31Jul

FCA introduces more changes to complaints rules as a result of EU Directive

On July 23 2015, the Financial Conduct Authority (FCA) announced further changes that will be made to its complaints rules as a result of the European Union’s Alternative Dispute Resolution Directive.

Firms will be given until the end of the third business day after receipt to try and resolve complaints informally. At present, firms must invoke their formal complaints procedures if the matter cannot be resolved to the customer’s satisfaction by the end of the business day following receipt.

Firms will however need to send a letter to the customer summarising the actions they have taken in resolving the complaint informally, and will now need to make the customer aware of their right to refer complaints to the Financial Ombudsman Service. At present, informally resolved complaints do not need a final response letter or similar, and the customer does not need to be informed of the FOS.

Firms will need to provide more information on their six-monthly complaints returns under the new rules. This will include the need to report numbers of informally resolved complaints.

Customers who telephone to complain must not be asked to call on a premium rate phone number. This restriction will also apply to all customer service calls which are made post-contract.

These rules have been finalised, but will not come into force until June 30 2016, with the exception of the restrictions on premium rate phone numbers, which take effect from October 26 2015.

The first tranche of new rules under the Directive are already in force. Final response letters must continue to explain why a complaint is being accepted or rejected, and detail what redress (if any) is to be provided. The letter must now give the website address of the FOS, as well as making the customer aware of their right to refer the matter to the FOS. The need to enclose the FOS leaflet with the final response remains.

Firms also now need to decide whether they will consent to the FOS considering time barred complaints about their firm and/or complaints which are referred to the FOS more than six months after the date of the final response. Specified wording now needs to be included in the final response letter regarding the decisions the firm has taken regarding these issues. There is no scope to vary this wording, which can be found in DISP 1 Annex 3 of the Financial Conduct Authority’s Dispute Resolution (DISP) sourcebook.

Firms also need to amend their websites so that they contain a link to the FOS website, and give an explanation of the FOS’s services.

Christopher Woolard, director of strategy and competition at the FCA, said:

“Our rules will help deliver the quicker, easier and fairer resolution to complaints that consumers want. Getting this right is also vital for firms. A properly resolved complaint can keep a customer happy, and protect the firm’s reputation. But, more than that, effective complaints handling systems can act as an early warning system for firms.”

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.

29Jul

Payday loans, credit broking and PPI complaints still receiving high uphold rates at FOS

The Financial Ombudsman Service (FOS) has released figures for the complaints it received, and the cases it closed, during the period April to June 2015, which represents the first quarter of its financial year.

As in previous time periods, the three month period shows that the FOS upheld a high proportion of the complaints it received regarding payment protection insurance (PPI), payday lending and credit broking activities.

The FOS upheld 51% of the cases it closed between April and June, which is a reduction from the 62% decided in favour of the client during the financial year ending March 31 2015. However, the following areas all saw a larger than average proportion of complaints upheld:

• PPI (74%)
• Credit broking (69%)
• Payday loans (68%)
• Card protection insurance (68%)
• Catalogue shopping (53%)
• Store cards (52%)

PPI has been mis-sold on a massive scale over a number of years. Large numbers of complaints are still being made by consumers who allege that the insurance was unsuitable, or that the insurance was added to their loan without their knowledge or consent. The FOS is also reporting increasing numbers of complaints from consumers who believe that their provider has offered insufficient compensation.

The FOS has previously spoken of its concerns regarding credit brokers, particularly those that broker payday loans. It said that many customers were having fees taken from them by brokers who never managed to arrange a loan, and that in some cases customers were being charged multiple fees as their details were passed on to numerous other brokers. Many were misled into believing that the firm they were dealing with was actually a lender.

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.

89,935 new complaints were received during the quarter, of which 49,377 (55%) concerned PPI. The second most complained about area is packaged bank accounts (PBAs), which accounted for 12,119 new cases (13% of the total). The PPI figure for the period is less than one quarter of the number received during the whole 2014/15 financial year, but there is evidence that complaints about PBAs and payday loans are rising significantly. The first quarter total of complaints about PBAs was as high as 57% of the figure for the entire previous 12 months, while for payday loans the first quarter figure (457) represents 39% of the previous year’s total. However, in the first quarter only 10% of PBA complaints were upheld.

Claims management companies have been asked by their regulator, the Ministry of Justice, to consider past FOS decisions when deciding whether to pursue claims.

The figures also serve as a further reminder for payday lenders and credit brokers to raise their game, in order to avoid having to pay compensation for upheld complaints.

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.

