Assessing the Balance: UK Responsible Lending Rules in Consumer Credit

This essay critically assesses the UK's responsible lending rules in consumer credit, examining the balance between providing access to credit and protecting consumers. It explores the role of the Financial Conduct Authority (FCA) in regulating financial services and products, emphasizing the importance of well-functioning markets and consumer protection. The essay delves into various consumer protection mechanisms, including the Consumer Rights Act 2015, the Equality Act 2010, and consumer redress schemes, such as the Financial Ombudsman Service. It also highlights the FCA's powers, including market studies, intervention through rules, and collaboration with other authorities like the Competition and Markets Authority (CMA). The essay further discusses consumer redress methods, including guidance, industry-wide schemes, and statutory powers. The analysis considers the FCA's approach to consumer protection, including the use of behavioral economics and collaboration with other organizations to address consumer harm. The essay evaluates the effectiveness of the current regulatory framework in ensuring fair outcomes for consumers while balancing the need for credit accessibility.

Part A
Critically assess with reference to relevant rules and other sources the following
statement: ‘UK’s responsible lending rules in consumer credit provide the right
balance between providing access to credit and protecting consumers’.
The financial services and products that are delivered by the firms and the way in which this
products and services are delivered, play an important role in the lives of individuals. Therefore,
it is necessary that the relevant markets functioned well and provide good outcomes to all the
consumers. On the other hand when they do not work well or where the consumers face the risk
of harm, unfair treatment or terms, there are several tools and powers that have been provided to
the Financial Conduct Authority for the purpose of making sure that the financial services
consumers are provided with adequate protection.1
In other to achieve these objectives, the Parliament has provided a wide range of tools to the
Financial Conduct Authority (FCA).2 Therefore, FCA can use the wide range of tools for the
purpose of protecting the consumers from harm and selecting the most appropriate ones for
achieving the desired impact on the basis of the circumstances of each case.3 The FCA is one of
the few financial regulators across the world that has a basic objective of promoting competition.
1 Atamer, Y. M. (2011). Duty of responsible lending: Should the European Union take action? In S. Grundmann &
Y. M. Atamer (Eds.), Financial services, financial crisis and general European contract Law (pp. 179–202). Alphen
aan den Rijn: Kluwer Law International.
2 ibid
3 Cherednychenko, O. O. (2011). Conceptualising unconscionability in the context of risky financial transactions:
How to converge public and private law approaches? In M. Kenny, J. Devenney, & L. Fox O’Mahony (Eds.),
Unconscionability in European private financial transactions (pp. 246–274). Cambridge: Cambridge University
Press

For this purpose, the Authority can conduct market studies and also investigate the markets
where the competition is not working well for the consumers.4 Therefore, wherever appropriate,
the FCA can also intervene, for instance by introducing the rules for the firms that are regulated
by the authority.5
Similarly, concurrent powers have also been provided to the authority with the Competition and
Markets Authority (CMA) in case of financial services. The meaning of this situation is that the
FCA has the powers provided by the Enterprise Act, 2002 for investigating if the market for
financial services is working well.6 This expands the powers of the authority beyond the firms
and activities that are being currently regulated by it. According to these powers, the authority
can ask for information and also undertake market reference investigation and to the CMA for
investigating a particular sector or market.7 The authority can also investigate and enforce against
any breach off the provision of Competition Act, 1998 related with financial services. The
authority also discusses with the CMA to decide who is in the best position to act and try to
reach an agreement regarding the authority to which the case needs to be allocated but the
ultimate decision has to be made by them.8
Consumer protection legislation: The FCA has also been provided powers by the general
consumer law for the purpose of protecting consumers of financial services from any harm.
Certain powers have been provided to the authority by the Consumer Rights Act, 2015 and also
other laws which include Part 8 of the Enterprise Act for enforcing the breach of certain
4 ibid
5 Council of Mortgage Lenders. (2012). Mortgage market review: Proposed package of reforms. Response by the
council of mortgage lenders to the financial services authority consultation paper CP11/31. London: Council of
Mortgage Lenders.
6 ibid
7 Dalton, M. (2011). Mortgage burden looms over Dutch. The Wall Street Journal, 5 December 2011
8 Domurath, I. (2015). A Map of responsible lending and responsible borrowing in the EU and suggestions for a
stronger legal framework to prevent over-indebtedness of European consumers. In H.-W. Micklitz & I. Domurath
(Eds.), Consumer debt and social exclusion in Europe (p. 155). Aldershot: Ashgate

