FCA warns debt managers to improve

The Financial Conduct Authority (FCA) has called for debt management firms to raise their standards. The call from the regulator came in late September 2014, just days before the application period for debt managers to apply to the FCA for full permission commenced.

Major issues of concern the regulator has with certain firms in this sector include:

  • The suitability of advice given
  • The levels of staff training and expertise
  • Whether staff are motivated by financial incentives, or by securing the best outcome for their customers
  • Whether fees are fair and transparent
  • Arrangements for protecting client money
  • Whether firms are meeting their obligations to refer customers to sources of free debt advice, and to make them aware of the Money Advice Service.

In its review of financial promotions in August 2014, the FCA found that some debt managers were implying their services were free when they were not.

Since taking over as consumer credit regulator in April 2014, the FCA has identified a number of concerns with debt management firms. Two firms have had their applications refused, seven have had their bank accounts frozen in order to protect client money, 14 have agreed to stop accepting new business, seven have been forced by the FCA to conduct a skilled persons review and one has agreed to cancel its interim permission and cease conducting debt management business.

Victoria Raffe, director of authorisations at the FCA, said:

“[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”][Debt management] firms are advising consumers who have often reached rock bottom, so it’s important that firms get it right. Many firms are falling well short of our expectations and they will need to raise their game if they want to continue operating.”

Commercial debt adjusters who currently hold interim permission from the FCA need to apply to upgrade to full permission within their designated application period. This period runs from October 1 to December 31 2014 for firms in the North of England; from November 1 2014 to January 31 2015 for firms in London; from December 1 2014 to February 28 2015 for firms in Scotland, Northern Ireland, southern and eastern England; and from January 1 to March 31 2015 for firms in Wales and Central England. Any firm which does not apply during their allocated period will lose their authorisation.

The FCA imposed new rules on debt managers relating to handling of client money and the level of financial resources which need to be held, requirements which did not exist under the Office of Fair Trading regime. The FCA regards debt management as a high risk activity, and firms active in this area are warned to expect close regulatory scrutiny.

Now may therefore be a good time for debt managers to engage the services of an independent compliance consultant, who can advise on whether the firm’s practices and procedures meet FCA requirements, and who can assist in preparing applications for full permission.

The information shown in this article was correct at the time of publication.  Articles are not routinely reviewed and as such are not updated.  Please be aware the facts, circumstances or legal position may change after publication of the article[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]


Children’s Society releases results of survey into payday loan advertising

The Children’s Society, a charity that assists disadvantaged children, has issued a call for payday loan advertisements to be banned from all TV and radio broadcasts before the 9pm watershed, and has claimed that its research shows that 74% of parents would support such a ban.

This goes further than the ban on loan advertising on children’s television many other campaigners have called for, and which Labour Party leader Ed Miliband MP has indicated his party will sign up to should they win next year’s general election.

The Society has issued a report entitled “Playday not payday: Protecting children from irresponsible payday loan advertising,” which contains the results of market research into the subject.

The Society cites research from broadcasting watchdog Ofcom which says that there are now 20 times as many loan adverts being broadcast on TV than was the case four years ago. The majority of these adverts are aired before 5pm. Research from Moneysavingexpert.com is quoted in the report which reveals that one third of parents of under 10s have heard their children repeat payday loan advertising slogans.

The Society also commissioned its own research, via research agency YouGov, which found that one third of children aged 13-17 thought payday loan adverts were “fun, tempting or exciting.” 55% of teenagers knew the names of at least three payday lenders, and almost three quarters of respondents in this age group had seen a payday loan advert within the seven days prior to being surveyed.

In summary, the report is calling for advertising restrictions on payday loans similar to those that exist for the drinks industry.

Other recommendations in the Society’s report include a ban on consumer credit firms making unsolicited marketing calls, and a ban on payday loan advertising from council premises.

Persons under the age of 18 are of course not permitted to borrow money. But the main concerns about advertising to minors are: firstly that children will pester their parents to take out loans to spend on toys and treats; and secondly that the lenders are grooming the next generation into believing that borrowing money is normal.

