29May

FCA warns clients of three debt management firms

The Financial Conduct Authority (FCA) has warned the clients of three connected debt management firms to check their debt situation, and to seek advice if necessary.

The three firms – Sterling Financial Security Limited , Haydon Associates Debt Management Consultants Limited and Clear View Finance Limited – are all based in Lichfield, Staffordshire, and all three have had their permissions to conduct debt management activity withdrawn by the regulator.

Sterling, Haydon and Clear View failed to provide the written statements to customers regarding their debt position that the FCA had demanded. 90% of amounts paid by clients were going towards paying the firms’ fees, with only 10p in the pound being used to reduce the debt.

In Supervisory Notices dated March 19 2015, the FCA gave the firms 14 days to provide the following information to clients via written statements:

• The balance owed to each creditor
• The total amount paid to creditors whilst they had been a client of the firm
• The amount the firm was holding on behalf of the client
• The total fees paid by the client to the firm

Furthermore, the firms continued to trade even though their interim permissions expired on March 31 2015, and they had not submitted any applications to the FCA to upgrade to full permission.

Clients of these firms need to note that no redress offer has been made to them, and that they remain responsible for repaying the full amount of their debts. Owing to the amount they have paid in fees, the debts may also be larger than the clients imagined. The three firms are now unable to conduct negotiations on behalf of their clients.

The FCA is attempting to track down clients of the three firms and to make them aware of the debt advice services offered by the Money Advice Service.

Complaints to the Financial Ombudsman Service about debt counselling were 47% higher in the year to March 31 2015 than in the previous financial year. Complaints about fees and charges and the way these were communicated to clients continue to dominate the debt counselling complaints.

The FCA has also previously revealed it is concerned about whether debt management firms have adequate systems in place to protect client money, are providing suitable advice and have sufficiently trained staff.

Back in September 2014, 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.”

All commercial debt adjusters, and all commercial debt counsellors in the Northern region should already have applied to the FCA to upgrade their interim permissions to full permission. Debt counsellors in London must apply before the end of May 2015, those in Northern Ireland and the South and East regions must apply before the end of June, and the final application deadline for firms in the Central region is July 31 2015.

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.
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28May

FOS reveals issues that have dominated their workload over 15 years, as it publishes annual review

The Financial Ombudsman Service (FOS) annual review for the 12 months to March 31 2015 reveals that there have been significant falls in complaint numbers in some product areas, but that for other products, volumes have soared.

The FOS, which resolves complaints where a financial firm and a customer cannot reach agreement, received 329,509 new complaints in the 12 month period, down 36% on the previous year. 204,943 of these concerned payment protection insurance (PPI), which is only just over half the number received in 2013/14, however the product still accounts for 63% of the organisation’s workload, and PPI complaints can still take many months or even a few years to resolve.

The largest increase in complaint volumes concerned packaged bank accounts, where the number of cases rose almost fourfold to 21,348. These types of account also accounted for more complaints than any product other than PPI. Other areas showing significant increases in complaint numbers include credit broking (up 87% to 1,213), payday loans (up 46% to 1,157), debt collecting (up 51% to 843) and debt counselling (up 47% to 140).

Complaints about packaged bank accounts often involve clients saying they were given a packaged account without their knowledge or consent, or that they are unable to claim on many of the associated insurance products.

Credit broking complaints might concern customers having fees taken from them by brokers who never managed to arrange a loan, or being charged multiple fees as their details were passed on to numerous other brokers, or being misled into believing that the firm they were dealing with was actually a lender.

Many of the payday loan complaints concerned creditworthiness assessments and use of continuous payment authority.

Debt collection complaints were often about chasing the wrong person for a debt, or exhibiting behaviour that customers believed to constitute ‘harassment’.

Complaints about fees and charges and the way these were communicated to customers continue to dominate the debt counselling complaints.

PPI still accounts for 88.5% of complaints referred by claims management companies (CMCs), with packaged bank accounts making up a further 8%.

As many as 6% of the complaints received were classed as ‘frivolous or vexatious’ by the FOS, meaning that they never had any real prospect of success. CMCs were responsible for submitting many of these.

The FOS resolved 448,387 complaints in 2014/15, and found in the customer’s favour in 55% of cases. However, for some products the uphold rate was significantly higher, such as card protection insurance (85%) and PPI (62%).

The press release accompanying the review also looks back on the 15 years the FOS has been in existence. In that time it has received 2.8 million complaints, of which 1.3 million concerned PPI and a further 500,000 related to mortgage endowments or bank charges.