consumer protection legislation.9 These include the laws related with the protection of the
consumers related with Unfair Trading Regulations, 2008. The authority can also consider the
fairness of the terms of contract related with financial services that has been issued by the firm
that is regulated by it. This can be done by the authority where the test for fairness is if, as
against the requirement of good faith, the notice or a term has resulted in significant imbalance in
the rights and obligations of the parties to the detriment of the consumer. According to the
Consumer Rights Act, 2015 and also provided by Unfair Terms in Consumer Contracts
Regulations, 1999, it has been provided that the FCA can consider the fairness of commercial
practices that have been adopted by the firms regulated by it and prohibit unfair practices that
may have taken place before, during or after commercial dealing. In the field of the work of
FCA, it considers quite in contract law. Therefore it includes enforceability of contents and also
the availability of vulnerable consumers of getting into the contracts.10
The Equality Act: According to the Equality Act, 2010 it has been provided by the public sector
equality duty that the FCA should have given regard to the requirement of eliminating
discrimination, fostering good relations between people having a protected characteristic and
advance the equality of opportunity.11 This requirement may include considering the effect on the
ability of various consumers to fairly access the financial services. Generally speaking this
means that the firms providing financial services and products are required to take every person
using their products and services fairly and there should be no discrimination on the basis of age,
gender, sexual orientation, religion or belief, gender reassignment marriage or civil partnership
9 ibid
10 Rinaldi, L., & Sanchez-Arellano. (2006). A. Household debt sustainability. What explains household non-
performing loans? An empirical analysis. European Central Bank, Working Paper Series No. 570
11 European Commission, Social Situation Observatory. (2010). Research Note 4/2010, Over-indebtedness

and disability.12 At the same time, the firms are also required to guard against making any
resolutions regarding the characteristics of a particular person.
Consumer redress: it is necessary to have a robust consumer complaints and redress framework
that is assessing for making sure that the consumers remain confident that in case the things go
wrong, they're going to be put right. In this regard generally the firms providing financial
services are required to establish, maintain and implement transparent and effective procedures
that provide for prompt and reasonable handling of any complaints.13 On the other hand, when
the consumers have exhausted the complaint procedure provided by the firm and are still not
satisfied, the consumers may, if they are eligible for making a complaint, and the matter falls
within the jurisdiction, should be able to make a complaint to Financial Ombudsman Service.
Therefore when, after considering the complaint, it has been decided by the ombudsman that
under the circumstances it will be fair and reasonable to do so, an award can be issued, including,
the award or a direction can be made to the firm for taking the steps that are considered to
reasonable by the ombudsman.14 The law requires that the firms should promptly complied with
the awards on the directions made in this regard. On the other hand, a money award is
enforceable by the courts. It has also been provided that the maximum money awarded by the
Ombudsman is £150,000.
There are a number of ways in which the FCA can provide redress to the consumers. Some of
these methods have been mentioned below:
12 ibid
13 Oxera. (2010). An assessment of the FSA’s proposed rules for mortgages. A report prepared for the council of
mortgage lenders. Oxford: Oxera Consulting Ltd
14 FSA. (2012). PS12/16, mortgage market review. London: Financial Services Authority

