Putting consumer protection first
The FCA's recent decision to take criminal action demonstrates its commitment to the regulation of consumer credit and to ensuring that people are working within their permissions, writes James Walton
The Financial Conduct Authority (FCA) has taken its first criminal action under the Consumer Credit Act 1974 against an individual who allegedly operated as a consumer credit lender without the requisite licence or authority.
On 1 April 2014, the FCA took over the regulation of consumer credit activities from the Office of Fair Trading (OFT). The FCA subsequently released its strategic objectives and the supporting three operational objectives, which are to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system, and to promote effective competition in the interests of consumers.
Following the transfer from the OFT, the FCA now has the power to investigate and prosecute individuals or firms who undertake unauthorised business. This power is codified in the Financial Services and Markets Act 2000 (FSMA). In a bid to adhere to the abovementioned principles, the FCA is actively pursuing those who it believes are acting outside of their consumer credit permissions.
First criminal action
The first criminal action taken by the FCA under the Consumer Credit Act 1974 is against Dharam Prakash Gopee. The FCA alleged that Gopee acted as an unlicensed consumer credit lender and that he targeted consumers who were often in difficult circumstances, loaning them money and often registering charges over their homes so that when the borrower defaulted, he was able to take possession of the properties. Gopee has been accused of conducting a regulated activity without the correct permissions on the basis that he entered into and administered regulated credit agreements as a lender from 2013 to date.
The FCA believes that Gopee has lent over £1m since 2013 without holding a consumer credit licence from the OFT or, post April 2014, the equivalent authorisation from the FCA.
This case highlights the importance of firms and individuals attaining the appropriate permissions before engaging in any form of regulated activity. Firms must ensure that they remain within those permissions and authorisations when lending to consumers and should continually keep any limits on their permissions or authorisations in mind when lending to consumers.
When the FCA took over the regulation of consumer credit in 2014, it made it clear that, where firms failed to comply with the new rules, it would use its powers to impose fines and to force firms to remediate their customers if it deemed it necessary. Not only this, but it advised that it would pursue criminal sanctions where appropriate. The action taken by the FCA on this case suggests that it is more than prepared to use its full range of enforcement powers if required, particularly in order to protect consumers, and those carrying out any form of regulated activity should not expect that a fine will be the only penalty the FCA will impose on a firm or individual where they act outside of their permissions and authorisations.
In relation to consumer credit, the FCA has focused a lot of its time recently on high-cost short-term lending and tightening up the regulation in respect of the same. It will be interesting to see if this remains its focus, or if this case represents a move by the FCA to utilise some of the less well-publicised criminal offences under FSMA (albeit within the same field) and pursue punishment for the lender to protect the consumer. What is clear is that the FCA views bad conduct in a very negative light and will take steps to impose the necessary penalties on offenders.
This case shows the FCA’s commitment to its obligations with regards to consumer credit and that it is willing to take the necessary steps to enforce the same. It is perhaps worth noting that those individuals with whom Gopee was engaging were often in difficult circumstances and Gopee was essentially a last resort lender for individuals who had nowhere else to turn. This may have had an impact on the FCA’s willingness to pursue criminal action in order to protect potentially vulnerable consumers. Given that Gopee was granted charges which would have enabled him to take possession of a property in the event of non-payment by the borrower, keeping in mind the fact that the borrowers were often in difficult circumstances already, it is perhaps understandable that the FCA would seek to use whatever powers necessary to protect consumers from such risks.
James Walton is a partner at Rosling King