UK's New Financial Regulator to Begin with Focus on Payday Loan Debt Collection

A new financial watchdog is set to open for business in the United Kingdom on April 1. The agency announced today that a review of the debt collection practices of payday lenders will begin on day one. The group has rulemaking and enforcement powers similar to the CFPB in the U.S. and will be very active in the years to come.

The Financial Conduct Authority (FCA) was created in late 2012 and began formation operations on April 1, 2013. A year later, it is ready to begin properly regulating the financial sector in the UK. Payday lenders and other high cost short term lenders will be the subject of an in-depth thematic review into the way they collect debts and manage borrowers in arrears, the FCA said.

“Our new rules mean that anybody taking out a payday loan will be treated much better than before,” said Martin Wheatley, FCA chief executive.” But that’s just part of the story; one in three loans go unpaid or are repaid late so we will be looking specifically at how firms treat customers struggling with repayments.”

The FCA’s new position as the country’s top financial regulator mirrors the rise of the CFPB in the United States. Like the CFPB, the FCA is taking duties away from an established regulator, the Office of Fair Trading (OFT), a group very similar to the Federal Trade Commission in the U.S.  The FCA is also moving in to a void filled by the shuttering of a banking sector regulator, the Financial Services Authority (FSA), in the wake of the financial crisis, just like the closure of the Office of Thrift Supervision (OTS) in the U.S.

The FCA also operates independently within the UK government.

Many of the previous efforts of the OFT are factoring into work that will soon begin at the FCA. The agency said that consumer complaints about debt collection are driving its decision to focus on defaulting payday loans.

“This area is a priority because six out of ten complaints to the Office of Fair Trading (OFT) are about how debts are collected, and more than a third of all payday loans are repaid late or not at all – that equates to around three and half million loans each year,” the FCA said in a release. “The new FCA rules should reduce that number, but for those that do fail to make repayments and are keen to get their finances back on track, there will now be a discussion about the different options available rather than piling on more pressure or simply calling in the debt collectors.”

The move comes as American ARM companies make big moves into the UK market. With a mature consumer credit market similar to the one in the U.S., a population near 65 million, and the sixth-largest economy in the world, the UK presents an attractive market for U.S. debt collectors and buyers.

Just last month, U.S. debt buyer Encore Capital Group, Inc. (NASDAQ: ECPG) announced that it will acquire UK-based debt buyer Marlin Financial Services for approximately $481 million through Cabot Credit Management, a UK subsidiary of Encore acquired last year. Its primary competitor, Portfolio Recovery Associates, Inc. (NASDAQ: PRAA), also announced the acquisition of certain UK operating assets from Pamplona Capital Management, LLP (PCM) coming two years after PRA’s major acquisition of UK ARM firm Mackenzie Hall.