Consumer Credit Licence Rebates Expected

Although firms will have to wait until later in autumn 2013 for full details, it looks likely that some form of rebate will be offered to consumer credit licence holders who now need to apply for interim permission from the Financial Conduct Authority (FCA). The Government made this announcement after consulting with both the FCA and the existing consumer credit regulator the Office of Fair Trading (OFT).

Many credit firms were angered by the FCA’s initial announcement that all those applying for FCA authorisation would need to pay the full authorisation fee, even if they had already paid for an indefinite consumer credit licence.

The statement on the FCA website says that “There will be a programme of rebates to consumer credit licence holders to reflect the closure of the OFT regime at 31 March 2014. This is designed to ensure that the cost of the transfer of regulation is proportionate.”

The move has been supported by a number of industry trade bodies.

Chris Hannant, director general of the Association of Professional Advisers, said: “We’re pleased the FCA has announced this programme of rebates, which is good news for advisers.”

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, commented: “We are grateful that the government recognised the issues raised and will offer rebates to those firms that have already incurred the substantial cost of obtaining a new consumer credit license since 2008. These broker firms should not be unfairly disadvantaged because of unforeseen changes to the regulatory architecture.”

The FCA has also confirmed that those who apply for interim permission before the end of November 2012 will receive a 30% discount on their application fee, so firms will only need to pay £245 instead of £350, while sole traders will pay £105 instead of £150. Those who submit their applications between December 1 2013 and the switchover date of April 1 2014 can expect to pay the full fee.

Kingston Independent Financial Advisers company secretary Sam Caunt was less enthusiastic about the announcement. “Thirty per cent is inadequate but a clear admission of responsibility,” was his reaction.

This illustrates that the best time to apply for interim permission is now. There will inevitably be a large number of applications submitted shortly before the final deadline, and now it seems there will also be a rush to get applications in during November of this year.

The FCA has taken out advertisements in many newspapers highlighting the need for credit firms to obtain authorisation. These advertisements mention that the application process via the FCA website takes only a few minutes. 


Payday Loan Crackdown Hits Industry Profits

Payday loan giant Dollar Financial has warned its investors that the regulatory scrutiny the industry is subject to is having an adverse impact on its financial position. The US-based company, which trades on the UK high-street as The Money Shop and online as Payday UK and Payday Express, said its turnover from online lending had fallen by 2.9% in the three months to June 2013, having risen by 34% in the same period in 2012.  It has estimated that recent changes in compliance requirements will cost up to £10million per year.

However, the company also blamed aggressive marketing from its rivals for the fall in turnover, and said some companies were trying to get as much business as possible on their books before they were forced to exit the industry.

Payday lenders are currently subject to regulation by the Office of Fair Trading (OFT). The OFT is reviewing submissions from 50 leading payday lenders, in which they are required to explain how they have changed their practices and procedures in order to address concerns identified by the OFT in its compliance review of the payday sector, the results of which were published in March 2013.

In one respect, the review appears to have had a significant impact, as 19 of the 50 lenders have informed the OFT that they are ceasing payday lending activities, although 15 of these firms intend to continue trading in other areas of consumer credit. Since the publication of the report into the compliance review, six more lenders who were not among the 50 firms covered by the OFT probe have also ceased to lend – three have done so voluntarily and three more have unsuccessfully appealed against OFT decisions to revoke their Consumer Credit Licences.

The OFT is continuing to analyse the lenders’ submissions, and has said it is prepared to take disciplinary action against firms who remain non-compliant.

At the same time as publishing the results of its compliance review in March 2013, the OFT also referred the payday loan market to the Competition Commission (CC), citing concerns over how lenders compete with one another. The CC is expected to publish an interim report in the summer of 2014 and a full report by the end of 2014, which will cover issues such as lenders’ profitability, pricing of loans and how easy it is for consumers to compare prices between lenders.

Since November 2012, lenders who are members of one of four trade associations have been required to meet the requirements of a new Good Practice Consumer Charter in addition to complying with OFT requirements.

