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consultation paper - June 2006 rules for the new consumer credit jurisdiction - chapter 2 general principles

the issue

2.1 Under the Financial Services and Markets Act 2000, as amended by the Consumer Credit Act 2006, the Financial Ombudsman Service has three “jurisdictions”. These are as follows:

(a) compulsory jurisdiction (CJ) Most financial services businesses regulated by the FSA are already covered by the existing CJ. It deals with most of their financial services activities and also some consumer credit activities. The consumer credit activities not currently covered include restricted credit and paying money by store card.

(b) consumer credit jurisdiction (CCJ) All businesses licensed by the Office of Fair Trading (OFT) under the Consumer Credit Act would in principle belong to the new CCJ. They would be covered for all the consumer credit activities they carry out, including those currently excluded from the CJ - see (a) above.

(c) voluntary jurisdiction (VJ) A business may choose to join the VJ to allow the ombudsman service to cover certain other activities. In relation to consumer credit, this would mean activities directed at the UK from elsewhere in the European Economic Area, which would have been consumer credit activities if they had been carried out in or from the UK.

2.2 It is intended that the ombudsman service should cover all consumer credit activities. This raises the issue of how to treat FSA-regulated businesses (such as banks and building societies) which are already covered by the CJ for some, but not all, consumer credit activities. Should the CJ be extended so that it covers all of their consumer credit activities, or should they be covered by the CCJ for these?

proposed way forward

2.3 It is desirable that the ombudsman service should cover all consumer credit activities, irrespective of whether the business the complaint is made against is regulated by the FSA or not. We believe that individual businesses would not wish to be covered by both the CJ and the CCJ - not least because that would mean paying two sets of levies. But we also believe that both businesses and consumers expect consumer credit complaints to be handled in the same way, whether they are covered by the CJ or the CCJ. We therefore propose the following:

(a) We will ask the FSA to extend the CJ to include those consumer credit activities that are currently excluded. These activities include restricted credit and paying money by store card.

(b) This would mean that, where a business licensed by the OFT for consumer credit is also regulated by the FSA, all complaints (including complaints about consumer credit activities) would be covered under the CJ alone.

(c) Where a business is licensed by the OFT but is not authorised by the FSA, all complaints about its consumer credit activities would be handled under the CCJ.

(d) The consumer credit rules would, to the maximum extent possible, mirror the rules currently in place for CJ, and for participants in the VJ.

2.4 The proposed consumer credit rules in annex B reflect the proposals at (a) to (d) above. There are a number of advantages to these.

  • Both businesses and consumers would see no difference in the way complaints are handled by the ombudsman service, irrespective of whether they fall under the CJ, CCJ or VJ.
  • The ombudsman service will be able to handle complaints about all consumer credit activities.
  • Businesses regulated by the FSA would not be required to pay levies and/or fees under both the CJ and the CCJ.

Q1 Do you agree that the ombudsman service’s compulsory jurisdiction (over FSA-regulated businesses) should be extended to include those consumer credit activities that are currently excluded - so that all complaints against FSA-regulated businesses can be handled under the compulsory jurisdiction, rather than being split between the compulsory jurisdiction and the consumer credit jurisdiction?

Q2 Do you agree that it will be simpler for both businesses and consumers if the rules for the new consumer credit jurisdiction (eg on time limits and procedure) mirror, so far as possible, the current rules for the existing compulsory jurisdiction and voluntary jurisdiction?