27Jul

FOS gives examples of mortgage complaint decisions

In the July/August edition of Ombudsman News, the Financial Ombudsman Service (FOS) gave details of some of the mortgage complaints it had adjudicated upon. Some of the cases are summarised here.

A man claimed his adviser had told him he had six months to ‘port’ his mortgage to another property, yet when he applied to do so two months later, the lender told him the deadline of one month had passed. The customer thus incurred extra fees and a higher interest rate via a new mortgage. The FOS found that the bank had given him incorrect information, and had taken an unduly long time in informing him of the change in the porting terms & conditions. The bank was required to pay the man the amount of his fee for the unsuccessful porting application, the fees for applying for the new mortgage and an amount equivalent to the difference in interest payments for the two deals over the next seven years.

A couple’s repayments were not taken by their lender for several months due to a system error, yet they refused to extend the mortgage term, in spite of the fact that the required repayments almost trebled. The FOS ordered the lender to extend the term by the amount necessary to make repayments affordable, and to pay £400 compensation for distress and inconvenience.

A woman’s application to extend the term of her interest only mortgage was declined as she was over the age of 65. However, she claimed that a member of the bank’s staff had previously informed her a 12 month extension would be permitted, and that she had assumed an extension would be granted and would thus not now be able to raise the funds to pay off the capital balance in time. She did manage to pay the capital just two weeks late, and then complained to the lender. During the FOS investigations it transpired that the member of staff had given incorrect information, in that being over 65 was not necessarily a barrier to extending the mortgage, unless this was also her intended retirement age. The FOS also believed that the bank had been slow to inform her of the rejection of her extension application, and that they should have attempted to reach an amicable solution rather than simply passing the case to the debt collection department. The customer was awarded £500 for distress and inconvenience.

A lender declined an application to port a mortgage, saying that the customer would not have been granted a loan for 4.5 times her salary under their new lending criteria. The FOS said that the lender was failing to apply the transitional provisions under the Mortgage Market Review rules, and that the firm should consider that approving the application would not have increased the customer’s repayments. The lender was forced to pay £200 in compensation and to consider the new application on its own merits. The customer was informed they could complain again if the application was declined.

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.

23Jul

Small Business, Enterprise and Employment Act becomes law

The Small Business, Enterprise and Employment Act received Royal Assent and passed into UK law in March 2015. Its provisions, aimed at cutting red tape and improving the quality of the information on the Companies House public register, will now be implemented in stages over the period May 2015 to October 2016.

The exact implementation dates are subject to the passage of secondary legislation, but at present the implementation schedule is likely to include:

• Already in force – Share warrants to bearer, also known as bearer shares, have been abolished. All holders of these warrants must surrender them within nine months
• October 2015 – the day of birth will no longer be recorded on the public register for directors and People with Significant Control (PSC). Only the month and year of birth will be recorded
• October 2015 – the time it takes to strike companies off the register will be reduced
• October 2015 – when a firm appoints a new director, it will be required to file a ‘statement of truth’ confirming that the individual has agreed to become a director
• December 2015 – the process of removing falsely appointed directors from the register will be simplified
• January 2016 – Firms will need to keep their own register of PSC individuals and file this with Companies House on becoming incorporated
• April 2016 – Firms will be required to ‘check and confirm’ the information Companies House holds about them every 12 months, and notify Companies House if any changes have occurred. Currently firms need to file an annual return even if no changes have occurred
• April 2016 – firms will need to update their PSC register at ‘check and confirm’ stage
• April 2016 – firms, other than public companies, can choose to have certain information held on the public register only, replacing the current need to file information on the statutory registers. This requirement will apply to the registers of: members, directors, secretaries, directors’ residential addresses and individuals holding PSC status
• April 2016 – changes will be made to the disqualified directors regime
• April 2016 – the statement of capital firms must file will be simplified
• October 2016 – with limited exceptions, firms will be banned from appointing corporate directors. A corporate director situation arises where a firm holds a director position on the board of another firm. Firms that already have corporate directors will need to either explain how they meet the conditions for an exception, or give notice to the registrar that the named individuals have ceased to act as directors. The permitted exceptions will include large private companies that are part of wider groups of companies, and charitable firms

Other provisions of the Act, which will not come into force until a commencement order is passed, include:

• New fines for firms that fail to pay employment tribunal awards and other sums due
• Restrictions on firms’ ability to write exclusivity clauses (bans on an individual working for anyone else) into zero hours contracts
• A new fines system for failing to pay the national minimum wage – now a separate penalty will be levied for every underpaid employee
• New requirements to produce annual reports of whistleblowing disclosures
• Firms with at least 250 employees to be required to publish information about their gender pay gap (the difference in the average amount paid to male and female employees)

The Business Secretary at the time the Act became law, Vince Cable, said:
“Small businesses provide jobs for millions of people across the country and are driving the economic recovery. The Small Business Act will create the right environment for small businesses to continue to thrive by giving them greater access to finance to help them innovate and grow, and make it easier for them to export goods and services made in Britain. The Bill’s measures also mean there is nowhere to hide for firms who do not play by the rules, whether by abusing zero hours contracts or not paying the minimum wage.”
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.