Chief ombudsman, Caroline Wayman, commented:

“The world has moved on and changed significantly since I first joined the ombudsman as an adjudicator in 2001. Yet our workload over the last 15 years has been constantly dominated by the past – clearing up the fall-out of the mass claims and mis-selling scandals of the last decade and a half.”

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.

27May

Wonga adopts new advertising campaign

The UK’s largest and best known payday lender, Wonga, has unveiled its new advertising campaign as it seeks to establish a new image.

The new television adverts focus on hard-working people. Gone are the elderly puppet characters that symbolised the firm in the past – instead the adverts suggest Wonga loans can help people carrying out jobs such as farmer, HGV driver or dinner lady. Its new slogan is ‘credit for the real world’.

The adverts will not be shown during children’s programmes, or at any other time likely to attract a large younger audience. For example, no adverts will be shown at any time on the MTV channel.

The firm is looking at introducing a number of other lending products, including longer-term loans and credit cards, and may use a different brand name when these are launched.

Wonga has also introduced a number of new features on its loans, which include:

• The ability to pay back the loan balance, without interest or fees, within 24 hours should a customer change their mind about taking out the loan
• A grace period on late repayments, whereby the £15 late payment fee will only be applied if the payment is made more than three days after it was due
• Arrears will only accrue interest for seven days, rather than the 30 days which was previously the case

Wonga’s loans are also cheaper now than in the past. The price cap came into force in January 2015, and the firm now charges an Annual Percentage Rate of 1,509%, compared to the previous rate of 5,853%.

The firm announced a pre-tax loss of £37.3 million in 2014.

Wonga chief executive Tara Kneafsey said:

“Our new product features and today’s marketing relaunch are further proof of the action we’ve taken, and continue to take, to ensure Wonga is lending responsibly and putting customer outcomes first.

“We’re re-presenting our short-term loans to the public in a way that accesses the right type of customer and reduces the risk of inadvertently attracting the very young or vulnerable.

“Our focus is on serving hard-working people throughout the UK who need access to transparent, flexible and short-term credit products.”

Wonga has already fallen foul of the Financial Conduct Authority (FCA) on two occasions. Since the FCA took over as consumer credit regulator on April 1 2014, Wonga has been forced to issue compensation payments totalling £2.6 million to customers who received debt collection letters from fake law firms, and to write off £220 million worth of loans that would not have been granted under new affordability criteria.

Payday lenders can continue to expect close scrutiny from the FCA.

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.

22May

FCA speaker suggests firms adapt three-point plan for insistent clients

A Financial Conduct Authority (FCA) technical specialist has suggested a three-point procedure that firms could adopt when dealing with ‘insistent clients’.

Insistent clients are generally held to be those who receive financial advice but then opt to go against what their adviser has recommended. Advisory firms are reporting an increase in these types of client since the recent introduction of the Government’s pension freedoms – now many clients simply want to make a significant cash withdrawal from their pension fund, even if it would severely reduce their future pension income and/or move them into a higher rate income tax bracket.

So the choice facing an adviser in these circumstances is either to process the client’s request, or to refuse to do business with them.

Addressing a conference at investment research provider Morningstar in May 2015, the FCA’s Rory Percival revealed that his organisation had dealt with a large number of queries regarding this issue in recent weeks. He suggested that advisers follow these steps when dealing with insistent clients:

1. Give a clear and concise recommendation, ensuring the client understands what is being recommended
2. If the client indicates that they wish to take an alternative course of action, clearly explain the risks involved with the route they wish to take
3. Clearly document the fact that the client has chosen to go against the professional advice they received

Mr Percival commented: “We’re saying you can transact against your advice, but you have to make your advice very clear,” and went on to say: “If you take these three simple steps, I don’t see how you will have a problem.”

He cautioned against the use of disclaimer forms for insistent clients, on the grounds that the client might not understand the form.

Despite these re-assurances from the regulator, many advisers might still be wary about processing insistent client business as they are unsure as to how the Financial Ombudsman Service would view the matter should a complaint be made at a later stage.

Keith Richards, chief executive of the Personal Finance Society, has previously recommended that his members avoid processing any business from insistent clients, unless the Government can provide guarantees that advisers will not be held liable.

Mr Richards said:

“If the government expect advisers to facilitate transfers, irrespective of their advice to the contrary, there must be a change of process to further protect the client and guarantee that advisers will not be held liable if a poor outcome subsequently materialises.