 Providing guidance and rules how the firms are required to deal with particular types of
complaints.
 The power of ordering an industry-wide consumer redress scheme, particularly in cases
where there is widespread or regular failure on part of the firms.
 Specific statutory powers that can be exercised against a particular firm, for example
under the CRA concerning the unfair terms and the powers of FMSA of ordering
restitution.
 Voluntary schemes that are applicable in case of the regulated or the unrelated activities
of a firm. These can be industry wide or particularly applicable to an individual firm. It
may include a scheme of arrangement as provided by the Companies Act, 2006.15
The complaint handling rules that have been provided by DISP are a useful mechanism which
can provide appropriate redress to the consumers when things have gone wrong and redress is
appropriate. There is another form of redress. In this case, compensation is provided after
criminal proceedings.16 For example, the FCA was successful in getting orders against two
defendants who were convicted for the role played by them in a fraudulent Ponzi scheme. Under
this scheme, it was told to the investors that their money was going to be traded on foreign
exchange markets. On the other hand, the reality was that only 12% of the money invested in the
15 Giphart, N. M. (2014). De Richtlijn woningkredietovereenkomsten: een Europese oplossing voor de crisis op de
woningmarkt? Nederlands Tijdschrift voor Europees Recht, 139–146
16 Ramsay, I. (2013). Culture or politics? Models of consumer credit regulation in France and the UK. In T. Wilson
(Ed.), International responses to issues of credit and over-indebtedness in the wake of the crisis (pp. 79–107).
Farnham: Ashgate

scheme was ever traded.17 Due to the orders, the victims of this scheme were successful in
getting back 55% of the money invested by them.18 The power which allows the FCA to order
industry-wide consumer redress scheme is available only in cases where there is regular or
widespread failure by the firms to complied with the requirements that are applicable and where
due to this reason the consumers have to suffer loss or damage, regarding which is legal
proceedings are initiated by them, a remedy or a relief would be provided to the consumers by
the law. Therefore, this type of scheme is not available in case of a breach of the Principles
because in this case a remedy cannot be obtained by the consumers in a court.19
Working in partnership: the FCA may not be in the best position to resolve the harms seen by it
but the authority is a part of wider regulatory landscape that has the objective of protecting the
consumer's interests. For instance, there are some persons who have a low financial capacity and
in a single is the statutory responsibility of Money Advice Service to improve the financial
capability in the UK. While it is one of the statutory objectives of the FCA could to provide
protection to the consumers, both Financial Services Competition Scheme and Financial
Ombudsman Service have a role to play in protecting the consumers. The FCA use this ability to
convene the major stakeholders to facilitate and encourage change. The FCA also uses its
mission framework for identifying the underlying harm and to deal with it in a collaborative and
imaginative manner. In the role of regulator, the FCA closely looks at international experience
but at the same time it has also pioneered certain techniques. An example in this regard can be
17 Mak, V. (2013). The “average consumer” of EU law in domestic and European litigation. In D. Leczykiewicz &
S. Weatherill (Eds.), The involvement of EU law in private law relationships (pp. 333–356). Oxford: Hart
Publishing.
18 FSA. (2012). Supplement to PS12/16, Mortgage Market Review Data Pack. London: Financial Services Authority
19 Maitland, Ian. 2001. “Distributive Justice in Firms: Do the Rules of Corporate Governance Matter?” Business
Ethics Quarterly 11

given of the regular use of behavioral economics for informing policy. The FCA and also
considers if other domestic or international organizations could be in a better position to deal
with an identified issue or if joint action will be more effective than the efforts of FCA alone.20
In the UK landscape, the FCA partners with other organizations for protecting the consumers.
For example the FCA works closely with Illegal Money Lending Teams for the purpose of
taking action to deal with unauthorized money lending.21 A green paper had been published by
the UK government under the title of "modernizing consumer markets, seeking views on how to
ensure that regulatory, competition and enforcement regimes are suitable for modern economy
and modern consumers". This green paper was welcomed by the FCA and it decided to work
along with the government and other stakeholders for the purpose of developing and
implementing the final proposals and recommendations of government made this regard.22
The boundaries: some of the tasks performed by the FCA fall beyond the limits of the statutory
powers of the authority. The FCA clearly needs to recognize where it can serve the interests of
the public as regulator and where the issue is beyond its remit and is an issue of vital public
policy that is more appropriate for the UK government or other organizations. Therefore the
FCA needs to work collaboratively with diverse stakeholders for making sure that even if a
particular issue is beyond its remit, it can inform and influence the debate and policy for making
sure that the consumers have the best outcomes. This may need careful consideration as revealed
by the example of price discrimination and cross-subsidies that are present in financial markets.
20 Marens, Richard, and Andrew C. Wicks. 1999. “Getting Real: Stakeholder Theory, Management Practice, and the
General Irrelevance of Fiduciary Duties Owed to Shareholders.” Business Ethics Quarterly, 9
21 Mian, A., & Sufi, A. (2014). House of debt. Chicago: Chicago University Press
22 ibid

