Whilst there is considerable ongoing discussion and speculation about the impact of Brexit, much of this has been about the economic and political consequences of this historic event. How do we think consumer credit lenders might be affected?
Apart from indirect economic consequences, such as the effects of Brexit on vehicle and equipment prices and values, as well as the new and used market generally, and whether all this will slow down lending activity, we believe that it will be very much business as usual from a legal and regulatory perspective. It is not thought that consumer credit benefits significantly, if at all from the single market, as lending does not work well on a cross border basis. Foreign currency loans will undoubtedly suffer from uncertainties with currency fluctuations, notwithstanding (although possibly due to) enhancements to consumer protection already brought in by the EU Mortgage Credit Directive (“the MCD”). Those enhancements will undoubtedly be relevant to the many ex pats living abroad but may cause lenders to restrict further lending in this area.
In fact, the MCD is probably a good example of existing EU legislation already written into UK law under the Mortgage Credit Directive Order 2015 which will not see any automatic changes even after the UK leaves the EU. Many other aspects of EU consumer law is already part of UK law. Whether we see changes in mortgage credit, or consumer credit regulation, because of Brexit remains in doubt. However, the MCD was not a welcome piece of EU legislation for the UK Government, not least because it introduced a particular category of regulated lending known as “Article 3(1)(b) loans” (loans to acquire an interest in land), which have ended up being subject to an unsatisfactory hybrid regime of lending. There are a small number of these anomalies which will in due course have to be reconsidered.
The focus for consumer credit lenders is, of course, at present, on how the forthcoming review of the retained provisions of the Consumer Credit Act will pan out in the next 3 years, an issue which is not directly affected by Brexit. Some of the existing provisions have of course originated from EU law (e.g. the Consumer Credit Directive). In this respect, the UK remains a member of the EU until its exit has been completed which will not be for at least 2 years yet; it may be that aspects of the CCA that are based upon such EU law may be game for reconsideration as part of such review, whereas prior to the UK’s decision to leave, it may not have been. However, it remains to be seen whether conditions for accessing the single market will impose on the UK a requirement of equivalency in regulation, a consequence of Brexit being that we may still have its rules imposed upon us, with less opportunity to influence those rules.
Three particular areas of uncertainty remain: the Insurance Distribution Directive (“IDD”) (formerly known as the Second Insurance Mediation Directive), the General Data Protection Regulation (“GDPR”) and the fourth Money Laundering Directive (“MLD IV”). The UK is yet to implement IDD into UK law (implementation deadline 23rd February 2018). This may affect lenders who sell insurance products. Given that we are still members of the EU, the programme of implementation must in theory continue; however, if the UK completes Brexit before implementation takes place, there may be many reasons, not least because of a desire to continue accessing the single market, why many of the measures may still end up in UK law anyway. The GDPR will have direct application in UK law from May 2018, without implementation, assuming the UK is still a member of the EU. However, again conditions for accessing the single market, and for the transfer of personal data between the EU and the UK, may still require a level of equivalency in terms of consumer protections but to enable the provisions of the GDPR to still be applicable after Brexit, there will need to be new domestic legislation making any relevant equivalent provision. As for MLD IV, the need for continued cooperation Europe wide in relation to the prevention and detection of crime may also mean that implementation continues apace.
For further information on potential developments in consumer credit law and how they might affect you please contact a member of our consumer credit team.
In conclusion, we may not see much change in the direction in which regulation for lenders will go despite Brexit, at least for the foreseeable future. For the time being, top of the agenda will be very much a non-Brexit issue, the review of the retained provisions of the Consumer Credit Act.