29Mar

Personal injury CMC fined and becomes subject to data requirement

The Claims Management Regulator at the Ministry of Justice (MoJ) has not only imposed a fine of £4,000 on a London-based claims management company but has also compelled the company to comply with a series of onerous requirements regarding its use of data.

The company was found to have breached the following areas of the MoJ’s Conduct of Authorised Persons Rules:

  • General Rule 2d – the need to maintain appropriate records and audit trails
  • General Rule 2e – the requirement to ensure that that any referrals, leads or data are obtained in accordance with the requirements of the MoJ’s rules and relevant legislation

As a result of its failure to comply, the requirements imposed on the company include:

  • Before purchasing any data from third parties, the company must require these third parties to complete due diligence forms. The authorised CMC must then obtain evidence to support the answers these third parties provide, which includes checking that all data has been screened against the Telephone Preference Service (TPS) register no more than 28 days prior to purchase; and that the opt-ins being used are freely given, specific and informed, and meet the other requirements of the Data Protection Act 1998
  • The company must corroborate the information provided by the third parties regarding TPS screening and opt-ins
  • When each set of data is purchased, or a new relationship with a third party commences, the company must obtain a proportionate sample of data, which must contain: the full name of the client; the telephone number and/or email address of the client; the date, time and wording of the client’s opt-in; evidence that the client has agreed to the opt-in; and confirmation of the provenance of the data, including the original consent provided by the client and a record of the data journey
  • The company must then check the sample data and contact clients from the sample. Recordings of these telephone calls must be retained. In the event that any client expresses dissatisfaction, then details of their grievances must be maintained and disclosed to the data supplier. The CMC must then cease purchasing data from the relevant supplier until they have provided evidence that the issues raised by the client have been rectified

The company’s name suggests that car hire is its main line of business, although it is authorised by the MoJ to provide personal injury claims services.

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.

28Mar

Rent to own firm to pay redress over affordability assessments and other issues 

The Financial Conduct Authority (FCA) has once again taken action against a rent-to-own firm that was judged to have failed to treat its customers fairly.

In the latest instance, a firm which provides household goods to customers on hire purchase agreements will pay refunds totalling £2.1 million to some 37,000 customers. The redress will be paid as a mixture of cash payments and balance refunds.

The FCA’s investigations identified that the firm was failing to carry out sufficiently rigorous affordability assessments before allowing customers to purchase goods on credit and was therefore providing some of its customers with loans that they could not afford to repay. This applies to some 4,000 customers, who will collectively receive £1.7 million in compensation.

2,425 customers will have their loans written off and will become the owners of the goods they purchased via the firm. These 2,425 customers are those that defaulted on their loans as a result of being granted credit they could not afford to repay.

The regulator has also identified a number of other ways in which the firm was failing its customers, including:

  • Some customers were charged late fees for arrears on their insurance contracts, even though this was contrary to the firm’s own policy
  • Some customers were required to pay for insurance before receiving any goods
  • Other customers did not receive a refund of their first payment where their agreement with the firm was cancelled before the goods were delivered

The approximately 31,000 customers affected by these issues will collectively receive £400,000 in compensation.

The FCA says it recognises that the firm “has conducted a major programme of improvements to ensure that loans are affordable and customers are treated fairly throughout the collections process.”

Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA said:

“Our key priority is to ensure all financial firms lend responsibly and treat consumers fairly; especially those in financial difficulties or who are vulnerable.

“Unaffordable lending is not acceptable in any circumstances. I am pleased that the firm has taken steps to address this and provide redress to those customers affected.

“[Name of firm] have recently been authorised by the FCA following substantial improvements to its business practices.

“This package of redress continues the FCA’s work with the rent-to-own sector to resolve the concerns we have previously identified.”

The firm’s chief executive said of the FCA’s findings:

“We were authorised by the FCA in December last year. As we worked towards this, the FCA advised us that some of our historic practices did not meet the standards it expected as the new regulator of consumer credit firms. As part of our authorisation process with the FCA, we worked meticulously through all our policies and practices and made significant improvements such as the centralisation of underwriting to further improve customer credit and affordability checks — which include the assessment of customers’ income and expenditure. After these significant changes, I can say with confidence that the issues of our past could not happen today.”

Similar redress orders have been imposed on two other rent-to-own firms in recent months. The FCA has said on a number of occasions that it sees supervising this sector as a priority.

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.

27Mar

FCA director speaks about consumer credit regulation and innovation

Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA), addressed the Responsible Finance Conference in March 2018. His speech looked at more innovative approaches that could be used in the consumer credit sector.

In the opening section of his speech, Mr Woolard commented that “for millions of people, credit is woven through the fabric of everyday life.” To illustrate this point, he said that in Glasgow, where he was speaking, 41% of adults have outstanding non-mortgage debt, and that 11% of these have high-cost credit debt. Across the UK, some 24 million people are in debt on some form of credit arrangement.