From April 2014, payday lending and all other consumer credit activities will be subject to the regulation of the Financial Conduct Authority, which has additional resources to supervise firms and a wider range of enforcement powers than the OFT does at present.

Dollar Financial says it believes that the regulatory crackdown will make it impossible for smaller lenders to survive. Chairman and chief executive Jeffrey Weiss said: “We think many of the other operators, including some of the larger ones, will struggle with the necessary implementation and self-monitoring activities. That is why we are confident that we will emerge from this process with a significantly stronger position.”


FOS Refers 13 Claims Firms to MoJ Over Bad Practice

It has been revealed that the Financial Ombudsman Service (FOS) has referred 13 claims management companies (CMCs) to their regulator over concerns about their practices. In response to a freedom of information request made by financial industry newspaper Money Marketing, the FOS said it referred 13 CMCs to the Claims Management Regulator at the Ministry of Justice (MoJ) in the period from November 1 2012 to July 1 2013. The FOS only started formally recording referrals to the MoJ in autumn 2012.

The FOS is an independent body that provides final, legally binding decisions on consumer complaints against financial institutions where the complainant does not agree with the firm’s assessment of the matter.

CMCs certainly have a significant impact on the activities of the FOS. In the financial year to March 31 2013, the FOS received a record 508,881 complaints, which were dominated by the 378,699 complaints – 74% of the total – regarding payment protection insurance (PPI). 45% of total complaints were received from CMCs, but this rises to 57% when only PPI complaints are considered. Of all the complaints received from CMCs, some 94% concerned PPI. Only 4% concerned credit cards, and the remaining 2% were complaints regarding other financial services, e.g. investments, current accounts and mortgages. 12 large companies were responsible for submitting a majority (51%) of the complaints received from CMCs.

In the annual report for 2012/13, the FOS said it met regularly with representatives of the claims management industry. In his foreword to the 2012/13 annual report, FOS chairman Sir Nicholas Montagu rejected suggestions that the PPI mis-selling scandal had been “manufactured” by CMCs, but then went on to call for additional regulation of CMCs by saying: “There is a need for firmer regulation of claims-management companies at the “cowboy” end of the industry.”

The FOS also revealed that they made 131 referrals to the former financial industry watchdog the Financial Services Authority in the 12 months to March 31 2013, a slight increase on the 122 such referrals made in the previous financial year. Many of these referrals concerned firms’ complaint handling procedures or delays in paying redress following upheld complaints.

260 CMCs had their authorisation removed by the MoJ between April 2011 and March 2012; and between April and November 2012, a further 209 firms lost their licences, while three firms were suspended and 140 received warnings. During the course of 2013, CMCs have been subject to additional regulatory requirements, such as being banned from issuing advertisements that offer cash inducements, receiving referral fees and entering into verbal contracts with customers. It is also now possible for a customer to refer a complaint about a CMC to the Legal Ombudsman if they are not satisfied with the company’s response.

Despite the introduction of these new measures, many politicians, consumer groups and industry commentators believe that regulation of the claims management industry is unduly lenient, and have called for the Financial Conduct Authority to be given the power to regulate CMCs.


CMCs Need To Be Brought Into Line, Says Prominent Financial Adviser

A prominent financial adviser has called for additional regulation of claims management companies (CMCs). Writing in trade publication Financial Adviser, Philip J Milton, founder of Philip J Milton & Company Plc, said that: “the whole claims industry needs to be tidied dramatically.” Mr Milton was responding to a story in the August 15 issue where it was suggested that the activities of CMCs provided clear evidence of the need for a ‘long-stop’ to be introduced within financial services. The advisory community is currently vigorously lobbying Parliament for a time limit of 15 years to be imposed regarding the period in which a complaint regarding financial services can be made. At present, the Financial Ombudsman Service can adjudicate on complaints made within “three years from when the consumer knew, or could reasonably have known, they had cause to complain,” even if it is 20 years or more since the sale of the relevant product.

Devon-based Mr Milton is one of a select group of advisers in the UK who hold Chartered Financial Planner status, meaning that they hold qualifications well in excess of the basic Diploma required in order to give financial advice in the UK.