The Society has now launched its Debt Trap campaign, where the public are invited to lobby members of the House of Lords. It is seeking an amendment – under which pre-watershed loan advertisements would be banned – to the Consumer Rights Bill currently making its way through Parliament.

Lily Caprani, director of policy and strategy at The Children’s Society, said that

“children across the country are being exposed to a barrage of payday loan adverts.”

Matthew Reed, CEO of the Children’s Society, added:

“It is crucial children learn about borrowing and money from their school and family, not payday loan adverts.”

The UK’s largest lender, Wonga, has already stopped using its elderly ‘puppet’ characters in its advertising. New chairman Andy Haste made the announcement shortly after taking up his duties at the lender, saying he did not wish to take the risk of “inadvertently attracting the very young or vulnerable.”

The information shown in this article was correct at the time of publication.  Articles are not routinely reviewed and as such are not updated.  Please be aware the facts, circumstances or legal position may change after publication of the article. 


FCA publishes Credit Ready guides to assist credit applications

With only days to go before some consumer credit firms need to upgrade their existing interim permission to either limited permission or full permission, the Financial Conduct Authority (FCA) has published three Credit Ready guides to assist firms with the application process.

The first of these is the Credit Ready Decision Tool. This contains a flow chart which firms can use to determine whether they need to apply for limited permission or for full permission.

Essentially, all lenders will require full permission, unless they never apply interest or charges on the loan, and their principal business is of a non-financial nature. Peer-to-peer lending companies, who operate a platform whereby borrowers and lenders are brought together, also need full permission.

The next section of the tool is entitled ‘Activities related to debt’, and covers debt counselling, debt adjusting, debt administration and debt collection. All debt collection and debt administration firms will require full permission, as will any debt counsellors and debt adjusters who cannot satisfy a series of very specific conditions.

For hire firms, the situation is less complex, and these firms should expect to need full permission if they offer agreements secured on land, and limited permission if they do not.

Most credit brokers should expect to require full permission. Exceptions include certain vehicle finance brokers and Green Deal brokers.

Credit reference agencies will require full permission, while credit information providers will be able to apply for limited permission only if the information they provide is solely in connection with other limited permission activities.

The second Credit Ready guide is a checklist of items firms need to prepare for a limited permission application. These include:

  • Details of the firm – such as its contact details, place of business, registration details, organisational structure and professional advisers
  • The firm’s future plans – when it wishes to be authorised from, whether it will use any additional trading names and whether it plans to have appointed representatives
  • Financial details – such as estimated turnover and the amount of client money held
  • The firm’s history – including any previous trading names, regulatory authorisations, insolvency events, regulatory enforcement action, civil or criminal actions against the firm or complaints
  • The firm’s business – including expected numbers of clients and whether a regulatory business plan and risk management strategy is in place
  • Evidence that the firm will treat its customers fairly
  • Evidence that the firm has documented compliance procedures
  • Evidence that the firm has systems in place to combat financial crime
  • Who the firm’s approved persons will be

The third guide concerns items to be prepared for a full permission application. These include all of the above, plus additional items such as:

  • More detailed financial information
  • Evidence of IT-related systems and controls and business continuity planning
  • Copies of disclosure documentation to be supplied to customers
  • Information regarding the firm’s remuneration structure
  • Details of marketing strategies to be used
  • Whether Continuous Payment Authority will be used, and if so, the terms on which this will be used

Firms already regulated by the FCA for other activities, and who wish to add consumer credit permissions, are not subject to this application regime. These firms should instead submit a Variation of Permission application.

The information shown in this article was correct at the time of publication.  Articles are not routinely reviewed and as such are not updated.  Please be aware the facts, circumstances or legal position may change after publication of the article. 


RBS fined by FCA for mortgage advice issues

In late August 2014, financial watchdog the Financial Conduct Authority (FCA) imposed a fine of £14,474,600 on Royal Bank of Scotland (RBS) and its subsidiary NatWest over what were described as “serious failings” with its mortgage advice.