22Jul

FCA gives details of common misunderstandings regarding creditworthiness and affordability checks

The Financial Conduct Authority (FCA) has published a document intended to clarify some of the ‘common misunderstandings’ regarding the process of conducting checks on a customer’s creditworthiness and ability to afford repayments.

Some of the ‘myths’ the document seeks to clarify include:

• The FCA prescribes what credit checks need to be done – it is in fact the firm that needs to decide what checks are appropriate, having regard to the type of credit being offered, the amount offered, the cost of credit and the applicant’s financial position
• The FCA is only concerned with process and not outcomes regarding credit checks – on the contrary the FCA expects the firm to ensure that the customer is likely to be able to make repayments on time, without falling into arrears or needing to effect additional borrowing
• Credit reference checks via an agency are always required – it is in fact up to the firm to decide whether this is necessary in each individual case
• Firms have to have a crystal ball to predict an applicant’s future circumstances – all a firm can realistically do is look at past behaviour of the applicant, as well as future changes in expenditure that can reasonably be foreseen, such as moving home, having children, impending redundancy etc.
• The same level of checks are needed in all cases – no, firms can make sensible judgements based on the type of credit being offered, the amount offered, the cost of credit and the applicant’s financial position, and can decide to apply different levels of checks in different scenarios
• Checks are not required for repeat customers – firms are entitled to take the applicant’s payment record on the previous credit agreement into account, but they must consider whether a further check is appropriate for subsequent applications, especially as the customer’s financial circumstances may have altered
• Automated processes cannot be used – firms can indeed use automated processes provided they are sufficiently robust to deliver the desired outcome, i.e. it can be demonstrated that the applicant is sufficiently credit worthy
• A similar level of checks is required on both a mortgage application and a consumer credit application – mortgage lenders are subject to very prescriptive requirements on affordability checking, but it is not necessary to go to these lengths for very single application for any form of credit
• The FCA’s rules effectively forbid firms from approving loans in joint names – FCA guidance requires firms to consider the financial position of each applicant, but credit can still be offered if the firm is satisfied that both borrowers meet the required standards for creditworthiness and affordability. Remember each applicant for a joint arrangement is ‘jointly and severally’ liable for the debt

The FCA’s rules on this subject are not prescriptive, and in many cases require a firm to make its own judgement about what level of checks are appropriate.

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.

21Jul

Complaints rule changes as a result of EU Directive come into force

The European Union’s Alternative Dispute Resolution Directive is now in force. This means that, unless they have already done so, firms should alter their final response letter templates and their websites.
If the firm is rejecting a complaint on the grounds that it is time barred (more than six years since the event which the complaint concerns AND more than three years since the client should reasonably have been aware of a problem), then this must be explained to the client in a final response letter.
Mortgage endowment complaints are time barred once three years has elapsed since the client was sent a letter informing them of a likely shortfall.
Final response letters must continue to explain why a complaint is being accepted or rejected, and detail what redress (if any) is to be provided. The letter must now give the website address of the Financial Ombudsman Service (FOS), as well as making the client aware of their right to refer the matter to the FOS. The need to enclose the FOS leaflet with the final response remains.
Firms also now need to decide whether they will consent to the FOS considering time barred complaints about their firm and/or complaints which are referred to the FOS more than six months after the date of the final response.
Specified wording now needs to be included in the final response letter regarding the decisions the firm has taken regarding these issues. There is no scope to vary this wording.
The prescribed wording can be found in DISP 1 Annex 3 of the Financial Conduct Authority’s Dispute Resolution (DISP) sourcebook. The wording to be used depends on which of these sets of circumstances apply:
• The complaint is not time barred, but the firm will not consent to the FOS investigating the complaint if the complainant fails to refer it within six months
• The complaint is time barred, and the firm will not consent to the time barring rules being waived
• The complaint is time barred, and the firm will consent to the time barring rules being waived, but will not consent to the FOS investigating the complaint if the complainant fails to refer it within six months
• The firm does not consent to the FOS considering a time barred mortgage complaint
• The firm consents to waive all applicable time limits

Firms also need to amend their websites so that they contain a link to the FOS website, and give an explanation of the FOS’s services.

