30Jan

HSBC to pay redress over debt collection practices

HSBC has reached agreement with the Financial Conduct Authority (FCA) to pay around £4 million in compensation to some 6,700 customers over inappropriate debt collection charges.

The issues concern credit card debt collections by HFC Bank Ltd and John Lewis Financial Services Limited between 2003 and 2009. Most of those affected were customers of HFC. Both companies are now part of the HSBC group.

Throughout the six-year period, customers who experienced arrears were referred to the firms’ nominated solicitors, who then automatically charged the borrowers 16.4% of the outstanding loan.

In 2010, the Office of Fair Trading (OFT), which at the time was the UK’s consumer credit regulator, ruled that the charge was unfair as it was in excess of the costs the firms incurred as a result of their efforts to collect the debt.

The firms say that they ceased applying the charge in 2009, prior to the OFT’s ruling; and that the charge was reversed on all live accounts in 2010. This gave rise to an additional issue, in that some customers had their account placed in credit following the reversal of the charge, but never had any payments returned.

One further issue with the practices of HFC is that 350 customers paid more interest than necessary after calculation errors on the part of the firm.

Customers affected by any of these issues can now expect to receive any compensation to which they are entitled. All those affected will be contacted by the bank and do not need to take any action. The method for calculating the redress amounts has been agreed between HSBC and the FCA, and includes provision for all affected customers to receive 8% interest per annum added to their payments.

A spokesperson for HSBC said:

“This is a historical issue, dating back to the period between 2003 and 2009. We have revisited the debt collection charge and, as a result, a small number of HFC and John Lewis Financial Services Limited customers may be due a refund. We will be directly contacting these customers shortly.”

A John Lewis spokesperson said:

“We are disappointed that this has happened to a very small number of John Lewis Financial Services Limited customers and are assured by HSBC that the issue has been resolved for them.”

The FCA decision marks the end of a 13-year battle by Nicholas Wilson of Hastings, East Sussex, who became aware of the issue when a number of clients of the solicitors practice he worked for complained about suffering detriment as a result of the firms’ charges. After the FCA initially declined to intervene, Mr Wilson complained to the Office of the Complaints Commissioner, which found in his favour, saying that the FCA’s handling of the matter was “bordering on the farcical”. The financial regulator then decided to re-visit the issue, which ultimately led to this redress agreement.

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.

28Jan

FCA issues guarantor loan guidance

The Financial Conduct Authority (FCA) has issued new guidance on how firms should notify guarantors of their intention to take payment, before any such request is made of the guarantor.

Section 189 of the Consumer Credit Act makes clear that any guarantee attached to a loan meets the Act’s definition of a ‘security’ on the loan. Section 87 requires firms to serve a default notice before exercising any form of security, including a demand for payment from a guarantor.

A default notice must explain:

• How the credit agreement has been breached
• What action is required to remedy the breach, and by what date this action must be completed (the date must be no less than 14 days from the date of the notice)
• The action the lender will take if the breach is not remedied

The FCA’s new guidance highlights that the term ‘enforcement of security’ does not just refer to the act of obtaining a court judgment. The security will also be considered to have been enforced if a lender writes to a guarantor making a formal demand for payment, or if it collects a payment from the guarantor via direct debit or continuous payment authority (CPA).

The guidance says that firms must inform guarantors of the following should they plan to use direct debit or CPA:

• That the borrower has breached their obligations under the agreement, and the nature and extent of the breach
• The exact amount of the overdue payment
• That the lender now intends to take payment from the guarantor using the CPA or direct debit
• When these payments are likely to be taken
• That they have right to cancel the CPA, however here the lender must also highlight that cancelling the CPA will not remove their obligation as guarantor to pay the outstanding sum

The FCA also says that lenders should wait for at least five working days from providing this information before taking payment from the guarantor.

Throughout the process of collecting payment from a guarantor, firms must always be mindful of the FCA requirement for communications to be ‘clear, fair and not misleading’.