The issues can be summarised by saying that RBS was in breach of FCA Principle 9, which reads: “A firm must take reasonable care to ensure the suitability of its advice …”

Some of the most serious issues identified by the regulators were:

  • There was insufficient assessment of customers’ budget and their resulting ability to afford the mortgage payments
  • Advice given to customers seeking to consolidate debts into their mortgage was inadequate
  • Advice was not given over the term the mortgage should run for, with customers left to make this decision themselves
  • Advisers were offering personal opinions on future interest rate rises – one implied that rates were certain to rise and that an increase to 5.5% was possible. Of course, in reality, the Bank of England base rate has remained at 0.5% since March 2009
  • Internal file reviews were more concerned with whether the bank’s sales process had been followed correctly, rather than whether FCA rules had been followed

The FCA’s Final Notice gives a breakdown of the grades allocated to customer files during two historical review exercises.

Firstly, RBS’s Group Internal Audit function reviewed 91 sales made between January and July 2012. Of these, only two were graded as a Pass, while 29 were graded Fail due to issues with following the sales process, 56 contained insufficient evidence to demonstrate that suitable advice had been given, and four definitely involved unsuitable advice involving customer detriment. In over 80% of cases, the file assessment disagreed with that given by the file reviewer at the time of the sale.

Secondly, an external consultant reviewed 73 sales made between January and November 2012. None of these were graded Pass, three others involved unsuitable sales and 19 contained insufficient evidence to demonstrate suitability.

RBS was particularly criticised for failing to respond effectively both when concerns were raised by the then regulator, the Financial Services Authority (FSA) in November 2011; and when its own Retail Compliance function made its feelings known in June 2011.

Tracey McDermott, director of enforcement and financial crime at the FCA, said:

“Taking out a mortgage is one of the most important financial decisions we can make.  Poor advice could cost someone their home so it’s vital that the advice process is fit for purpose.  Both firms failed to ensure that their customers were getting the best advice for them.

“We made our concerns clear to the firms in November 2011 but it was almost a year later before the firms started to take proper steps to put things right.  Where we raise concerns with firms we expect them to take effective action to resolve them without delay.  This simply failed to happen in this case.”

Ross McEwan, RBS Chief Executive, replied to the FCA notice by saying:

“Taking out a mortgage is one of the biggest moments in our lives, and our customers have every right to expect the very best service when making this decision. It is clear that in the past the bank just didn’t get this right, this was unacceptable and should never have happened. We have worked hard to put things right.”

This is the seventh occasion on which RBS and its subsidiairies have been fined by the FCA since August 2010. Previous sanctions have concerned transaction reporting, manipulation of LIBOR, breaches of anti-money laundering rules by Coutts & Co and Ulster Bank, mis-selling of bonds by Coutts & Co and complaints handling.

The information shown in this article was correct at the time of publication.  Articles are not routinely reviewed and as such are not updated.  Please be aware the facts, circumstances or legal position may change after publication of the article.


FCA credit director writes about authorisation process

Susan de Mont, acting director of credit authorisations at the regulator, the Financial Conduct Authority (FCA), wrote an article in Money Marketing magazine in early September 2014 entitled “Getting ready for consumer credit authorisation”.

All consumer credit firms have required FCA authorisation in some shape or form since April 1 2014, but most firms have yet to apply to upgrade their existing interim permission to either limited permission or full authorisation.

Ms de Mont began by stating that the FCA was a tougher regulator than the previous credit regulator, the Office of Fair Trading.

Next she highlighted that some 50,000 credit firms came under the FCA’s jurisdiction on April 1, and that contrary to some reports, the changes affected much more than just payday lenders and debt managers. Firms ranging from debt counsellors to credit reference agencies and second charge mortgage lenders are amongst those the FCA now supervises.

One important issue highlighted is that firms whose main business is in another area of financial services may also require consumer credit permissions. For example, mortgage brokers may also transact other forms of loan; and investment advisers may be deemed to be carrying out debt counselling if they advise a client to pay off a specific loan with part of their capital. Existing FCA-regulated firms are not covered by the interim permission regime, and any firm who thinks they need to add consumer credit to their existing permissions is advised to make a Variation of Permission application as soon as possible.