Attempting to reject a complaint on the grounds that it is time barred is difficult. For example, a client many complain eight years after a product was sold, but argue that they have only just realised that it may have been unsuitable for them – perhaps because the investment value fell, or they had a claim rejected.

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.

20Jul

FCA data bulletin gives details of credit authorisation process to date

In June 2015, the Financial Conduct Authority (FCA) issued a Data Bulletin explaining the progress the regulator had made to date in authorising around 50,000 consumer credit firms.

As of March 31 2015, some 19,533 firms had applied for authorisation. This figure was made up of 12,641 firms who wished to upgrade their interim permission to either full or limited permission; 6,122 firms who were applying for credit authorisation for the first time; and 770 organisations who had been ‘grandfathered’ into the new regime (i.e. they were not-for-profit firms who were previously covered by a group Consumer Credit Licence).

77% of holders of interim permission made an application within their allocated three month period. The remaining 23% either cancelled their interim permission during the allocated period, or saw it lapse at the end of the three months. Reasons for this might include: the firm deciding to become an appointed representative of an existing regulated firm, the firm deciding to exit the credit market, the firm being covered by an exception to the authorisation requirements, or a group of firms deciding to reduce the number of regulated entities within the group.

Only 18 firms have seen their applications refused. 775 firms initially made an application but then withdrew it. However, over 90% of applicant firms applying within each authorisation period ended up becoming authorised.

To date, the FCA has taken an average of eight weeks to reach a decision on a limited permission application, 11 weeks for a variation of permission application (one from a firm already authorised by the FCA for other activities that is now seeking to add credit permissions) and 20 weeks for a full permission application. The regulator expects these processing times to increase in the foreseeable future, as it will still be processing some of the more complex applications from earlier application periods, whilst also needing to work on the newer applications.

As of March 31 2015 there were 10,286 fully authorised consumer credit firms, of which 3,989 were new entrants. A further 36,569 still held an interim permission at that time.

Most of the firms authorised so far are limited permission credit brokers, with full permission credit brokers being the second highest figure. Small numbers of credit repair, consumer hire and debt collection firms have also been authorised so far.

All consumer credit firms who are yet to submit their authorisation application need to make sure they know when their allocated application period is. They also need to ensure that they are totally clear as to whether they can apply for limited permission, or whether full permission will be required. An important consideration here is to carefully study the specific criteria lenders and brokers must meet in order to qualify for limited permission.

Then firms need to ensure they start preparing the required financial and non-financial information well in advance of the time they need to apply.

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.

17Jul

Budget 2015 – a quick guide for FCA authorised firms

The Budget speech of summer 2015 unveiled some £12 billion of welfare cuts, including reductions to child tax credit and housing benefit. Child tax credits will only be available for the first two children in a household from April 2017, and the total annual benefits a household can claim will be reduced from £26,000 to £20,000 (£23,000 in London).

However, the Chancellor also announced the introduction of a new ‘national living wage’, which will in effect be a new minimum wage for the over 25s. All employees over this age must be paid at least £7.20 per hour from April 2016, a figure which will rise to an estimated £9.35 per hour by 2020 (the true figure in 2020 will be 60% of median earnings).

Public sector pay increases have been set at 1% for the next four years, although at present this does represent an above inflation increase.

Some workers can look forward to paying less in income tax. The personal allowance will increase to £11,000 from April 2016, while the threshold for paying higher rate tax (40%) will increase to £43,000.

So some households will become better off due to the income tax changes and the living wage, and others worse off due to the benefit cuts.

Firms’ corporate clients may be feeling the pinch in the near future as well. Not only do they have to pay the new living wage, but many smaller firms also face the prospect of making contributions to employee pension schemes for the first time. However, the rate of corporation tax is to be cut from the current level of 20% to 19% from April 2017 and 18% from April 2020.

Another blow to business owners with large shareholdings, or who pay themselves via dividends, came with the announcement of changes to the dividend taxation system. The existing 10% tax credit on dividends will be replaced by a new tax-free allowance of £5,000. Above this level, dividend income will be taxed at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate).

Inheritance tax planning may be less of a need for some clients. The value of their property was the main reason why many middle-class households had an estate that exceeded the inheritance tax threshold of £325,000. Now, married couples will be able to leave a family home valued at up to £1 million to their children or grandchildren without attracting inheritance tax. The changes will be phased in from April 2017, with the full allowance available from April 2020.