The FCA has highlighted to firms that it can use this guidance in deciding whether to take enforcement action. It also re-iterates that guarantor lending remains an area of priority, and that it may issue further rules and/or guidance in the future.

In November 2016, the FCA issued a ‘call for input’ on proposals to introduce price caps on guarantor lending, as well as home-collected credit, catalogue credit, rent-to-own arrangements, pawn-broking, logbook loans, motor finance, credit cards and overdrafts. Responses to this call for input are invited up until February 15 2017. A consultation on formal proposals may then take place later in 2017.

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.

26Jan

FCA takes criminal action against alleged unathorised credit trader

Individuals and firms suspected of conducting financial services activity without authorisation can expect to have a warning notice to this effect posted on the Financial Conduct Authority (FCA)’s website. However, the consequences can sometimes be much more severe, as was illustrated in mid-January 2017 when the FCA announced that it had initiated its first prosecution against an individual alleged to have conducted consumer credit activities without the necessary regulatory permissions.

If found guilty, Dharam Prakash Gopee could face up to two years’ imprisonment, and/or a fine.

The FCA alleges that London-based businessman Mr Gopee has lent more than £1 million over the last four years, whilst never having been authorised by the FCA or the previous consumer credit regulator, the Office of Fair Trading (OFT) during this period.

He is said to have acted as ‘lender of last resort’ and to have registered charges over borrowers’ homes enabling him to take possession in case of default.

Companies Mr Gopee has been involved with include Reddy Corporation Ltd, Speedy Bridging Finance Ltd and Barons Finance Ltd. As a result of issues relating to the liquidation of Barons, he has already been disqualified from acting as a company director for a period of 15 years.

In 2011, the OFT refused to renew the consumer credit licence of Reddy Corporation, and refused a new application from Barons Bridging Finance 1 Limited. Both decisions were subsequently upheld by the First-Tier Tribunal (Consumer Credit).

Mr Gopee has already appeared at Westminster Magistrates Court charged with offences under both the Consumer Credit Act 1974 and the Financial Services and Markets Act 2000. On February 14 2017 he will have a Plea and Trial Preparation Hearing at Southwark Crown Court, ahead of a trial later in the year, unless he was to plead guilty.

The law in this respect is unambiguous, in that no activity which is overseen by the FCA can be conducted without obtaining authorisation. Conducting unauthorised activity in financial services is a criminal offence. In the consumer credit sphere, firms must ensure they apply for the correct permissions – for example firms must state whether they are applying for authorisation to act as a lender, broker, debt counsellor, debt adjuster, dent collector, etc.

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.

25Jan

FCA takes further action against firm that failed to comply with a previous regulatory order over pension advice

The Financial Conduct Authority (FCA) has issued a First Supervisory Notice to Cheltenham-based advisory firm Bank House Investment Management Limited, which amongst other things, orders the firm to cease conducting regulated activities.

The regulator has acted in this way for a number of reasons, not least that the firm has failed to comply with a Voluntary Requirement imposed after concerns were identified regarding its advice on Self Invested Personal Pensions (SIPPs).

The FCA first became concerned about Bank House in July 2015, when questions were raised over the firm’s advice to a number of clients to switch their pension savings into SIPPs with high-risk underlying investments. The FCA and the firm entered into a Voluntary Requirement in September 2015 which prevented Bank House from switching or transferring any pension plan to a SIPP until it had provided independent verification to the FCA that “a robust and compliant advisory process” was in place for this type of advice. It was also required to have all SIPP switches independently checked.

However, later in 2015 the FCA obtained information from a provider of SIPPs indicating that Bank House had advised 72 clients on 78 transactions involving SIPP switches during October 2015, in apparent breach of the Voluntary Requirement. These transactions involved switching total funds of some £2,650,000. Only 30 of these transactions were recorded in Bank House’s new business register, and none were shown as a SIPP in this register.