Having earlier highlighted that the FCA was a stricter regulator, Ms de Mont then states that the application process is also more rigorous. “This process is deliberately more detailed than OFT licensing used to be and will result in some firms failing to secure authorisation. But we believe it will help establish a minimum standard across the industry, which is in everyone’s best interest,” wrote Ms De Mont.

All firms that currently hold interim permission have been allocated a specific three-month window during which they must apply to upgrade to either limited permission or full authorisation. Any firm that fails to apply during their allocated application period will lose their authorisation.

When this three month period commences depends on the type of business the firm carries out, and in some cases, on their postcode as well. For commercial debt adjusters and home finance firm intermediaries, the application period commences as early as October 1 2014 (i.e. these firms must apply by the end of 2014), and the process will be complete for all firms by March 31 2016. Details of when these application periods are can be found at: http://www.fca.org.uk/static/fca/article-type/application-periods-direction-to-firms.pdf

Firms intending to act as a principal to one or more appointed representatives can apply to the FCA to have their application period brought forward.

The key things for firms to consider at present are:

The information shown in this article was correct at the time of publication.  Articles are not routinely reviewed and as such are not updated.  Please be aware the facts, circumstances or legal position may change after publication of the article.


FOS holds payday loan tweets session

The Financial Ombudsman Service (FOS), the independent body that adjudicates on complaints where the customer and financial firm cannot reach agreement, conducted a special two-day session in late August 2014, where many queries about payday lending were addressed via Twitter.

This follows on from the ‘PPI tweets day’ the FOS conducted in May 2014, another occasion where the FOS team answered questions on one specific topic via the social network for a limited period.

The first query concerned someone being pursued for a loan when they said they had never dealt with the lender in question. The FOS replied by saying that it received a lot of complaints regarding this, and advised the customer to both make a complaint and to contact Action Fraud.

Another customer said they had been allowed to roll over their payday loan some 26 times, which the FOS described as “shocking”. In reply, the FOS team re-iterated that a maximum of two rollovers is permitted under new Financial Conduct Authority rules.

Next, a customer was encouraged to complain about a lender’s debt collection methods. Customers were reminded that it is unacceptable for a lender to make debt collection calls to the borrower’s place of work, or to contact a relative about the debt.

Debt collection issues were raised a number of times during the two-day session. In response to another query, the FOS tweeted that

“It’s not on for a business to make repeated attempts to debit your account – and charge you each time for the privilege.”

Another issue covered was that of the lender not wishing to co-operate with the borrower’s attempts to arrange an alternative repayment plan. The FOS said that there could be grounds for complaint here on the basis that the customer was not being treated fairly.

Throughout the two days, the FOS also made repeated appeals for those experiencing debt problems to contact a debt advice charity. It said it took a “dim view
of any firm that either discouraged a customer from seeking debt advice, or failed to inform the customer of their right to appeal a complaint judgement to the FOS.
The number of payday loan complaints made to the FOS was up 46% in the 12 months to March 31 2014 when compared to the previous financial year.
Common issues in payday loan complaints include affordability issues, the impact of a loan on a person’s credit score, use of continuous payment authority and disputes over whether the customer ever actually took out a loan.


Banks may have to pay more PPI redress under agreement with FCA

The headline news to emerge from the Financial Conduct Authority (FCA)’s latest payment protection insurance (PPI) thematic review is that the banks and other firms that sold PPI have reached an agreement with the regulator to look again at some 2.5 million PPI complaints that may have been either rejected unfairly, or where insufficient compensation was paid. This relates to complaints made in 2012 and early 2013 which have not been considered by the Financial Ombudsman Service.

This revelation raises the prospect of the major banks having to increase their PPI provision yet again – Lloyds Banking Group has already set aside a sum in excess of £10 billion. As a whole, the industry has already paid over £16 billion in compensation to affected customers.

In his foreword to the report, the FCA’s director of supervision, Clive Adamson, says that some of the six largest PPI sellers have so far failed to satisfy the regulator that they

“are likely to reliably and consistently deliver fair outcomes to PPI complainants.”

The FCA has now asked an independent external consultant to scrutinise the PPI complaint handling practices of these firms.