How to Act for Protecting Consumers: As mentioned above, the objective of FCA is to add
public value by making sure that the consumers coming in financial services markets received
appropriate protection for engaging in the market confidently and for purchasing the products
and services required by them.23 It needs to be noted that different consumer groups have diverse
needs. These needs change with the passage of time and also vary throughout the financial
services sectors. The FCA being a regulator, once to make sure that its work reflects the different
needs of the people of UK and it can effectively deal with the areas where the greatest harm is
present.
Mission 2017 of the FCA provides greater clarity regarding how and why the authority
prioritizes, intervene and protect in financial markets. This document also explains the decision-
making framework of the FCA as well as how the authority prioritizes where it should use its
resources for the purpose of adding public value.24 The decision-making framework of Mission
2017 has been used by the authority for helping the authority in applying its resources and
interventions for achieving significant impact for the consumers and also the greatest public
value.25 The annual business planning of the FCA has also been used for identifying and
explaining the cross sector priorities of the FCA as well as the key in years on which the
authority needs to focus.26
Conclusion: Therefore it can be stated that the objective of the strategy adopted by the FCA is to
make sure that the practical applications of the powers and tools available to the authority can
achieve high impact and good outcomes for the consumers that are able to make a difference for
23 Netherlands Minister of Finance. (2009). Letter of the Minister of Finance with responses to Parliamentary
questions. 18 May 2009, reference FM/2009/960 U
24 Marcoux, Alexei. 2000. “Balancing Act,” in Joseph R. DesJardins and John J. McCall, Contemporary Issues in
Business Ethics. Belmont, CA: Wadsworth
25 ibid
26 Mitchell, Lawrence. 1995. Progressive Corporate Law. Boulder, CO: Westview Press

them. These tools and powers will be used by the FCA for the purpose of reducing and actual, as
well as the potential harm for the purpose of making sure that the markets of financial services
work well.27 Therefore while moving towards the vision of the authority; it aims to achieve even
more significant impact through its work.28 While delivering the strategy and update by the
authority for protecting the consumers and for achieving its vision, the authority is required to
use a wide range of intelligence and insight that is required for understanding the needs and the
behaviors of the consumers as well as the changing environment in financial services and also to
identify if the consumers are at risk of harm.29
The authority is also required to proactively deal with the greatest areas of harm that may be
taking place at present or may arise in future. The authority is also required to work in an
integrated manner by using all the available tools and powers and also by making sure that these
are effectively used for achieving the optimal outcomes for the consumers. The authority also
had to design the remedies that are most appropriate for giving greater harm and are based on
real behaviors of the consumers and evaluate the impact of the interventions of the authority for
informing how it can prioritize and intervene in future in the interest of the consumers.30 The
authority should also work collaboratively with the consumer bodies, policymakers, charities,
industry regulators and other stakeholders in the consumer landscape at national as well as
international level.
27 Nield, S. (2012). Mortgage finance: Who’s responsible? In J. Devenney & M. Kenny (Eds.), Consumer credit,
debt and investment in Europe (pp. 160–181). Cambridge: Cambridge University Press.
28 ibid
29 OFT. (2010/2011). Irresponsible lending – OFT guidance for creditors. Office of Fair Trading, March 2010.
Available at: http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/shared_oft/
business_leaflets/general/oft1107.pdf.
30 Mitchell, R., B. Agle, and D. Wood. 1997. “Toward a Theory of Stakeholder Identification and Salience: Defining
the Principle of Who and What Really Counts.” Academy of Management Review, 22