Bank House claimed that these transactions were not SIPP switches, merely switches to personal pensions which had deferred SIPP options. However, the provider subsequently told the FCA that they did not offer the deferred SIPP option. Bank House also claimed that the FCA had agreed they could switch clients to SIPPs offered by platforms, even though no mention of any such exemption was mentioned in the Voluntary Requirement.

The FCA is also concerned that Bank House failed to give it accurate information about its relationship with an unauthorised third party introducer – for example the FCA was not told that client data was being sold to this third party – and that Bank House has failed to pay regulatory fees totalling £22,859.29.

The FCA believes that Bank House is failing to comply with Principle 11;

“A firm must deal with its regulators in an open and cooperative way, and must disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice.”

or with Threshold Condition 2C;

“A firm must be capable of being effectively supervised by the FCA”

or Threshold Condition 2E:

“A firm must be a fit and proper person.”

As a result of these failings, the latest order against the firm now compels them to cease all regulated activities, but Bank House is also prevented from selling any of its assets or loan book, or making ‘significant or unusual payments’ to any employee or shareholder. It must also secure all its books and records and make these available to the FCA, and write to all its clients within 14 days informing them of the situation.

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.

23Jan

ICO cold call fines reach £3 million

The data protection watchdog has promised that 2017 will be “a tough year for nuisance call crooks,” as it revealed that it not only imposed £1 million worth of fines between April and December 2016, but that it also has a further £2 million worth of fines “in the pipeline.”

Writing a blog on his organisation’s website, the Information Commissioner’s Office (ICO) Group Enforcement Manager Andy Curry commented that “we’ve got more tools than ever to tackle the frustration and upset unlawful cold calls can cause.”

Mr Curry said an average of 370 complaints per day were made to the ICO last year over this issue. He thanked the public for their help in tackling the problem, and urged consumers to adopt the following measures:

• Inform the firms who contact them that they do not wish to receive communications of this type
• Register with the TPS
• Report to the ICO any firm that cold calls them more than 28 days after their TPS registration has taken effect

Mr Curry highlighted the fact that the ICO is now responsible for the Telephone Preference Service (TPS), making for “more effective passing of intelligence to [the ICO’s] enforcement officers.” He also made reference to the impending change in the law where it will be possible to fine company directors as well as the firms themselves when they breach the rules relating to marketing communications.

Examples he gave of nuisance calls made by firms in the recent past include: calls in the middle of the night attempting to sell burglar alarms, and the tactics of personal injury claims firms when calling victims of car crashes. In December 2016, 29% of the marketing calls reported to the ICO were made by accident claims firms.

The ICO can take action over both live marketing calls and automated marketing calls. The former cannot be made to anyone registered with the TPS, or who has previously informed the firm in question that they do not wish to receive marketing calls. The latter should not be made to anyone who has not previously given explicit consent to receiving this type of communication.

Marketing texts are covered by the same rules as automated calls, i.e. explicit prior consent is required from the recipient.

In the financial services arena, many of the recent ICO enforcement cases have concerned loan firms or firms offering to assist with mis-selling claims.

In November 2016, Silver City Tech Ltd was fined £100,000 and Oracle Insurance Brokers Ltd £30,000 after each sending large numbers of texts suggesting that the recipients could obtain a loan.

In June 2016, Advanced VOIP Solutions Ltd was fined £180,000. The company made large numbers of automated calls regarding insurance, packaged bank accounts (PBAs) and flight delays. Even if customers followed the instructions in the call to opt out of receiving future calls, the calls continued, with some households reporting as many as 50 calls a day.

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.

20Jan

UK household debt soars

Research by the Trades Union Congress (TUC) has revealed that UK household debt rose sharply in 2016 to reach a record high. The average UK household now owes £12,887 (excluding mortgage debt). This is an increase of £1,117 per household compared to 12 months ago, representing a rise of around 9.5% – the highest annual increase since 1997.

Total UK household debt has reached £349 billion, well above the £290 million figure reached in 2008 at the height of the banking crisis. This £349 billion figure represents 27.4% of total household income, which is the highest share for eight years.

The TUC blames stagnant wages for the increase in debt levels, with people forced to borrow to make ends meet as their incomes fall in real terms.