He went on to describe four ways in which the FCA approached the credit sector:

  • Authorising firms, supervising their level of compliance with existing rules, and taking enforcement action where necessary
  • Proposing new rules where it believes these are needed
  • Working with other parties to address market failure
  • Promoting competition and innovation in the interests of consumers

The FCA director gave his speech on the same day as his organisation announced that a third rent-to-own firm has been forced to pay redress to its customers. The FCA found significant issues with the firm’s affordability assessments and its collection practices.

Mr Woolard highlighted that rent-to-own was often used by some of the most vulnerable members of society and described the sector as one where “action … was most sorely needed.” He said that the FCA had obtained a total of £18 million in redress for rent-to-own customers, and that since taking over as consumer credit regulator in 2014, it had in fact secured a total of £900 million in compensation for consumers across all areas of the consumer credit marketplace.

Next, he described two areas where the FCA has introduced new rules, namely its price cap on payday loans and other forms of high-cost credit, and the new requirements for credit card providers to assist customers in persistent debt. Mr Woolard suggested that the new credit card rules – which may require firms to reduce, waive or cancel any interest, fees or charges in certain circumstances – would save consumers between £310 million and £1.3 billion a year in lower interest charges.

Despite the work the FCA has already done in the last four years, Mr Woolard acknowledged that there was much more to be done and referred to the fact that the regulator’s Financial Lives survey identified that 4.1 million people in the UK are considered to be in some form of financial difficulty.

Bank overdrafts were singled out as an area where the FCA may act in the future. Here, Mr Woolard made reference to “disproportionately high fees and charges”, added that “there appears to be no clear relationship between the amount borrowed by the consumers and the amount charged by the firm”, and suggested “that there is a case to consider fundamental reform.”

In the final section of the speech, he made reference to the FCA’s Regulatory Sandbox, and invited firms wishing to test innovative new approaches to credit to get in touch with the regulator.

At the same conference, actor Michael Sheen spoke about his ‘End High Cost Credit Alliance’. The Alliance will invest in companies and organisations that provide “fair” credit, in an effort to stop consumers needing to borrow from payday lenders and rent-to-own 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.

 

26Mar

MOJ issues new claims management rulebook 

Effective from April 1 2018, the UK’s claims management companies (CMCs) are subject to a number of new rules, which include:

  • If a payment protection insurance (PPI) claim is being pursued, and it transpires that the client did not in fact take out PPI with the firm in question, then the CMC cannot charge any fee to the client at any stage of the process
  • Clients cannot be asked to pay any fees in respect of any PPI claim until the entire claims process has concluded
  • For financial products other than PPI, fees cannot be charged before the CMC has commenced providing services to the client. For the purposes of this rule, advertising or direct marketing does not constitute providing a service to the client, and hence the fee can only be charged once the CMC has commenced advising, referring, investigating or representing the client in respect of their claim
  • Except in the limited circumstances where regulation 8 of the Damages-Based Agreements Regulations 2013 (relating to employment claims) applies, CMCs must allow their clients to withdraw from contracts at any stage.
  • If the client chooses to cancel a contract, any fee charged must be reasonable and must reflect the costs incurred by the CMC in carrying out work for the client
  • If the client chooses to cancel a contract relating to a financial claim, then no fees can be charged unless the CMC has already commenced providing services to that client – as explained above, advertising and marketing is not sufficient to be classed as ‘providing services’
  • If a client chooses to cancel a contract relating to a PPI claim, then no fees can be charged in any circumstances
  • When presenting a client with an invoice for any cancellation fees, the CMC must provide an itemised bill which must set out what regulated claims management services have been provided, and how the fees have been calculated
  • Any contract between a CMC and a client must be signed by the client
  • For non-financial claims, a CMC cannot impose any charges until the contract has been signed
  • The standard terms and conditions of any contract must be clear and must also be displayed prominently on the CMC’s website (where one exists)

Any CMC in any doubt as to how to apply these new rules within their business is advised to seek the assistance of their compliance consultant immediately.

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.

 

23Mar

ICO executes search warrants over unsolicited texts

The Information Commissioner’s Office (ICO) has announced that it has executed two search warrants at addresses in Greater Manchester as part of its ongoing campaign against unsolicited text messages.

ICO investigators visited office premises in Stockport and a house in Sale, where they seized computer equipment and documents, which will now be analysed further. The firms concerned have not been named.

The data protection watchdog suspects that the firms are involved in a large-scale campaign of sending unsolicited texts to market products and services such as pensions, loans, payment protection insurance claims and flight cancellation claims. The firms are suspected to have sent more than 11 million unsolicited text messages to UK mobile numbers between January 2017 and January 2018, and the ICO has received 3,297 separate complaints about their activities.

