The future of consumer credit in Jersey

The Government of Jersey is set to introduce new legislation to regulate lending and establish a consumer credit regime in Jersey and will, in due course, consult on related secondary legislation. 

Currently, lending in Jersey is only regulated for AML/CFT/CPF purposes. The Government of Jersey is introducing a regime that aims to further protect the Jersey's reputation as a well-regulated international finance centre, providing borrowers in Jersey with the standard of protections offered in other jurisdictions whilst ensuring the controls introduced are proportionate and do not have unintended adverse consequences, such as reducing access to credit or causing an excessive regulatory burden to be placed on lenders. 

This article will be of relevance to any person in Jersey engaging in lending or activities related to lending, such as credit broking or debt adjusting. 

Background and proposed implementation 

In November 2024, following an extensive period of public consultation and involving multiple consultation papers, the Government of Jersey published a draft 'Financial Services (Jersey) Amendment Law 202' (Draft Amendment Law) along with an accompanying explanatory note and consultation paper. 

It is expected that the Draft Amendment Law will be lodged for debate in the States Assembly imminently.  

The Draft Amendment Law, if enacted, will amend the Financial Services (Jersey) Law 1998 (the FSJL), to incorporate a consumer credit regime that requires those that engage in "consumer credit business" with "consumers" to be licensed by the Jersey Financial Services Commission (the JFSC) (the Proposed Regime). 

The proposed method of implementation will involve introducing "consumer credit business" as a new class of "financial service business" under the FSJL, requiring providers of consumer credit to obtain authorisation from and be regulated by the JFSC. 

The Proposed Regime

Who is a "consumer"?

Under the Draft Amendment Law, a "consumer" will be an individual who is acting for purposes wholly or mainly outside their trade, business or profession or who has no trade, business or profession.  

What is "consumer credit business"? 

Under the Draft Amendment Law, an entity will be carrying out "consumer credit business" if it carries out certain specified activities (each a Regulated Activity), including:

• entering into agreements as lender;
• exercising, performing or obtaining the rights/duties of a lender;
• advising borrowers on lending agreements and arrangements; and
• related services including credit broking, debt adjusting, debt counselling and debt administration.

There will be a number of exemptions from the scope of the Proposed Regime in recognition of the Government of Jersey's efforts to ensure proportionality, including: 

• activities in relation to family members;
• activities of certain persons in the United Kingdom (UK) or Guernsey, where such person is carrying on business from their place of business in the UK or Guernsey with a borrower in Jersey, and for which that person is already supervised to carry on that type of consumer credit business in the UK or Guernsey;
• activities in relation to lending by entities to connected persons; and
• providing an opt-out in relation to high-net-worth individuals (HNWIs), aligning with the position under the UK and Guernsey's consumer credit regimes. 

In relation to the opt out available for HNWIs, a HNWI under the Draft Amendment Law will be one that had: 

(a) in the calendar year before the year in which they enter into a consumer credit agreement, hire purchase agreement or conditional sale agreement:

i. net income of £150,000 or more; or
ii. net assets (excluding primary residence and other benefits payable if the individual's employment ends) worth £500,000 or more throughout the year

(b) in the calendar year before the year in which they enter into a secured lending arrangement:

i. net income of £300,000 or more; or
ii. net assets worth £3,000,000 or more throughout the year.

There are a number of other sector specific carve outs and exemptions available, indicating that the new regime is really seeking to target the protection of consumers, not further or otherwise.

 Obligations of an in-scope entity

Under the Draft Amendment Law, an in-scope entity will need to obtain a licence from the JFSC and, once licenced, comply with relevant corporate governance requirements and principles that will be set out by the JFSC in a new Code of Practice in respect of consumer credit business, to be published and consulted upon in due course.  

A breach of the Draft Amendment Law will be an offence punishable by imprisonment for a term of not more than seven years, or a fine, or both.

Transitional provisions 

The transitional provisions note that the Draft Amendment Law won't be enforced against: 

• existing operators (i.e. persons who carried on consumer credit business at any time during the 12 months immediately before the commencement date) for 12 months after the commencement date if they stop carrying on consumer credit business by this date; and
• existing operators or new operators until their application is determined or withdrawn if they apply for registration within 6 months of the commencement date.

Additionally, a person will not be carrying on a consumer credit business if:

• that person is carrying on a regulated activity pursuant to an agreement/arrangement entered into before the commencement date; or
• the regulated activity was carried on only before the commencement date. 

Secondary legislation

The Government of Jersey, in due course, intends to consult on secondary legislation that will include unfair contract terms regulations and debt collection regulations, with a view to further developing consumer credit protection in Jersey. These regulations will be enforced by Trading Standards and will apply irrespective of whether an arrangement falls within scope of the FSJL or not.

At this early stage it is anticipated that the unfair terms regulations will contain a non-exhaustive list of prescribed terms which will be deemed to be unfair in most circumstances if included in an agreement or arrangement for credit and will include restrictions on matters such as the total cost of credit.

If a term is deemed as "unfair", it is anticipated that such a term will be deemed unenforceable and/or interest on the amount borrowed may also not be charged. This builds on and formalises customary law, where it is already the case that the Royal Court may decide not to enforce a contractually agreed interest rate to the extent that it is excessive or unreasonable.  

Next steps

We anticipate that the Draft Amendment Law will be lodged with the States Assembly in short order. If the States Assembly approves the Draft Amendment Law, it will then need to be approved by the Privy Council before it becomes law in Jersey. In parallel, the Government of Jersey will also begin consultation on secondary legislation, expected later this year.  

Additionally, the JFSC is developing a new Code of Practice and guidance in relation to the Proposed Regime. 

It is anticipated that the Proposed Regime will not come into force until at least 2026 with a 12-month transitional period, as noted above. 

Those that currently engage in, or are contemplating engaging in, consumer credit activities may wish to consider at this stage whether they fall within the scope of the Proposed Regime so that they can plan accordingly.  

If you have any questions regarding the new regime, including whether your activities are likely to fall within scope, please contact a member of our Regulatory & Risk Advisory practice group, or your usual Walkers contact.