Frances O’Grady, TUC general secretary, said:

“These increases in household debt are a warning that families are struggling to get by on their pay alone. Unless the government does more for working people, they could end the New Year poorer than they start it.

“Employment may have risen, but wages are still worth less today than nine years ago. The government is relying on debt-fuelled consumer spending to support the economy, with investment and trade in the doldrums since the financial crisis.

“There’s a lot the government could do to help. Public sector workers who have suffered severe cuts to their real pay since 2010 are long overdue a decent pay rise. The minimum wage needs to keep rising so the lowest paid workers can keep up with rising prices. And a major programme of public investment in rail, roads, new homes and clean energy could be targeted at communities where decent jobs are in short supply.”

Separate figures from the Bank of England show that total consumer credit lending rose by 10.8% – the highest annual growth rate since 2005. However, the Bank pointed out that the TUC figures may exaggerate the rise in household debt as the £349 billion figure includes a significant increase in student debts. The Bank’s own figures for household debt, excluding student loans, were £192 billion for the 12 months to November 2016. This figure is not a record, although it is the highest figure recorded in eight years.

Andy Haldane, the Bank’s chief economist, said:

“Interest rates are still very low, and are expected to remain so for the foreseeable future, so there are fewer concerns on debt servicing than there were in the past.

“There are reasons not to be too alarmed about it ticking up, but it is absolutely something we will watch carefully.”

Joanna Elson, chief executive of charity the Money Advice Trust, said:

“Consumer credit continues to soar, and this is something we should all be concerned about amidst the current uncertainty over the UK economy.

“Most people are currently able to handle this extra borrowing, but if the economy does indeed suffer in the years ahead, these extra debts could become even more difficult to repay.

“We would urge households to review their financial position carefully before taking on any new borrowing, and consider how they would cope with the repayments in the event their circumstances take a turn for the worse.

“The figures are even more stark when you consider that they only take into account some of households’ pre-Christmas spending.”

The figures serve as a reminder to consumer credit firms that while demand for their loans may be high, they must ensure that they continue to make responsible lending decisions and only grant funds to those who are likely to be able to repay it. Rigorous affordability and credit checks must be carried out on all applicants.

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.

19Jan

What lies ahead for early 2017 in FCA regulation?

Some dates for a financial services professional’s diary in the first six months of 2017 include:

• January 26 – the Financial Conduct Authority (FCA)’s Mission consultation closes. In the regulator’s own words, the Mission is “designed to provide a guiding set of principles around the strategic choices the FCA makes.”
• March 8 – the Chancellor delivers the last Spring Budget, then in November he will deliver another Budget
• March 31 – the consultation on funding of the Financial Services Compensation Scheme (FSCS) funding consultation closes, with new rules then expected to be announced in the autumn. The FCA is examining a number of options, including merging some of the FSCS funding classes, extending protection to consumer credit and changing some of the compensation limits
• April 6 – the new Lifetime Isa launches. Whilst it is unclear how many firms will offer this product, it will be an option for any person aged under 40 who either wishes to save for retirement and/or save towards a deposit on a home
• Sometime in the first half of the year – a report will be published giving the latest situation regarding the Financial Advice Market Review. The Treasury and FCA have produced 28 recommendations as they examine whether the financial advice market is working in the interests of consumers, and seek to improve access to financial services

Some other key issues for firms to be aware of include:

• The FCA’s 2016 suitability thematic review – last year the FCA audited client files from some 700 firms, and at some stage this year it may publish the results of its findings, although Rory Percival, who used to work for the FCA as technical specialist, has suggested that they may not publish anything at all. If they do, then all advisory firms will need to take careful note of the report’s findings and make appropriate adjustments to their advice processes
• It’s set to be another year of individual accountability – although the Senior Managers & Certification Regime will not be rolled out across the sector until 2018, the FCA has in recent months and years shown an increased willingness to prohibit senior managers rather than fine firms when it finds evidence of wrongdoing. Expect the FCA to continue to focus on the effect a firm’s culture has on its conduct
• Cybersecurity – this issue will never go away, and cyberattacks are an ever-growing threat. Firms need to take this subject very seriously indeed, and must continue to talk to their IT service providers and ensure they are doing everything in their power to minimise the risk of these attacks. Firms also need documented procedures outlining their proposed response to any cyber breach
• Brexit – whilst the UK will still be a member of the European Union at the end of 2017, the issue will certainly never be far from the top of the news agenda this year. Firms need to ensure they are ready for Brexit and that they continue to monitor developments in this area

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.