In this way, by applying its strategy, the FCA is trying to increase the impact of the outcomes for
the consumers and also deliver more public value. While doing this, the FCA reviews and adapts
its rules and procedures and the way in which these can be used by the authority in changing
landscape.31 For example the authority is required to maintain a balance between the
responsibilities related with the forms and the consumers and in dealing with emerging areas of
harm or while seeking redress for the consumers.
31 Nield, S. (2015). Mortgage market review: “Hard-wired common sense”? Journal of Consumer Policy, published
online 7 March 2015. Available at http://link.springer.com/article/ 10.1007/s10603-014-9280-2

Part B
‘The law and businesses cannot ignore the stakeholder approach due to the
consequences on both stakeholders and businesses.’
Making references to case law, scholarly commentaries and examples, critically
discuss the above statement.
The stakeholder theory can be described as an outcome of the feud going on between Berle and
Dodd during the 1930s. Dodd was of the opinion that the directors of, positions are the trustees
and as a result they are required to maintain a balance between the interests of all the
consequence of the corporations and they should also behave in socially responsible manner.32
One of the most significant developments of the stakeholder theory is generally referred back to
Edwards Freeman according to whom, "the present theories are inconsistent with the quantity as
well as the type of change that is taking place in the business environment during the 1980s and
as a result, a new conceptual framework is necessary". Therefore, the emergence of the
stakeholder theory can be described as a response to this challenge.33 Stakeholder has been
described by Freeman as, "any group or individual who has been affected by or is in a position to
affect the achievement of objectives by an organization". Even if the definition provided here is
quite wide, there are five types of stakeholders that are accepted generally.34 These are the
32 Aglietta, M. and Reberioux, A. (2005), Corporate Governance Adrift. A Critique of Shareholder Value
(Cheltenham: Edward Elgar).
33 Ahlering, B. and Deakin, S. (2007), ‘Labor Regulation, Corporate Governance and Legal Origin: A Case of
Institutional Complementarity?’, Law and Society Review, 41: 865–908
34 Schrader, David E. 1996. “The Oddness of Corporate Ownership.” Journal of Social Philosophy, 27

shareholders, employees, suppliers, customers and the community.35 Traditionally, a voice was
not provided by the law to the stakeholders who were not shareholders in the company. For
example, as compared to the shareholders, the non-shareholder stakeholders did not have any
right to cause derivative action against the directors of the Corporation, where these directors are
in breach of their duties. Similarly these stakeholders also do not have any voting rights in the
Corporation.36 In view of such a situation, the stakeholders have very little impact on the
Corporation even when they are significantly affected by the downfall of the company.37 On the
ethical and moral grounds, the traditional attitude words these stakeholders can be described as
unfair. The reason is that as compared to the shareholders, the stakeholders also contemplating
the success of the company. Therefore, the interests of the stakeholders also need to be
considered. Under these circumstances, the traditional notion of unfairness has really changed as
a result of the stakeholder theory. The reason is that this theory deals with the perceived
injustices.38
According to the doctrine of stakeholder theory, an attempt has been made to make sure that as
organizations, companies are responsible towards the stakeholders and they also maintain a
balance between different interests of various stakeholders.39 The stakeholder theory has the
aspects; instrumental power; descriptive accuracy and normative validity.40 The first aspect of
35 Amable, B. (2000), ‘Institutional Complementarity and Diversity of Social Systems of Innovation and
Production’, Review of International Political Economy, 7 (4): 645–87.
36 Williamson, Oliver E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.
37 ibid
38 Williamson, Oliver E. 1985. The Economic Institutions of Capitalism. New York: Free Press
39 Boatright, John R. 2002a. “Contractors as Stakeholders: Reconciling Stakeholder Theory with the Nexus-of-
Contracts Firm.” Journal of Banking and Finance, 26
40 ibid