OFT and ICO jointly scrutinise privacy policies

As part of an investigation into the way organisations collect and use personal data, the Office of Fair Trading (OFT) has written to more than 60 online companies. The OFT said it would now conduct further work in conjunction with the Information Commissioner’s Office (ICO), the government body which oversees organisations’ use of personal data, on issues regarding consumer protection and data protection.

The OFT acted after it identified concerns with the websites of a number of retail businesses that operate online. Issues identified include:

  • Not clearly      explaining what data will be gathered from the customer
  • Not explaining how      the data will be used
  • Not clearly      setting out how customers can opt out of data collection requirements
  • Forcing      individuals to accept their privacy policy in order to view the site

The OFT has warned that it could take enforcement action against businesses who do not meet its data privacy requirements.

The OFT announced that it had sent these letters at the same time as it released its Personalised Pricing report, which looks at how organisations use customer data in setting prices for goods and services. Personalised pricing involves charging different prices for the same goods or services to different customers, and positive examples of this include discounts for students/senior citizens, online discounts and reduced prices for those booking train tickets early.

This report found no evidence that businesses were using customer data in order to raise prices. The concern was that customers who had indicated they were better off would be charged higher prices – even if a company does not explicitly gather information on income or assets, indications of wealth can still be obtained from postcodes or surveys into personal tastes and hobbies. However, the report did warn businesses to be transparent about their use of personalised pricing, and not to use terms such as ‘best price’ if an individual customer is in fact paying more than others.

Clive Maxwell, OFT Chief Executive, said: “Online retailers have changed forever the way in which we shop, bringing many positive benefits. Our report found no evidence to indicate firms are using personal information to target individuals with higher prices and, indeed, in some cases we found that groups of customers are benefiting from discounts.

“However our study has shown that there is clearly public concern about how personal information, a valuable commodity in online markets, is being collected and used. We are therefore calling on businesses to make sure they are being fully transparent and giving consumers appropriate control. Maintaining consumer trust online is important to growth and innovation, and we will consider enforcement action if we see evidence of misleading or unfair practices.”

Simon Entwisle, Director of Operations at the ICO, said: “Businesses need to be open about how they’re using customers’ information. It’s clear that using that information in the right way can benefit both parties, but businesses that use data inappropriately risk alienating customers and put themselves in line for enforcement action by the ICO.”


Payday loan trade body defends industry to MPs

One of the principal payday loan trading associations has defended the industry in front of an audience of MPs. The Consumer Finance Association (CFA) told a closed session of Parliament in May 2013 that it recognised that there were areas where improvements could be made, and that it was working to address these, but refuted suggestions that vulnerable borrowers were being unfairly targeted. Many parliamentarians have been very vocal in their attacks on the short-term lending sector, notably Labour’s Stella Creasy, who has described payday lenders as ‘legal loan sharks’.

The Association presented a report to the parliamentary session which suggested that a typical payday loan customer might be a single person aged 25-35 who rents their home, a parent aged 35-44 who is striving to provide for their children, or older adults who were providing financial help to elderly parents and/or grown-up children. It rejected suggestions that the typical borrower is from the poorest section of society.

The CFA admitted that its members could do more to ensure that loans were affordable, that clearer information was provided to customers and that assistance was provided to customers with repayment difficulties. Justin Tomlinson MP praised the Association’s stated commitment to higher standards, saying: “It is a credit to the CFA and its members that they are determined to raise standards.”

CFA members include the payday lenders QuickQuid and Payday UK.

Russell Hamblin-Boone, chief executive of the CFA, said: “The payday lending industry is continuing to evolve, learn and protect its customer base. We have already put in place standards for lenders to meet and have recently established an independent body to monitor and enforce these standards.”

The ‘independent body’ Mr Hamblin-Boone refers to is the CFA’s Short-term Lending Compliance Board, which has the power to expel member firms from the Association, or impose other sanctions, if they fail to meet required standards.

Also in May 2013, research by Citizens Advice suggested that 65% of payday loan applicants are not subject to an affordability assessment by the lender. Assessing affordability is a requirement of the Good Practice Customer Charter, which members of the CFA and three other trade associations – the Finance and Leasing Association, the British Cheque and Credit Association and the Consumer Credit Trade Association – have been subject to since November 2012.

The 12-week deadline for payday lenders to change their business practices, imposed by consumer credit regulator the Office of Fair Trading (OFT), expires in early June 2013. The 50 leading payday lenders face enforcement action if they cannot demonstrate that they have made improvements in a number of areas, such as affordability assessments, debt collection practices and the treatment of borrowers in financial difficulty. In early May 2013, payday lenders B2B International UK Ltd and Loansdirect2u.com Ltd lost their appeals against earlier OFT decisions to revoke their Consumer Credit Licences, and MCO Capital ceased trading in March 2013 after dropping its appeal against a similar OFT decision. In April 2013, Citizens Advice asked the OFT to withdraw the licence from four more unnamed lenders with immediate effect.