Mr Milton also writes from the other side of the fence, as his firm offers claims management services regarding mis-sold financial products, in addition to offering a full range of advisory services. The firm is regulated by the Ministry of Justice (MoJ) in respect of its claims management activities. He contrasted the willingness of the Financial Conduct Authority (FCA) to impose fines and other sanctions on financial advisers who breach its requirements with the more lenient regulation of CMCs. “The average firm is falling well short of [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][the MoJ’s] requirements,” was Mr Milton’s damning assessment.

Mr Milton reserved much of his criticism for CMCs who fail to highlight the proportion of the customer’s compensation they intend to take in fees, and for those who imply that using a CMC gives the complainant a better chance of success. The company website says that it only charges customers for using its claims management services “if you need our care and guidance” and says that some customers with mis-selling claims are simply advised to table their complaint independently. He concluded his comments by saying: “Suggesting that everyone is likely to secure a more successful outcome by passing things to a claims management firm is wrong, if that is what is happening, and something needs to be done about it. Perhaps they should be compensating customers if they have not been honest about that.”

During the course of 2013, CMCs have been subject to additional regulatory requirements, such as being banned from issuing advertisements that offer cash inducements, receiving referral fees and entering into verbal contracts with customers. It is also now possible for a customer to refer a complaint about a CMC to the Legal Ombudsman if they are not satisfied with the company’s response.

Despite the introduction of these new measures, many politicians, consumer groups and industry commentators believe that regulation of the claims management industry is unduly lenient, and have called for the FCA to be given the power to regulate CMCs.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]


Reforms To Be Implemented In Workplace Pensions Following OFT Study

The Office of Fair Trading (OFT) has announced the results of its study into competition in the workplace pensions market. After a detailed investigation into defined contribution (DC) pension schemes, also known as money purchase schemes, the OFT says it has reached agreement with The Pensions Regulator for a series of reforms to be implemented.

The OFT made looking at this area a priority in light of the fact that membership of DC schemes is expected to increase dramatically following the launch of auto-enrolment. Starting with the largest companies, which were required to comply by October 2012, all employers in the UK will need to contribute to a pension scheme for any employee who wishes them to do so. It is currently anticipated that the very smallest companies will need to set up such a pension scheme by February 2018, and there are many staging dates between now and then for firms of different sizes.

It is predicted that membership of DC schemes will increase from the current level of around five million to around 14 million over the next five years.

The OFT study has concluded that employers “often lack the capability or the incentive to assess value for money” when faced with choosing a pension provider for their scheme.

The principal recommendations made by the OFT are:

  • The Pensions Regulator will conduct an assessment of smaller, trust-based schemes to establish which ones are not providing value for money. The Department of Work & Pensions (DWP) will consider whether the Regulator needs to be given additional enforcement powers in this area.
  • The Association of British Insurers (ABI) will conduct an audit of bundled trust schemes. These older pension arrangements often have higher charges.
  • ABI members will establish independent governance committees, which can recommend changes to schemes and can refer issues to regulators.
  • The DWP will consult on making it easier for employers to compare costs and other features of pension schemes, and on how schemes can be prevented from charging built-in adviser commissions.

It is estimated that £40 billion is invested in smaller trust-based schemes or bundled trust schemes, the two types of pension arrangement which were identified as being particularly poor value for money.

The OFT did not decide to refer the market to the Competition Commission, nor did it impose a price cap.

Clive Maxwell, OFT Chief Executive, said: “Automatic enrolment has the potential to expand and change the market for pensions in the UK for the better. Whether people are starting pension-saving for the first time through automatic enrolment, or have already been saving for years, it is vital that they are saving in schemes which deliver good value for money. We have found problems in relying on competition to drive value for money for savers in this market. We’ve therefore worked closely with the Government, regulators and industry to agree a set of measures that we believe are an important step in helping to ensure that savers get better outcomes. It is important, particularly given that automatic enrolment is already under way, that these measures are implemented rapidly.”