17Jan

ICO fines insurer over data theft

Data protection watchdog the Information Commissioner’s Office (ICO) has imposed a £150,000 fine on leading insurer Royal & Sun Alliance plc (RSA) after the theft of the personal details of around 60,000 customers.

The fine will be reduced to £120,000 if paid in full by February 7 2017.

Sometime between May 18 and July 30 2015, a hard drive device was stolen by an RSA employee or contractor. This contained personal details of 59,592 of the firm’s customers. Data stolen included names, addresses and bank account details; and for around 20,000 of those affected, some of their credit card details were also stolen, although no expiry dates or card security codes were stolen.

The stolen hard drive has still not been recovered.

The ICO has punished RSA by imposing this fine as the firm failed to take adequate measures to protect against data theft – for example in this case the stolen data was password protected but had not been encrypted.

The data protection regulator also makes the following criticisms of RSA:

• The device had not been physically secured in the data storage room (DSR)
• RSA failed to detect the theft of the device
• There was no CCTV in the DSR – as a large firm with significant resources it might be expected that the firm would have had this in place
• RSA allowed non-essential staff and contractors to visit the DSR, and to do so unaccompanied. It also failed to monitor which persons were entering the DSR

In mitigation, the ICO acknowledges that:

• There is no evidence that the stolen data has been used for fraudulent purposes
• All affected customers were offered free CIFAS protection for two years
• The firm has taken independent professional advice to improve its data security arrangements
• No RSA customer has suffered a financial loss from the theft

Any firm, large or small, must comply with the Data Protection Act, which sets out eight basic principles for handling of personal data. One of these is to make sure that personal information is secure.

Steve Eckersley, ICO Head of Enforcement said:

“Customers put their trust in companies to keep their information safe, particularly financial information.

“When we looked at this case we discovered an organisation that simply didn’t take adequate precautions to protect customer information. Its failure to do so has caused anxiety for its customers not to mention potential fraud issues.

“There are simple steps companies should take when using this type of equipment including using encryption, making sure the device is secure and routine monitoring of equipment. RSA did not do any of this and that’s why we’ve issued this fine.”

An RSA spokesperson said:

“The ICO fined us for not foreseeing the risk that the theft of a storage device could cause and for not protecting it adequately.

“RSA serves nine million customers in over 100 countries and we take a breach of our security and protocols very seriously.

“Whilst there remains no evidence to suggest that the stolen storage device has resulted in any economic loss for the customers involved, we recognise that this should have never have happened and we would like to say sorry once again to those of our customers and partners who were impacted.

“We have reviewed and reinforced our data protection procedures to mitigate the risk of this happening again – the substantive work that has been undertaken since then to improve data protection in our company has been acknowledged by the ICO.”

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

16Jan

FCA publishes stats on retail lending industry

The Financial Conduct Authority (FCA) has issued some statistics regarding the retail lending industry, some of which are rather noteworthy.

Firstly, it should be noted that bringing consumer credit regulation under the auspices of the FCA has transformed the regulator’s workload. There are now 30,000 firms with credit broking permissions alone, which is similar to the total number of firms the FCA regulated prior to April 2014.

However, the need for additional consumer credit regulation was illustrated by some of the other statistics, which show that 60% of the UK adult population have a credit card and 40% have an overdraft, compared to 27% who have a mortgage.

Amongst small and medium sized companies, 48% have a credit card and 43% have an overdraft.

