Jersey’s new consumer credit regime. Loan sharks beware! (2024)

Jersey’s new consumer credit regime. Loan sharks beware!

What is being introduced and why?

Jersey is introducing a new consumer credit regime that will come into force in Q4 2024 or Q1 2025 (theConsumer Lending Regime or the Regime).

The Consumer Lending Regime aims to regulate consumer lending in Jersey and bring it within the scope of the Jersey Financial Services Commission’s (the JFSC) financial services regulatory framework.

The Regime intends to align with the UK's consumer credit regime and Guernsey's recently introduced consumer credit regulations. And so the wheel has turned full circle. It was the abolition in 1963 of the prohibition under Jersey law at the charging of interest at more than 5% which is said to have launched Jersey’s finance industry. Now 62 years later the control of lending and lenders has returned.

What is consumer lending?

Consumer lending occurs when banks or other lenders (such as credit unions, payday loan companies, or individuals) lend money to an individual (the consumer) for personal use. The consumer pays the lender back over an agreed-upon period.

Many of us are likely to be involved in some form of consumer lending/borrowing. Common types include home loans, credit cards, car loans, student loans, and personal loans.

What is wrong with the current regulatory framework?

There is currently no dedicated law governing consumer lending in Jersey. The absence of regulation puts consumers receiving loans at risk from lenders who may not operate in accordance with best practices (such as loan sharks).

What will the Consumer Lending Regime try to achieve?

The Consumer Lending Regime aims to protect consumers by setting standards consistent with other leading jurisdictions.

It seeks to ensure fair and responsible lending practices, to clarify the role of the Channel Islands Financial Ombudsman in handling consumer credit-related complaints, and to require authorisation and regulation of lenders’ activities.

It also aims to protect consumers from unfair practices, provide remedies for breaches or defaults, and establish a practical and compatible regulatory scheme.

What activities will the Regime regulate?

The proposed Regime will cover various activities related to consumer lending, including cash loans, financial accommodation, consumer credit agreements, consumer hire purchase agreements, secured lending arrangements such as mortgages, advising on administering and arranging regulated agreements, credit broking, and debt-related activities such as debt adjusting, debt counselling, debt collecting, and debt administration.

What are the five core proposals from the new Regime?

Licensing Consumer Credit Firms:Consumer Credit Firms (i.e. lenders caught under the Regime) (CCFs) which engage in lending or business ancillary to lending involving the general public will be required to seek authorisation from the JFSC. The JFSC will be responsible for licensing these persons, and a set of minimum governance requirements must be met before a licence is granted.

Principles for the Conduct of Financial Service Business: CCFs will be regulated based on a set of core principles, including integrity, due skill, care and diligence, good governance, treating customers fairly, being clear, fair and not misleading, suitability, managing conflicts, adequate protection of customer assets, and being open and cooperative with regulators.

Exemptions: The government proposes exempting certain types of specified businesses from the regime, and further exemptions may be introduced by ministerial order. These exemptions aim to avoid unnecessary overlap with other regulatory regimes and reflect the position in other jurisdictions.

Unfair Terms: The Regime will address unfair contractual terms by introducing a list of unfair terms in secondary legislation. If such terms are included in regulated agreements, they will be unenforceable, and interest may not be chargeable on the borrowed sum. The Royal Court may also decide not to enforce contractually agreed interest rates if they are excessive or unreasonable, as it does already in the exercise of its discretion.

Remedies for Consumers: Consumers will have remedies in the event of unfair terms and practices by CCFs. These remedies include redress through the Channel Islands Financial Ombudsman and redress through legal proceedings.

What protections will be extended to Consumers under the Regime?

The following protections will be granted under the Regime:

Payment Plans: Secondary legislation will likely be introduced to require that no enforcement action should be taken if the consumer in default has entered into a payment plan that has been observed. This allows for a more flexible approach to resolving repayment issues before resorting to legal proceedings.

Debt Collection: CCFs will be required to attempt to resolve repayment issues through debt collection efforts before initiating legal proceedings. Secondary legislation might require evidence of such attempts before a claim for an unpaid debt can be made.

CCFs will face restrictions on fees and charges under the Regime. The specific restrictions include:

High set-up or initial fees: Agreements involving high set-up or other initial fees or charges will be regulated, with limits on the amount that can be charged.

High interest rates or penalties: Agreements with high interest rates or penalties will be subject to regulation, with limits on the maximum rates or penalties that can be charged.

Changes in fees, charges, interest, or penalties: Agreements that result in changes in fees, charges, interest, or penalties based on a failure to repay within a certain period or in specified cases or circ*mstances will be regulated. There will be requirements for transparency and fairness when disclosing such changes.

Unfair fees, charges, interest, or penalties: Consumer Credit Firms will be regulated in relation to agreements that attract unfair fees, charges, interest, or penalties. The proposed Regime will likely define what constitutes unfair fees, charges, interest, or penalties and provide remedies for consumers.

What is the draft Law that will introduce the Regime?

The proposed legislation, Financial Services (Amendment No.5) (Jersey) Law 202- (the Law), will establish a regulatory framework for consumer lending in Jersey.

The draft Law will introduce amendments to the existing Financial Services (Jersey) Law 1998 to incorporate provisions specific to consumer credit business.

The draft Law also includes amendments to the Loi (1880) sur la propriété foncière, which is the law governing property ownership in Jersey.

When will the Regime be introduced?

The draft Law creating the Regime is expected to be lodged with the States Assembly in 2024, following an extensive consultation of the proposals with industry. If approved, it is anticipated to come into force in 2025. The JFSC will consult on secondary legislation and proposed Codes of Practice before the draft Law takes effect.

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