From April 2014, payday lenders will be subject to the stricter regulation of the Financial Conduct Authority, which has said it will regard short-term lending as a high risk area.


Ombudsman concerned over pay day loans

The Financial Ombudsman Service (FOS) has reported a significant rise in the number of complaints being made about payday lenders, and has also revealed that a high proportion of these complaints have been upheld.

The FOS will publish the final complaints statistics for the financial year April 1 2012 to March 31 2013 in its annual review, expected to be published later in spring 2013. The April/May issue of the FOS newsletter, Ombudsman News, said that it was receiving 30 to 40 payday loan complaints every month, which represents a 75% increase on the previous year. Official figures already released for the first three quarters of the 2012/13 financial year, i.e. the period from April 1 to December 31, show that 387 payday loan complaints were received by the FOS in this nine month period, compared to 296 in the full year 2011/12.

The FOS continues to find in the customer’s favour in a significant majority of cases. 72% of the payday loan complaints to date in 2012/13 have been upheld, although this is down from the equivalent figure of 81% in 2011/12.

The newsletter said that many of the complaints concerned the lender’s use of Continuous Payment Authority (CPA), a facility which allows payments to be taken from a borrower’s bank account whenever the lender sees fit to do so. The FOS also reported concerns about affordability assessments, debt recovery practices and customers saying they had never taken out a loan for which they were being pursued.

The newsletter contains a number of case studies of customers who contacted the FOS about their payday lender. These cases include a lender who tried to use CPA even though the borrower had told them that she was seeking professional debt advice; a lender who pursued a man for a debt after a loan was set up in his name by fraudsters; and a lender who took a payment from a man’s bank account without his knowledge in respect of a loan taken out by his son.

However, despite the increase, payday loans still represent a very small proportion of the complaints the FOS receives. In the nine months to December 2012, the FOS received 341,666 new cases, 244,873 of which concerned payment protection insurance.

The FOS is an independent body that adjudicates on financial complaints where the customer does not agree with the response received from the firm to their complaint. It can make legally binding orders on companies to pay compensation to their customers.

Debt charities are also reporting increases in the numbers of customers contacting them regarding payday loans. StepChange reported a 109% rise in 2012, compared to the previous year, in the number of its clients who held payday loans.


Raised standards give comsumer credit firms a chance to shine

The announcement that regulation of consumer credit will transfer from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) in April 2014 has provoked a range of reactions from the credit industry. Some may be looking forward to this with trepidation, noting that the FCA has wider enforcement powers and greater resources to supervise firms than the OFT, and that the FCA’s predecessor the Financial Services Authority (FSA) has imposed some very large fines in recent months. Others, however, see the change as an opportunity to improve the reputation of the credit industry.

Firms in areas of financial services previously regulated by the FSA have been subject to FCA regulation since 1 April 2013, and while the rules remain largely the same, the FCA has been granted new powers which the FSA did not have, and these firms have been told that the culture of regulation will change. “The FCA will be more forward-looking, more focused on where firms are heading and more willing to step in if needed,” said FCA chief executive Martin Wheatley in a recent speech. So even for these firms, the regulatory landscape is changing.

An article appears in the May 2013 issue of Credit Today under the headline ‘Raised standards give us a chance to shine.’ In the article, Mark Broadstock, managing director of debt management company Smooth Group, looks forward to being able to demonstrate compliance with the FCA requirements.

He begins by welcoming the creation of the Prudential Regulation Authority and the Financial Policy Committee, which should allow the FCA to concentrate its efforts on monitoring firms’ conduct. “This will ensure that issues such as risk, compliance and treating customers fairly are given greater oversight and consideration,” commented Mr Broadstock.

He goes on to say: “I hope the FCA will be an organisation with teeth,” and expresses agreement with the new power granted to the regulator to ban problematic products.

However, Mr Broadstock also exercises a note of caution, by asking the FCA not to use this power so much that customers are left without access to vital products, and calls on the regulator to “have facts and balanced evidence to hand” before it intervenes in any area of the market.

Detailed rules for credit firms to follow under the new regime are yet to be published. An initial consultation on this issue ended on 1 May 2013, and it is expected that a more wide-ranging consultation will take place in autumn 2013. However, indications are that the rulebooks will be based around many of the requirements of the existing Consumer Credit Act and the OFT’s existing guidance.

Furthermore, not only do consumer credit firms have to comply with the Consumer Credit Act and with OFT guidance at present, but they also need to treat their customers fairly, otherwise they risk having complaints against them upheld by the Financial Ombudsman Service. So many of the same values promoted by the FCA already exist in well-run credit firms.