Higher income clients may find it less attractive to save via a pension. At present, the annual allowance (the pension contributions that can be made while still attracting tax relief) is £40,000 per annum. But from April 2016, those earning over £150,000 will see their annual allowance reduce by £1 for every £2 that their income exceeds £150,000 (with a minimum allowance of £10,000 for those earning £210,000 or above).

Insurance premium tax – paid on insurances such as household and vehicle policies – will rise significantly, from the current level of 6% to 9.5%. The change will take effect in November 2015.

Landlords who enjoy higher rate income levels will no longer be able to enjoy higher rate mortgage interest tax relief. The available tax relief will gradually decrease to 20% by 2021.

University maintenance grants will be abolished, and students will instead need to take out loans to cover the cost of living while studying for their degrees.

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.

15Jul

Budget announces that CMC charge cap is to be considered, along with a review of their regulatory system

In his 2015 summer Budget speech, the Chancellor of the Exchequer signalled that significant changes could lie ahead for the UK’s claims management companies (CMCs).

George Osborne MP announced that a task force is to take a wide-ranging look at the regulatory system CMCs currently operate under. Carol Brady, chairman of the Chartered Trading Standard Institute board, will lead the working party, which will report to the Treasury and the existing claims management regulator the Ministry of Justice in early 2016.

Russell Atkinson, chief executive of personal injury CMC National Accident Helpline, largely welcomed the announcement. He commented:

“We welcome the review into the regulation of CMCs to ensure that the whole industry adheres to professional and ethical standards

“National Accident Helpline has been working hard to drive up standards in the sector, through initiatives such as our Stop Nuisance Calls campaigns, and has been working proactively with government through the Insurance Fraud Taskforce.

“We look forward to working with the government to ensure the practices of CMCs are in the best interest of consumers and access to justice is not impaired.”

The Government will also consult on proposals for a cap on the charges CMCs can impose. Mr Osborne suggested that making it less attractive for CMCs to operate would reduce the number of cold calls being received by householders.

Alan Nesbit, chairman of the trade association the Association of Regulated Claims Management Companies, suggested that a cap at a “reasonable or fixed rate” could be appropriate, especially for payment protection insurance claims.

Other reports in the wake of the Budget speech suggest companies could be banned from withholding their number when making marketing calls.

Whatever the outcome of the review, the regulatory landscape for CMCs has changed significantly in recent years, and further changes can be expected. Some of the changes that have already been announced include:

• A ban on personal injury referral fees
• New rules for CMCs, with additional requirements regarding: investigating the merits of a potential claim, maintaining records, ensuring date from third parties is obtained legally and having competent staff and management
• Fines of up to 20% of a company’s turnover in case of misconduct
• The facility to refer CMC complaints to the Legal Ombudsman if clients disagree with the company’s resolution of the issue
• Plans to make it easier to punish firms who make nuisance calls. Under the new plans, fines can be imposed simply because the communications cause ‘annoyance, inconvenience or anxiety’

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.

13Jul

FCA recommends advisers obtain written explanation from insistent clients

The Financial Conduct Authority (FCA) has now issued further guidance to advisory firms on how to handle insistent clients – clients who receive advice but choose to take a different course of action. (Note these are not the same as execution only cases, which are instances when the client does not wish to receive any advice at all). Some firms are reporting a significant increase in numbers of insistent clients since the introduction of the pension freedoms earlier this year. 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.

The latest advice came from the FCA’s technical specialist Rory Percival when he addressed a July 2015 seminar of trade association the Association of Professional Financial Advisers. Mr Percival recommended that firms obtain a written statement from insistent clients, which explains, in their own words, why they chose to disregard their adviser’s recommendation.

Mr Percival said: “You can’t argue with something in [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 client’s] own words”. He also cautioned against the use of standard disclaimer forms designed by the firm by saying that such forms “can easily just become just another bit of paper to be signed without being properly read.”

The regulator has previously recommended 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 that this is against the firm’s advice, and make them aware of the risks involved with the route they wish to take
3. Clearly document on the client file the fact that the client has chosen to go against the professional advice they received

Firms should note that suitability reports are required for insistent client cases. The same level of information needs to be provided to the client as would be the case had they taken the same course of action after following the adviser’s recommendation.

If the case involves a pension transfer, the firm should have internal procedures to ensure the file is checked by a suitably qualified person.

At the same seminar, Harriet Myles, an outreach officer from the Financial Ombudsman Service (FOS), said that her organisation had not so far noticed an increase in complaints from insistent clients. It was worries over the stance the FOS would take that led another advisers’ trade association, the Personal Finance Society, to recommend that its members did not process insistent client business.

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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