Purpose
The purpose of the Consultation Paper is to propose that consumer lending business be brought fully within the scope of financial services regulation with the JFSC having direct oversight of such activities.
Currently consumer lending is not regulated. The States of Jersey believe that introducing minimum standards will help protect consumers and reduce the risk of mistreatment of islanders.
James Mews, Counsel and Roisin Hocking, Legal Assistant
Background
In Jersey, the provision of consumer credit and lending is only regulated in relation to anti-money laundering and the countering of the financing of terrorism. There is a voluntary Code of Practice (“Voluntary Code”) which many companies in Jersey involved in consumer lending activity adhere to.
The new Consumer Protection (Unfair Practices) (Jersey) Law 2018 provides some protection to consumers but as consumer lending is not overseen by a regulator, there is a risk of consumers being unfairly treated and the terms of any lending may be unfair. The proposals are another step on the road towards greater regulation and protection following the introduction of the Deposit Compensation Scheme, the creation of a Financial Services Ombudsman, and the enhancement of the adoption of the data protection regime over the last 10 years.
Other jurisdictions
The consultation paper states that the proposal for regulation is in line with that in place in other jurisdictions. In the UK the Financial Conduct Authority has had responsibility for regulation of consumer credit since April 2014. There have also been proposals put forward in Guernsey to regulate lending, credit and finance.
Scope
Schedule 4 of the Financial Services Ombudsman (Jersey) Law 2014 (the “Law”) defines consumer credit business under paragraph 1 as “relevant credit business”. The definition covers activity associated with lending. The Government of Jersey propose that the definition under the Law is to be used as the starting point in defining the scope of consumer lending regulation.
It has also been proposed that the regulation of consumer lending should generally be aimed at retail consumers rather than corporate lending.
It is proposed to set the threshold at which consumer lending is brought into regulation by applying the “by way of business” test set out in Article 2(1) of the Financial Services (Jersey) Law 1998 (“FSJL”). The “by way of business” test is a well-established test in Jersey, is seen as flexible and effective, and is well understood internationally with the test being used in the UK in relation to consumer lending.
It is considered that the jurisdictional scope test in the FSJL should be apply to consumer lending that is activities “carried on in or from within jersey”. This would not only encompass Jersey based lenders but also lenders based outside of Jersey providing services to a Jersey consumer.
Exemptions
Some consumer lending regulation regimes, such as the UK, set out exemptions from the requirement to be regulated, notwithstanding the scope principles. The preliminary view of the States of Jersey is that the following exemptions from the Jersey regime would be appropriate:
1. Business loans exceeding £25,000;
2. Loans secured over investment portfolios; and
3. Buy-to-let agreements.
Effects of regulation
The primary intention behind the proposal set out in the Consultation Paper is to bring consumer lending businesses within the oversight of the JFSC. Regulated firms would be set requirements in Codes of Practice issued by the JFSC.
The same standards which apply in other parts of the financial services industry would be applied by the JFSC using their considerable experience.
Transition
The Consultation Paper identifies that there is the need for consideration concerning how businesses will be brought within the scope of regulation. Transitional provisions are proposed to avoid unintended consequences and to help to ensure the introduction of the new law is not overly disruptive and fulfils its objectives.
The closing date for responses is 31 January 2019 and responses are invited from individuals and businesses with an interest in the area of consumer lending.
For more information, please contact James Mews or Roisin Hocking.