Generally speaking, firms who treat their customers fairly, who have rigorous internal controls, who keep up to date with regulatory developments and who seek compliance advice at an early stage when in doubt should have little to fear from FCA regulation.


Payday lenders lose appeal against licence withdrawal

Two linked payday lenders based in Brighton have been forced to cease trading. The First-Tier Tribunal rejected the appeals of B2B International UK Ltd and Loansdirect2u.com Ltd against an earlier decision by the Office of Fair Trading (OFT) to withdraw the firms’ Consumer Credit Licences. The OFT acted because an associate of both companies, Neil Evans, has a criminal record for fraud and violence, which he failed to disclose when applying for his licence. The OFT is likely to regard any applicant with convictions in these areas as unfit to practice in the consumer credit industry.

At the same hearing, the Tribunal also backed the OFT’s decision to refuse a licence application from VK Money Lifestyle, a company based in Hatfield which intended to offer debt management services. The OFT believed that VK did not have the necessary skills and expertise to operate in this area.

These firms may not be the last payday lenders to lose their licences. In March 2013, the OFT published the final results of a compliance review of the payday lending sector, where they found “evidence of widespread irresponsible lending”. As a result of this review, all 50 leading payday lenders were given 12 weeks to improve their practices and procedures or face enforcement action from the OFT, action which could include the removal of their licences. Furthermore, while B2B and Loansdirect2u.com were able to continue trading until their appeals were heard, the OFT now has a new power, granted in February 2013 under the terms of the Financial Services Act, to revoke licences with immediate effect where there is an urgent need to protect consumers. So could some of the UK’s best known payday lenders soon be forced to cease trading?

Earlier in April 2013, Citizens Advice wrote to the OFT calling on it to use this new power against four payday lenders. The firms have not been named, but it is reported that two of the lenders are well-known companies.

Since November 2012, those lenders which are members of one of four trade associations have had to comply with the requirements of a new Good Practice Customer Charter.  From April 2014, all consumer credit firms will be subject to the stricter regulation of the Financial Conduct Authority (FCA), one of the bodies which replaced the former Financial Services Authority on 1 April 2013. The FCA has said it will regard payday lenders as high risk companies, who will be required to pay higher fees, and has said that scrutinising the payday loan sector will be a top priority.

Supporters of payday lenders point out that they provide credit to customers who may not be able to access credit elsewhere, and who may otherwise be drawn to loan sharks. Opponents say that payday loans are unduly expensive and are often granted without sufficient affordability and credit checks being performed.


New head of financial consumer panel appointed

Sue Lewis has been appointed as the new Chair of the Financial Services Consumer Panel. She will take up her role on 1 July 2013.

Ms Lewis has a wide range of experience of representing the interests of consumers within financial services. She is a member of the Chartered Insurance Institute’s professional standards board, a trustee of the Personal Finance Education Group and a trustee of debt advice charity StepChange. She has also served in an advisory capacity to consumer organisation Which? and has held senior policy roles in government departments including HM Treasury, the Department for Education and the Cabinet Office.

John Griffith-Jones, chairman of the FCA, said of the appointment: “”I am pleased to have been able to make such a strong appointment as Consumer Panel Chair. Sue Lewis has a passionate interest in consumer issues coupled with vast experience in financial services policy. I look forward to working closely with her and the Panel.” He also praised the role played by Ms Lewis’ predecessor, Adam Phillips. “Under his leadership the panel has gained a respected track record for advising the FSA and provided constructive input during the transition to the FCA,” added Mr Griffith-Jones.

The Panel exists to advise financial services regulator the Financial Conduct Authority (FCA) on issues of concern to consumers. It is a legal requirement for the regulator to have a Consumer Panel, indeed the FCA’s predecessor the Financial Services Authority (FSA) has had such a Panel since its inception in 1998.

The Panel has previously campaigned vigorously for reform of the way financial advice is delivered. Its wishes for advisers to be better qualified and for commission payments to be abolished were granted when the FSA introduced a series of changes under the Retail Distribution Review in January 2013.

According to the Panel’s website at www.fs-cp.org.uk, issues of particular concern at the present time include:

  • That the new financial services regulatory regime introduced in April 2013 works in the interests of consumers
  • That consumer protection safeguards are preserved when the FCA takes over regulation of consumer credit from the Office of Fair Trading in April 2014
  • That lessons are learnt from the payment protection insurance mis-selling scandal and that the general insurance market today operates in the interests of consumers in areas such as sales practices, policy terms and conditions, pricing and complaints handling
  • That the pension regime is reformed to take account of the ageing population and the reduced role of the state in providing retirement income
  • That the banking sector is reformed so that competition is increased and banks treat their customers fairly
  • That the FCA’s proposed changes to mortgage regulation do not adversely affect consumers