“Until then, our advice to members is clear and unambiguous: do not facilitate activities which go against your professional advice and the best interests of the client.”

The Society has written to the Government and to the FCA regarding its fears of a new mis-selling scandal surrounding the pension freedoms.

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.

20May

FCA identifies issues with disclosure of insurance price information

The financial regulator, the Financial Conduct Authority (FCA), has revealed that it has issues with the way some firms are disclosing payment options on home and car insurance policies. The area is generally known by the name ‘premium finance’, as interest will be charged on the premiums if a customer opts to pay in instalments.

In May 2015, the FCA published the results of a thematic review into the subject. The regulator reviewed the practices of 43 firms, large and small, including 13 insurers, 26 brokers and four price comparison websites.

The review was only concerned with online sales, so the FCA simply reviewed the content of the websites of the 43 firms selected to participate.

The FCA is concerned about how firms describe the relative costs of paying for the insurance upfront, or paying in instalments. This was often done in a confusing way, making it difficult for customers to compare the costs of the two methods, indeed the FCA reported that many customers were not aware there was a cost difference.

According to data supplied by research agency Datamonitor, 40.6% of UK customers pay for their motor insurance in instalments, a figure that rises to 52.5% for household insurance.

Where there was a credit agreement associated with the insurance, which is usually the case when payments are made in instalments, many firms were failing to provide the necessary information on their websites. The information to be provided in these circumstances includes: the name of the credit provider, the firm’s relationship with the provider, the interest rate, the fees and charges payable, the representative annual percentage rate (APR) and the total amount payable. The financial information must be ‘prominently disclosed’ to the customer, i.e. not buried in small print or presented in a confusing way.

The fact that a credit agreement is taken out means firms need to comply with the FCA’s Consumer Credit rules, and with the provisions of the Consumer Credit Act; as well as with the FCA’s Insurance Conduct of Business Rules. The firms also need both consumer credit and insurance permissions.

All firms in the home and car insurance sectors, whether they participated in the thematic review or not, should now take careful note of the FCA’s findings, and make any necessary changes to their practices and procedures. The FCA says it will take further action against some of the firms that participated in the review, so enforcement action remains possible.

Linda Woodall, acting director of supervision at the FCA, said of the review findings:

“Consumers should expect clear information about the payment options available to them. Regardless of whether people choose to pay upfront or in instalments, it’s important that they can see exactly what they are signing up for and how much it costs so they can decide whether they are getting a fair deal.”

Rebecca Rutt, senior insurance writer at the consumer finance website MoneySavingExpert.com, summarised the situation by saying:

“Paying monthly for car or home insurance means you’re effectively choosing a high-interest loan, because along with paying for the insurance, you’re also paying for the interest added on by the insurer.”

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.

11May

Legal Ombudsman explains work done with CMCs to improve standards

It was a major development for the UK’s claims management companies (CMCs) when the Legal Ombudsman started considering complaints about them in January 2015. The Ombudsman has the power to issue legally binding instructions for CMCs to pay up to £30,000 in compensation to any customer who has their complaint upheld.

However, the Ombudsman is also seeking to help CMCs improve standards wherever possible. In a guest comment piece on the consumer financial website Moneysavingexpert.com, the Ombudsman’s head of claims management complaints, Simon Tunnicliffe, explains how his organisation will be sharing complaints issues with the claims management industry, providing case study examples and showing CMCs “what good looks like”.

He also comments: “Claims management companies are not all bad, but those that are have given the industry a bad name.”

He adds that: “Taking on claims management complaints is an important step forward for protecting consumer rights and bringing more awareness to customer service”, and highlights the Ombudsman’s independence by saying: “Whose side are we really on – consumers or CMCs? Well, the answer is simple: neither. We are completely impartial.”

The Ombudsman can adjudicate on complaints involving CMCs practising in the following areas:

• Financial products and services
• Personal injury
• Employment
• Housing disrepair
• Criminal injury compensation
• Industrial injury disablement benefits

Examples of reasons for customer complaints might include:

• Issues over costs and charges
• Whether the promised service has been delivered
• Delays in the claims process that could be the fault of the CMC
• Giving inappropriate or incorrect advice to customers
• Failing to keep the customer informed as to the progress of the claim

The article concludes by explaining the process customers need to follow, i.e. they should complain to their CMC first, and then if the company has not resolved the complaint within eight weeks, or does not resolve the matter to the customer’s satisfaction, then they can contact the Ombudsman.

