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Graeme Wingate
By e-mail only
2 December 2014
Our Ref:
Your Ref:
Dear Mr Wingate,
Price Cap rules
Thank you for your e-mail message on Friday 28 November 2014, stating that you are
considering seeking judicial review of our price cap rules.
1.
In relation to the final paragraph of your message I should draw your attention to the
Pre-action Protocol for Judicial Review (PAP), a link to which is below.
https://www.justice.gov.uk/courts/procedure-rules/civil/protocol/prot_jrv.
2.
As it says “This protocol sets out a code of good practice and contains the steps which
parties should generally follow before making a claim for judicial review.” You will notice that
the PAP also says “Claimants are strongly advised to seek appropriate legal advice when
considering such proceedings and in particular before sending the letter before claim to other
interested parties or making a claim.”
3.
Your message referred to above is not a letter before action and we are not treating it
as such.
4.
Your argument addresses our powers to make the rules on the price of high-cost short-
term credit that the FCA Board made on 6 November 2014. You make two points. First that
we can make rules if it is “in the public interest” and second that we can make certain rules
“on instruction from the Treasury”.
Document3
5.
The basis on which we are able to exercise our powers is set out in section 1B FSMA.
Making rules is a general function of the FCA and therefore FCA has to, so far as is reasonably
possible, act in a way that is compatible with its strategic objective and advances one or more
of its operational objectives.
6.
FCA’s strategic objective is “ensuring that the relevant markets function well”. The
operational objectives are consumer protection, integrity and competition, which are set out in
sections 1C, 1D and 1E respectively.
7.
The powers that FCA used to make the Consumer Credit (Cost Cap) Instrument 2014
are, sections 137A of the Financial Services and Markets Act 2000 (FSMA) (general rule-
making power), 137C (cost of credit), 137T supplementary power) and 139A (guidance).
8.
In the case of the price cap, FCA was placed under a duty by Parliament by amendment
to section 137C FSMA to introduce rules concerning charges in relation to one or more
description of regulated credit agreement that appeared to FCA to involve the provision of high
cost short term credit with “a view to securing an appropriate degree of protection for
borrowers against excessive charges”. FCA had to introduce those rules to be in force by 2
January 2015 at the latest.
9.
The way we approached the duty and powers is set out, for example, in Chapter 4 of
the Consultation Paper CP14/10, entitled “Proposals for a price cap on high-cost short-term
credit” dated July 2014. The detailed reasoning for the elements of the price cap including
other options is set out in Chapter 5 of that document. FCA’s feedback and response to the
consultation is set out in the Policy Statement PS 14/16 entitled “Detailed rules for the price
cap on high-cost short-term credit” dated November 2014, which includes the final price cap
rules in Appendix 1.
10.
In those documents you will see that we explained in detail how we have designed the
cap, ensuring that the impact (plus those of other options) on firms, consumers and on
competition was fully considered in the process.
11.
Directly addressing your points, FCA used the powers specified above to make these
rules. What you may be referring to is section 131 of the Financial Services (Banking Reform)
Act 2013 which in its amendment to section 137C FSMA adds subsections (1A) and (1B). FCA
has explained the rules are in the public interest in the documents above, however, the precise
legal test is not set out in terms you suggest. Subsection (1B) refers to consulting the
Treasury before FCA published the draft rules. FCA satisfied this requirement and refers to
this in paragraph 4.5 of CP 14/10. There is no requirement for FCA to be instructed by the
Treasury to make rules. Therefore we suggest you do not commence a claim which would not
succeed.
12.
If you wish to take this further please address any further correspondence on this issue
to the Consumer Credit Team, General Counsel’s Division at the address above.
Yours sincerely
Financial Conduct Authority
