity’. Much of this section reiterates the requirement for clear, fair and not misleading communication. Guidance is provided on unfair business practices; stating that credit is available regardless of the customer’s circumstances or status, stating that a firm is a lender where this is not the case, mislead the customer as to the availability of a product, concealing or misrepresenting the identity of the firm, the use of false testimonials, endorsements, or unsubstantiated claims as to the firm’s size or experience would all be considered practices likely to contravene the clear, fair and not misleading rule. CONC3 also includes the rule that high-cost short-term credit firms must include a specific risk warning on their financial promotions.
CONC4 sets out pre-contract requirements including the content of quotations, disclosure and adequate explanations, rules for P2P agreements, credit brokers, commissions and continuous payment authorities.
CONC5 covers responsible lending, including the requirement to undertake a creditworthiness assessment; a reasonable assessment of the creditworthiness of a customer before entering into a regulated credit agreement, significantly increasing the amount of credit, and on the basis of enough information, sought from the customer and if necessary from a credit reference agency. The firm must also consider the risk the customer will not make repayments by their due dates, and the risk to the customer of not being able to make their repayments, considering the customer’s ability to make repayments as they fall due, out of their income or savings, without the customer having to borrow to meet the repayments. Chapter 5A covers the cost cap for high-cost short-term credit, including the consequences for contravention.
CONC6 sets out post-contractual requirements, including appropriation of payments, assignment of rights, and post contract business practice, including the requirement to monitor a customer’s repayment record, and take appropriate action where there are signs of repayment difficulties. This section also contains rules on refinancing, general and high-cost short-term credit and credit cards: persistent debt.
CONC7 details the rules on arrears, default and recovery, requiring firms to have appropriate procedures in place, and providing the rule that firms must treat customers in default or arrears difficulties with forbearance. Firms must consider how best to support their customers, but the guidance provides examples of suitable forbearance, including offering assistance to enable customers to get ‘back on their feet’ after missed payments, allowing breathing space, a halt in collections activities, and signposting to free and independent debt advice to give the customer the best possible opportunity to get on top of their finances. In addition, this section reiterates the requirement to take proportional action. Firms must not pursue a court order or bankruptcy petition before exploring less severe options.
CONC 8 covers rules for firms offering debt advice, including debt counselling, debt adjusting and credit information services. This section requires that firms provide certain pre-contractual information in a durable medium. They must also signpost to sources of free debt counselling in the first communication with a customer, and must provide sufficient information to the customer that they are able to make a decision about the services offered.
CONC 11 details cancellation, and the customer’s right to cancel an applicable contract without penalty, without giving any reason, within 14 days. Firms must disclose the right to cancel to the customer and must keep records concerning the exercise of a right to cancel and retain for at least 3 years.
CONC sets an emphasis on proportionality throughout, particularly in relation to the requirement that firms take a proportionate response to collection of debt. Firms cannot pressurise a customer to pay in an unreasonably short amount of time, or in a single payment, or through unreasonably large amounts, or pressurise a customer to raise funds to repay the debt through selling their house or borrowing money.
Similarly, the obligation on firms to communicate in a way that is ‘clear, fair and not misleading’ – PRIN 7 - is repeated throughout.
With the regulatory landscape changing significantly in 2018, and set to continue with the introduction of the Senior Managers and Certification Regime in 2019, firms that need to train their staff on CONC will benefit from our training pack. Our pack provides a comprehensive presentation including a range of activities to engage the learner and embed the information, helping firms to become and remain compliant with CONC requirements.