Impact of the FCA’s Consumer Duty on loan portfolio sales and acquisitions – TLT

Although the new rules and guidance will not enter into force until 31 July 2023, the FCA has indicated that it is not waiting for the Consumer Duty to become law before acting to improve customer outcomes.   

The Consumer Duty includes rules and guidance that apply to regulated firms buying and selling portfolios of regulated products. For further details of these rules and guidance, please see here.  

Affected firms should consider taking the following steps now: 

1. Analyse how the new rules and guidance will apply to the transaction structures that you adopt. This may be more complex if the transaction or funding model proposed involves a split in the ownership of the legal and beneficial titles to the loans, or if the acquisition or funding structure involves a mix of regulated and unregulated entities and outsourcing relationships.   
2. Consider any changes required to your transaction documentation to reflect each party’s obligations under the Consumer Duty. 
3. If you are the seller, consider the information that you will provide to buyers of the portfolio to enable them to comply with the Consumer Duty on an on-going basis from the point of purchase. This information should enable the buyer to understand the product design and the basis on which it has been assessed as providing fair value. The information should also allow the buyer to monitor on an ongoing basis if the product meets the needs, characteristics and objectives of the target market and offers fair value. 

If you are the buyer: 

Update due diligence processes and procedures to enable you to:

1. Assess compliance with the Consumer Duty by the seller (and any related compliance risks)
2. Obtain the information that you need to be able to comply with your obligations under the Consumer Duty in relation to the portfolio on an ongoing basis; 
3. Consider how you will integrate acquired portfolios into your own framework for compliance with the Consumer Duty, for example, ongoing monitoring and management information. 

If you are an unregulated firm, the Consumer Duty will not apply but you are still bound by general consumer protection law.  

The FCA has indicated that in its view, the general standards of conduct expected by the Consumer Duty rules may be considered relevant to what amounts to honest market practice or the general principle of good faith in the field of activity of mortgage and credit books and the sales of such books. Accordingly, in practice we are likely to see the principles applied more broadly including to unregulated entities. 

Now that the final rules and guidance have been published and implementation plans will be in place, we are likely to see compliance with the Consumer Duty appearing as a concern at the due diligence phase of loan portfolio transactions.