United Kingdom's Unique Methods in Consumer Credit Oversight and Dispute Settlement Procedures Set It Apart within Organisation for Economic Co-operation and Development Nations
The United Kingdom's approach to consumer credit regulation and alternative dispute resolution (ADR) arrangements is a standout among Organisation for Economic Co-operation and Development (OECD) jurisdictions. This distinctive stance is primarily due to a robust regulatory framework, a strong emphasis on ADR mechanisms, and the unique integration of these two elements.
The British regulatory framework for consumer credit is stringent and well-established, overseen by regulatory bodies that enforce consumer protection measures more stringently compared to many OECD peers. The UK places significant emphasis on institutionalized ADR arrangements, promoting efficient, accessible, and fair resolution of disputes without lengthy court processes. This holistic approach, which integrates consumer credit regulation with ADR, is a unique feature that contrasts with some OECD countries where ADR arrangements may be less formalized or less tightly linked to regulatory supervision.
One key characteristic that sets the UK apart is the integration of ADR with consumer credit regulation. This ensures that consumers have clear, streamlined access to redress, and that lenders comply with both regulatory and ADR requirements. The UK's system is so integrated that firms are required to apply previous Financial Ombudsman Service (FOS) decisions, turning the FOS into a quasi-regulator. None of the other assessed jurisdictions require firms to apply ADR decisions to other similar complaints.
However, this integrated system has not been without challenges. Inconsistency in FOS decisions can lead to complaints and claims management activities, including the mass use of templated and unsubstantiated claims. The ongoing reviews into consumer credit, including buy-now-pay-later schemes, and the Financial Ombudsman Service are addressing these issues.
The Finance & Leasing Association (FLA), in collaboration with Eversheds Sutherland, recently published a research report comparing the UK's approach to consumer credit regulation and ADR with those of France, Germany, Italy, Poland, New York State (USA), and other OECD jurisdictions. The report highlights the UK's unique position and suggests that the regulatory framework in the UK regarding consumer credit is more restrictive compared to other jurisdictions.
Chris Busby, UK Head of the Financial Services, Disputes and Investigations Group at Eversheds Sutherland, commented on the importance of the report's findings, underscoring the need for ongoing reform of the Consumer Credit Act (CCA) and the FOS to ensure the system remains effective and efficient.
Eversheds Sutherland, a global top 10 law practice, operates in over 70 offices in more than 30 countries across various continents. The network of more than 200 related law firms, including formalized alliances in Latin America, Asia Pacific, and Africa, provides support around the globe for Eversheds Sutherland. In 2023, the firm acted for 57 of the FTSE 100, 75 of the Fortune 100, 129 of the Fortune 200, 41 of the Fortune 50, and 21 of the CAC40.
The UK provides a private right of redress for breach of regulatory rules (FSMA s138D), and has provisions for unfair relationships claims specifically relating to consumer credit (Consumer Credit Act (CCA) s140A). The UK's multi-faceted regulatory regime for consumer credit includes law and regulation, regulatory rules and guidance, regulatory principles, and outcomes-focused regulation.
The material monetization of the complaints process by claims firms is not seen in the other assessed jurisdictions. The UK is the only country in the study targeted by claims management companies and claimant law firms due to inconsistent decision-making by the Financial Ombudsman Service (FOS) and its quasi-regulatory approach. Outside of acting without authorization or breaching usury laws, the UK and Italy are the only countries that have unenforceability sanctions for specific breaches of consumer credit law and regulation.
The ongoing reforms and reviews are aimed at ensuring that the UK's unique approach to consumer credit regulation and ADR continues to promote consumer protection and efficient dispute handling, while also fostering innovation and growth in line with the national agenda. The study is hoped to serve as a useful resource in these efforts.
[1] Source: Finance & Leasing Association (FLA) and Eversheds Sutherland research report, 2023. [4] Source: Organisation for Economic Co-operation and Development (OECD) Consumer Credit and Mortgage Markets Outlook, 2022.
The UK's robust consumer credit regulatory framework, which incorporates a strong consumer protection focus, is uniquely stringent among OECD jurisdictions. This is underscored by the UK's extensive use of alternative dispute resolution (ADR) mechanisms in finance and business, with a view to resolving disputes efficiently and fairly without lengthy court processes. The integration of ADR with consumer credit regulation in the UK is a key differentiator, ensuring that firms adhere to both regulatory and ADR requirements and consumers have streamlined access to redress.
