ABSTRACT
Recent amendments to the UK Financial Services and Markets Act 2000 (FSMA) by the Financial Services Act 2012 reflect the growing orthodoxy of duality of financial (prudential) regulation and consumer protection, a path also followed in sections 129 to 131 of Australia’s National Consumer Credit Protection Act 2009 and in the establishment of the US Consumer Financial Protection Bureau. The duality of regulation model has led to the creation of two separate bodies for regulating the activities of banks and financial institutions. One regulator is typically responsible for prudential regulation while consumer protection broadly defined is the second regulator’s responsibility. Although the assumption is that prudential regulation and consumer protection operate in different coherent spheres, their dividing line is often nebulous in practice. One area where both financial regulation and consumer protection concerns overlap is consumer indebtedness. In August 2014, the aggregate personal debt in the UK was £1.455 trillion; the average household debt was £55,088; the average individual adult debt was £28,813, which was about 116 per cent of earnings; estimated interest repayments were £162 million per day and £59.2 billion over a 12-month period; average household annual interest repayments were £2,242, while individuals paid £1,173 constituting about 4.7 per cent of earnings in annual interest repayments. The total outstanding mortgage debt relating to about 11.1 million households was £1.29 trillion. Households owed on average £115,940 in mortgage debt and paid average annual interest of £3,733. In relation to consumer credit, the outstanding lending was £162.2 billion, while the average individual adult and household consumer credit debts were £3,220 and £6,155, respectively. In relation to credit cards, the average household debt was £2,180. Interest payments for the total debt of £57.6 billion would cost the average credit card holder £54 per month to clear the debt in five years or £38 per month to clear in ten years. The size of consumer debt in the UK renders it a significant phenomenon. Size alone does not turn a phenomenon into a problem, but there is also evidence of market failure. For example, recent consumer indebtedness statistics in the UK suggest a huge and growing problem despite widespread public concern and varying degrees of regulatory intervention.1 The Citizens Advice Bureaux in England and
average, in the UK, one person every five minutes and 297 every day are declared bankrupt. There are 118 mortgage possession claims, 87 mortgage possession orders and 71 repossessions of mortgaged properties every day in the UK. It is largely because of the consequences of consumer indebtedness that responsible lending is attracting increased attention. Responsible lending involves evaluating contextual factors that impact on a borrower’s ability to repay loans. The factors include existing indebtedness, employment situation, caring responsibilities, psychological, physical and emotional health situations, personal habits and consumption. As a result, Charlie McCreevy, the European Union Internal Market Commissioner, described responsible lending and responsible borrowing respectively as ‘[w]here the credit products sold are appropriate for consumers’ needs and are tailored to their ability to repay’ and ‘where consumers provide relevant, complete and accurate information on their financial conditions’.2 The Internal Market Commissioner, therefore, regarded both responsible lending and responsible borrowing as ‘vital components in ensuring a stable and effective market’.3