The FCA has also released details of the total balances outstanding on various types of credit:

• £1.1 trillion is owed on residential mortgages
• £0.2 trillion is outstanding on buy-to-let mortgages
• £117 billion is the total balance of all fixed sum unsecured credit borrowing
• £100 billion is outstanding on commercial mortgages
• £72 billion is owed on revolving unsecured consumer credit
• £1 billion is owed each year on secured consumer credit

The next set of data concerns the mortgage sector, rather than consumer credit. The FCA has revealed that the ‘big six’ mortgage providers: Lloyds Banking Group, HSBC Group, Barclays, RBS Group, Santander UK and Nationwide collectively have a 77% market share.

There are 11.1 million mortgages in the UK, and the average amount outstanding on each of these is £118,341.

Finally, the document shows some fairly startling figures regarding household debt. Total consumer credit lending has grown by 10.3% in the 12 months to September 2016. Average debt per household, including mortgages and all other forms of borrowing, is £55,504. Finally, the household debt to income ratio has risen to 143% – this ratio is calculated by dividing total monthly debt payments by total gross monthly income.

All figures are correct as of November 23 2016.

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.

13Jan

MAS issues business plan for 2017/18

The Money Advice Service (MAS) has launched its draft business plan for 2017/18 for consultation.

The document reveals that the Service has five key aims for the financial year:

Delivering through others. The MAS will continue to assist with the development of a Financial Capability Strategy for the UK – a co-ordinated effort with national and devolved government aimed at improving people’s ability to manage money and to handle periods of financial difficulty.

Earlier and wider access to debt advice. Although the overall MAS budget will remain unchanged, its debt advice expenditure will increase, and it aims to fund an additional 443,000 debt advice sessions for consumers, an increase of 10% on the current financial year. It will continue to work with other organisations to develop a co-ordinated Debt Advice Strategy. It aims to have 75% of debt advice users, across the entire debt advice sector, receiving advice according to the template laid down by the MAS Standard Financial Statement.

More people budgeting and saving. The Service is working towards a comprehensive commissioning plan to assist people in the ‘squeezed’ and ‘struggling’ segments of society to budget and save.

Improving access to guidance and advice. The MAS intends that as many as 3.7 million people from the ‘squeezed’ and ‘struggling’ segments of society will use its services in 2017/18. As the Service no longer offers a face-to-face service, it will help boost the skills of money guidance practitioners in voluntary and other organisations.

Widening and improving financial education. The MAS intends to survey and map children’s financial capability needs across the UK. It will develop a commissioning plan explaining how it will fund financial education for children, both in schools and at home.

The consultation ends on February 6.

Caroline Rookes, Chief Executive of MAS, said:

“We have set out a clear and ambitious plan for the coming year which builds on last year’s progress. There is a clear focus on demonstrating how we plan to prioritise and deliver efficiently and at best value for the resources entrusted to us. Our combination of insight, access and a strong network puts us in a strong position to turn these priorities into action, helping more people than ever, especially those who are “squeezed” or struggling” to get by.

“The plan includes a clear commitment to build on the Money Advice Service’s work to signpost to others, unlocking and co-ordinating the wealth of expertise provided by the sector. This will involve building deeper relationships with the financial services sector and wider communities.

“We have seen first-hand the impact that bringing organisations together to work towards a common goal can have. Over 300 organisations across the UK supported the first ever Financial Capability Week, raising awareness of key issues and working together to discuss and overcome challenges. Bringing organisations together, understanding the financial challenges and joining the dots so that people receive consistent and relevant guidance is vital if we are to see a real change in financial behaviours in the future.”

The Government has announced that it will launch a new financial guidance body to replace MAS, Pension Wise and The Pensions Advisory Service, but this new organisation will not be ready to start its duties before the second half of 2018, at the earliest. This means that advisory firms and other authorised firms will need to continue to pay levies to fund the MAS, however unpalatable this idea might be. The Service’s budget for 2017/18 will be £75 million, the same as for 2016/17.

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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