The FCA fined Lloyds £4.3 million in February 2013 over its PPI complaint handling practices, and imposed a £113,000 sanction on Co-operative Bank in January of the same year. Now it warns that it may use this power again in the future. The report also says that the FCA expects firms to significantly reduce bonus awards paid to executives who are responsible for failings in this area.

The report also follows up on the 18 medium-sized firms who were audited by the FCA for the September 2013 PPI review. Some of these firms are still failing to satisfy the FCA that their senior management fully understand the issues involved, or that they are sufficiently committed to correcting deficiencies in their complaint handling. Hence, some of these firms can also expect to have their practices be reviewed by an external consultant.

Some two million letters to customers who are likely to have a strong case for mis-selling are still to be sent out by firms. Given that the report says that around 45 million PPI policies were sold, and 70% of PPI complaints to date have been upheld, it can be estimated that around 31.5 million policies were mis-sold. Yet only 13 million complaints have been made to date, suggesting that there are many more people whose claim would be successful were they only to make one.

However, the FCA notes that PPI complaint numbers are steadily falling, and looks forward to the end of the mis-selling saga. It says that its next PPI report, due to be published in 2015, could be its last.

In the final section of the report, the FCA says that it is not minded to accept the proposal of the Parliamentary Committee on Banking Standards that firms are required to write to all customers who have ever been sold PPI inviting them to consider making a complaint. The FCA believes this would be unworkable, and also says it is not yet persuaded to impose a time limit on when a PPI claim can be made.

Martin Wheatley, the FCA’s chief executive officer, said: “Making sure anybody previously mis-sold PPI is treated fairly now, and paid redress where its due, is an important step in rebuilding trust in financial institutions. In around two and a half million complaints this was not necessarily the case so, at our request, firms will be looking at these complaints again. The process is now working well; in just over three years £16bn has been put back into the pocket of the consumer – that is unprecedented. Given the enormity of this exercise it is no surprise that there have been some issues along the way but our approach is delivering a good result for consumers.”


Consumer panel head criticises firms over lack of RDR compliance

The Financial Services Consumer Panel (FSCP) has called on the regulator, the Financial Conduct Authority (FCA), to get tough with firms who have still not fully implemented the requirements of the Retail Distribution Review (RDR).

The FSCP seeks to represent the interests of consumers when financial regulatory policy is being developed.

The RDR has now been in force since January 1 2013. It forced financial advisers to attain higher level qualifications, banned the receipt of commission payments for investment and pension advice, and set new requirements for how firms describe their services.

It is the last of these that has particularly exercised the FSCP. In its thematic review of March 2014, the FCA revealed that 73% of firms surveyed were not meeting the RDR disclosure requirements in some way. Common failings related to: firms being insufficiently transparent as to what costs would be for individual clients; not clearly describing the nature of the service they offer in return for fees received; not informing clients of their right to cancel ongoing advice fees; and where firms gave restricted advice , they were not clearly informing clients as to the nature of the restriction.

The FCA described the findings as “unacceptable”, but only referred two firms to its Enforcement Division over these issues.

In its Annual Report, the FSCP also:

  • Welcomed the recommendations of Parliamentary Commission on Banking Standards regarding conduct and accountability for bank staff, and looked forward to similar standards being introduced in other areas of financial services
  • Called on the FCA to engage with organisations it does not currently work extensively with, in order to ensure that unauthorised firms do not carry out consumer credit activities
  • Called for action on unjustified and/or hidden investment charges
  • Urged the FCA to introduce better protections for ‘mortgage prisoners’, who are trapped on a poor mortgage rate but cannot obtain a re-mortgage due to the strict new Mortgage Market Review assessment criteria
  • Asked the FCA to consider that significant customer detriment can result from forms of credit such as credit cards and overdrafts, as well as payday loans. The FSCP also asked for a cap to be imposed on the cost of all forms of credit, similar to that to be introduced on payday loans

Sue Lewis, chairman of the FSCP, said:

“There is still widespread non-compliance with RDR rules. ‘Non-advice’ continues to pose a risk for consumers.” In her foreword to the Report, she also comments: “I do not believe that most firms have really embraced the idea of treating customers fairly.”