07 Jul 2016

The UK's decision to exit from the European Union (EU) will no doubt have an impact on financial services and has created a lot of uncertainty in the financial services sector as details of the UK's exit plan remain unknown and will continue to do so for quite some time until the UK government is able to reach a deal with the EU.

What is clear however is that the UK's vote to leave does not mean that UK laws deriving from EU legislation are no longer applicable. In a statement published by the Financial Conduct Authority (FCA) following the decision to leave, the FCA said that consumers' rights would remain unaffected by the decision to leave the EU and will remain unchanged unless and until the UK government changes the applicable legislation.

Although the consumer credit regime has been influenced by EU legislation, we anticipate that "Brexit" will have a relatively little impact on the law relating to consumer credit as much of the European regulations have already been made into UK law, with the adoption of the Consumer Credit Directive (CCD) in 2010. In addition, as the FCA only became responsible for the regulation of consumer credit activities in April 2014 and has embedded consumer credit regulation into the FCA Handbook including the Consumer Credit sourcebook, we do not anticipate substantive changes to the consumer credit regime. 

Even prior to the adoption of the CCD, the UK already had a detailed consumer credit regime under the Consumer Credit Act (CCA) and many of the requirements under the CCA have been retained. When implementing the CCD, the government stated (in its July 2009 consumer white paper) that as many aspects of the CCD were similar to existing UK provisions, the law on consumer credit required a degree of modification rather than complete overhaul.

We may see bigger economic rather than legal implications for consumer credit, but this will depend on the relationship that the UK seeks with the EU in the future. Although the Bank of England reported in its Money and Credit report published on the 29 June 2016 that total lending to individuals increased by £4.3 billion in May 2016, compared to the average of £5.1 billion over the previous six months; we may see a drop in the figures over the coming months if the uncertainty of the UK's position in the EU affects consumers' borrowing and raises concerns amongst consumers and lenders.

Amongst all the uncertainty, what does remain clear is that consumers will be provided with the same level of protection and consumer credit firms will be regulated by the FCA in the same way as before. Until such time as we are told otherwise, consumer credit firms should continue to apply those UK laws which have been influenced by EU law.