The fact that the Ombudsman can now adjudicate on complaints means that a revised set of complaints rules have been introduced for all CMCs. Companies must have documented complaints procedures, which should cover:

• The definition of a complaint
• The requirement to acknowledge complaints in writing within five business days of receipt
• Who has overall responsibility for handling complaints at the company
• The need to issue a final response letter when the investigations into the complaint have completed, explaining: whether the complaint has been upheld or not, the reasons for the decision and details of any redress being offered
• The need to make the customer aware of their right to refer the complaint to the Ombudsman – this needs to be done either at final response stage, or after eight weeks from the date of receipt, whichever comes earlier
• The need to give the customer the Ombudsman’s contact details and to make them aware they must refer the complaint within six months of the final response
• That all staff within the company have been trained as to how to recognise a complaint, and what to do on receipt of a complaint.

The complaints procedures must be provided to clients in the following instances:

• Prior to them signing a contract with the CMC
• Whenever a complaint is made
• Whenever they request a copy

Existing clients of CMCs should also be informed of the recent changes to the complaints regime. This should be done on the next occasion that the company corresponds with a particular client. So for example, a written paragraph could be added to client letters, and a footer to client emails.

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.

08May

Lawyers recommend advisers review data procedures after landmark Google court ruling

A UK Court of Appeal judgement of March 31 2015 could have far reaching consequences for firms that do not strictly adhere to the provisions of the Data Protection Act 1998 (DPA).
It ruled that three defendants were entitled to pursue further legal proceedings as a result of mis-use of information they provided when browsing the internet.

The claimants: Judith Vidal-Hall, Robert Hann and Marc Bradshaw, alleged that internet search engine giant Google Inc. had collected confidential information via their use of the Apple Safari search engine, without their knowledge or consent.

A crucial point of the ruling was that the claimants were entitled to pursue their case even though they had not suffered any financial loss as a result of Google’s actions. The judgement also decided that browser generated information could meet the definition of personal data, as this data does allow the individual to be clearly identified and distinguished from other individuals. Hence the DPA provisions could be applied to the way firms use information gathered in this way

Now, a specialist lawyer has called on financial advisory firms to review their own Data Protection procedures and practices in the light of the ruling. John Warchus, partner at commercial and technology law firm Moore Blatch, said he believes that an increase in claims alleging ‘emotional distress’ from misuse of data can now be expected.
Mr Warchus commented:
“Brokers, or indeed anyone in control of data, will now have an even stronger incentive to comply with data protection rules.

“Brokers should urgently review their data protection procedures and strengthen where necessary as more compensation claims are likely and the amount of damages awarded is also likely to increase.”

Chris Hannant, director general of the trade association the Association of Professional Financial Advisers, echoed the need for firms to take a look at this issue: “Advisers need to take care with people’s data because it is an increasingly sensitive issue. They have to look after the data but they also have to make sure they get rid of it.”

Personal data is defined as data which relates to a living individual who can be identified either from those data, or from those data and other information which is in the firm’s possession. The individual whom the data concerns is the ‘data subject’.
The eight Data Protection principles require personal data to be:
• Fairly and lawfully processed
• Processed for limited purposes
• Adequate, relevant and not excessive
• Accurate and up to date
• Not kept for longer than is necessary
• Processed in line with the individual’s rights
• Secure
• Not transferred to other countries without adequate protection
Firms should ensure that the Terms of Business document, Client Agreement or similar that a client is given at the start of their contractual relationship with the firm covers the issue of Data Protection. This is to ensure the individual knows exactly what is going to happen to the personal data they provide, how it is going to be used, and if applicable, which other parties it could be passed to.

The Information Commisisoner’s Office, the data protection watchdog, can impose fines of up to £500,000 on firms who breach their Data Protection obligations. It can also require firms to give undertakings to cease certain practices, and can initiate criminal prosecutions in serious cases.

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.

06May

Clients ask advisers to provide fake evidence of pension advice

With the new pension freedoms having been in force for four weeks, some financial advisers are reporting that clients are asking them to sign declarations stating they have provided advice on a pension transfer, when in fact no such thing has occurred.

Initially, the new freedoms would have excluded clients in final salary (defined benefit) schemes. This was later relaxed, and final salary scheme members are now allowed to transfer their pension fund to a money purchase (defined contribution) scheme, from which they are free to access the cash as they wished from age 55.

However, clients with more than £30,000 in a final salary scheme need to seek regulated financial advice (not just guidance from the Government’s Pension Wise service) before proceeding with the transfer, although there is actually no requirement for the client to follow the advice given in these circumstances.

