how is regulation of consumer credit changing?

It is proposed that amendments are made to the Financial Services (Jersey) Law 1998 (FS Law), by way of enactment of the draft Financial Services (Amendment No.5) (Jersey) Law 202- (draft Law). The FS Law already provides a framework of powers for the registration of financial service businesses, for the imposition of controls on their governance and the conduct of their business. The draft Law will create a new class of regulated financial services business, “consumer credit business”, under Article 2 of the FS Law. The changes will require those that engage in lending or business ancillary to lending that involves consumers to obtain and maintain a licence to undertake this activity in or from within Jersey.

The proposed regime will cover any cash loan and any other form of financial accommodation. It will cover consumer credit agreements, consumer hire agreements and secured lending arrangements (commonly referred to as mortgages). Lending will be captured if it is being conducted by way of business.

In addition to lending, the types of activities that will be caught by the proposed regime are:

advising on, administering, and arranging regulated agreements and secured lending arrangements (being an arrangement that creates security for the repayment of a loan against immovable property in Jersey used for residential purposes);
credit broking in respect of regulated agreements and arrangements; and
debt related activities such as debt adjusting, debt counselling, debt collecting and debt administration.

Building the new regime into to the FS Law means a firm that carries on unauthorised consumer credit business (i.e., without a licence), commits an offence punishable by imprisonment for a term of not more than 7 years, or a fine, or both.

It is envisaged the secondary legislation supporting the consumer credit regime will align with the general requirements of other financial services legislation with additional bespoke requirements built in as necessary.

Unsurprisingly, the consultation paper suggests that particular focus will be will be made on the disclosure of information to consumers, the need for vulnerability and affordability checks, restrictions around high set up costs, high interest rates and unfair fees, and the need for cooling-off periods.

The consultation paper acknowledges that some protection is already provided to consumers by the Consumer Protection (Unfair Practices) Law 2018, which bans traders in all sectors from using unfair commercial practices towards consumers, stops businesses from using aggressive selling techniques, and from misinforming or misleading people about products or services. The consultation anticipates these protections will be enhanced through regulation by way of the introduction of pre-contract and contractual requirements, including identifying unfair terms which will be unenforceable or in respect of which interest may not be charged, in a manner that aligns with regimes in other jurisdictions. The introduction of additional protection for consumers in relation to lending is seeking to strike a balance between protecting consumers through robust controls while ensuring proportionality that does not lead to a reduction in access to credit because an excessive regulatory burden is placed on lenders.

The consultation also proposes changes to the established Jersey law regarding enforcement proceedings in respect of Jersey immoveable property (degrévèment) to address perceived unfairness against debtors and indicates a longer-term intention of the Government of Jersey to reform insolvency remedies more substantially.

exemptions from the consumer credit proposals

It is proposed that certain types of businesses will be exempt from the proposed regime such as certain business loans, certain trade agreements, activities carried on by trustees and buy-to-let secured lending arrangements.

Whilst the regime is proposed to extend to “advising on, administering, and arranging regulated agreements and secured lending arrangements”, it is noted that both advice given in the course of a profession or business which does not otherwise consist of financial service business; and activities carried on by members of the legal profession, will also fall out of scope and be exempt.

The consultation paper also makes specific reference to exempting from registration certain overseas lenders, such as providers of credit cards. In the case of overseas lenders that have agents in Jersey, the intention is to provide a conditional exemption for the agent from the requirement to register with the JFSC and a limited regulatory regime for the lender.

Overseas firms that do not operate in Jersey in any way, such as UK or Guernsey lenders that do not have a presence or agent in Jersey, will not be required to be registered in Jersey. This means that any recourse a Jersey resident consumer may have against an entity registered overseas will lie with rights the consumer may have under foreign law and regulation. This is different to the Guernsey position, which is understood to require UK lenders to notify the GFSC that they conduct business in Guernsey, as the UK is deemed an equivalent jurisdiction under Guernsey’s Consumer Credit Law, and registration of other foreign lenders. However, Jersey’s proposed approach is consistent with how the JFSC approaches the regulation of other overseas persons in the jurisdiction under the FS Law.

timetable for changes

The consultation is open for comment until 15 September 2023. The Government’s intention is to lodge the draft Law with the States Assembly by December 2023. If the draft Law is approved by the Assembly in the first quarter of 2024, then it is expected to come into force by the end of 2024. The JFSC will consult on the secondary legislation (including with regard to scope and terms of exemptions and regulated contract terms) and its proposed Codes of Practice before the draft Law comes into effect.

Do get in touch with your usual Appleby contact should you wish to discuss.