The pension provider would be expected to ask for evidence that advice has been sought before allowing the transfer to proceed. The client requests that advisers are reporting relate to simply wanting a declaration to be signed, and not actually requiring any advice, which would attract an advice fee.

Lee Tomkins of Taunton-based Blackdown Financial Independent Financial Advisers 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”][These clients] don’t really want advice, just the money, but the provider won’t let them have the money without a letter saying they have received advice. It looks like this ‘pension freedom’ isn’t quite the freedom they were expecting.”

Hopefully it goes without saying that no financial adviser should complete a false declaration on any issue.

This is a separate issue from that of ‘insistent clients’ who wish to access their pension pot in a different way to that recommended by their adviser. Insistent clients are those that do take advice, but then choose to disregard it. Advisers are reporting that clients are contacting them seeking to withdraw more than the 25% tax free lump sum from their pension fund, regardless of the consequences this might have in terms of eroding the pension fund and/or pushing them into a higher income tax band.

Keith Richards, chief executive of the trade association the Personal Finance Society, has advised his members not to process insistent client cases. He has called on the Government to guarantee that advisers would not be held liable for any future complaints from insistent pension clients, and that such clients would not be able to access the Financial Services Compensation Scheme, and only then would he change his advice.

If not implementing a complete ban on insistent clients, firms should at the very least keep clear records of the advice they give, and the reasons for this.

One thing is clear – the new pension freedoms have not made life any easier for financial advisers.

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.
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01May

Adviser trade body calls on FCA to clarify pension freedoms implications for advisers

The pension freedoms introduced on April 6 2015 gives consumers aged 55 and over almost complete flexibility regarding how much of their retirement funds they can access. But with these freedoms comes a new challenge for financial advisers – how should they advise customers wishing to access their pension funds, and how should they deal with clients who wish to go against their advice (the so-called ‘insistent client’)?

Essentially, the options now open to a client on reaching 55 are:

• Take out a traditional pension annuity, providing a guaranteed income for life
• Effect a ‘flexi-access drawdown’ plan, where income taken from the pension fund can be varied over time
• Withdraw lump sums from the pension fund as cash (an Uncrystallised Funds Pension Lump Sum, or UFPLS)
• A combination of the above steps
• Do nothing for now, and leave the funds invested

If the drawdown or UFPLS option is taken, then the main concern is that pensioners will withdraw too much of their retirement fund and be left much poorer later in retirement. But while they remain the only way of receiving a guaranteed income for life, and the only method that does not involve predicting life expectancy, annuities remain poor value in many people’s eyes. Annuity rates fell to an all time low on April 23 2015.

The Association of Professional Financial Advisers (APFA), a trade association for financial advisers, has now called on the regulator, the Financial Conduct Authority (FCA) to provide guidance to advisers on this topic.

Chris Hannant, APFA’s Director General, said:

“We welcome the extension of the new pension flexibilities to those people currently in DB schemes and are pleased the government continues to place financial advice at the heart of consumer safeguards.

“Our engagement with the FCA on this consultation leads us to conclude that under the new pensions regime, nearly all advisers who want to continue offering retirement planning services will need a Pension Transfer Specialist qualification. We need clarity as to under which precise circumstances these qualifications would be required for consideration of DB benefits.

“The FCA must also give the advice industry greater certainty on where and how liability would attach for advice to ‘insistent clients’ who want to go ahead with a transfer against advice.”

The extension of the flexibilities to those in DB schemes that Mr Hannant refers to relates to the fact that when the new freedoms were first announced in the 2014 Budget, they were intended to apply only to those in defined contribution (money purchase) schemes. Since then, it has been announced that customers in defined benefit (final salary) schemes can take advice as to whether it would be appropriate to transfer their fund to a defined contribution scheme, and then to take advantage of the freedoms. However, there is still confusion about whether any adviser giving such advice would need a specialist pension transfer qualification, such as the Institute of Financial Services’ Award in Pensions Transfers, or the former G60 examination.

Advisers are already reporting that clients are contacting them seeking to withdraw more than the 25% tax free lump sum from their pension fund, regardless of the consequences this might have in terms of eroding the pension fund and/or pushing them into a higher income tax band.

Keith Richards, chief executive of the Personal Finance Society, has already advised his members not to process insistent client cases, unless the Government can guarantee that advisers would not be held liable for any future complaints from these clients.

One reason the FCA might not respond swiftly to APFA’s request is the impending General Election. In the run-up to an election, announcements from the financial watchdog are usually few and far between.

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.