The ICO press release adds that, not only were these text messages sent without the consent of the recipients, but that they also failed to identify the firm who was making the communication, or to give recipients the opportunity to opt out of future communications.

Andy Curry, the ICO’s Enforcement Group Manager, said:

“Nuisance text messages like this are a real problem for people as seen in the number of complaints we have received in this case alone. Businesses and individuals who carry out this type of marketing, should be assured that we will carry out thorough investigations and take tough action against them where necessary. Along with existing evidence, we hope the evidence seized in the raids will enable us to stop this business’s activity and act as a deterrent to others.”

The ICO has taken enforcement action on many occasions against firms who make unsolicited marketing communications. It has repeatedly warned firms that live marketing calls cannot be made to people who are registered with the Telephone Preference Service, and that automated calls and texts can only be made to people who have explicitly consented in advance to receiving these types of communications.

Including an option within the automated call or text to opt out of future communications is not sufficient – the recipient’s consent must be obtained in advance of it being sent. Here, the ICO also stresses that firms cannot rely on vaguely worded general consent statements, along the lines of “you may be contacted about products and services which we believe may be of interest.” The consent wording must make consumers aware that by signing their name, or ticking the box, they are agreeing to receive marketing communications of a particular nature, such as receiving marketing calls and texts.

Marketing communications must also make it clear which firm is sending the messages.

The maximum fine for breaches of data protection law will increase dramatically from May 2018 when the General Data Protection Regulation comes into force.

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.

22Mar

FCA director speaks on the authorisation process

Sarah Rapson – Director, Authorisations at the Financial Conduct Authority (FCA) – addressed the Association of Professional Compliance Consultants Annual Conference in March 2018, where she spoke about the regulator’s approach to authorising firms.

Ms Rapson began by highlighting three issues regarding the FCA’s approach to authorisation that she believes may be misunderstood:

  • The authorisation process seeks to prevent harm to consumers and other parties, and the information the regulator requires from a firm during the authorisation process is linked to its assessment of the risk of harm that the firm’s activities might cause
  • Authorisation seeks to improve conduct standards and culture within firms
  • Authorisation cannot be a “zero-failure regime” – it is not feasible to eliminate all risks of firm failure or harm to consumers, and to do so would have negative effects regarding innovation and competition

Concerning the last of these points, Ms Rapson acknowledged that “firms with new and innovative business models won’t necessarily understand what it means to be regulated.” She added that the FCA will look “to support them to understand and to meet our minimum standards.” Later in the speech, she suggested that firms in this situation might be authorised subject to certain conditions, such as a restriction in the number of customers they can have.

The speaker reminded her audience that all firms seeking authorisation needed to meet the FCA’s Threshold Conditions, and that all individuals seeking approval to carry out key functions within firms are required to pass the Fit and Proper Test. However, she stressed that individuals and firms must meet these requirements for as long as they carry out financial services activity, and that these are not one-off tests that only apply at the point of authorisation.

Ms Rapson commented:

“Becoming authorised is not like passing an exam. The firm cannot put the books away and forget everything it learned along the way.”

Regarding conduct and culture, Ms Rapson said that when reviewing an authorisation application, the FCA would look at:

  • A firm’s purpose
  • Its leadership
  • Its approach to rewarding and managing people
  • Its governance arrangements

She added that the Government had been stressing the need for greater personal accountability within firms, and that this had led to the introduction of the Senior Managers and Certification Regime.

Summarising her speech, Ms Rapson concluded by saying:

“Our ambition is to continue to improve our approach to authorisation, ensuring that we use it to deliver maximum public value. We will continue to take a proportionate approach to preventing harm. We will continue to use authorisation to help improve conduct, culture and governance in firms. We will continue to be imaginative in our use of authorisation to promote competition and innovation.

“Firms will find it straightforward to engage with us. We will be clear about our expectations of them. “

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.

21Mar

FCA director speaks on consumer credit affordability

Jonathan Davidson, Director of Supervision – Retail and Authorisations at the Financial Conduct Authority (FCA) – spoke to the Credit Summit, London in March 2018.

In a speech entitled “Getting affordability right in consumer credit”, Mr Davidson warned consumer credit firms that “a business model that is predicated on selling products to customers who can’t afford to repay them is not acceptable.” He added that the FCA “will take action against firms who run their businesses this way”, and cited the compensation now being paid by retailer BrightHouse as an example.

The FCA director also cited the importance of lenders ensuring that credit applicants are likely to be able to afford the repayments should their circumstances change. Mr Davidson commented:

“[Some customers] might be able to just about afford any loans you grant them today, but it is far from certain that they will be able to do so in the future.”

The next section of the speech described a number of “warning signs” in the credit market as a whole, which include:

  • Consumer credit levels have risen rapidly in recent years
  • Household debt levels are high in relation to income
  • A significant number of households are deeply indebted
  • 36% of the 25-34 age group have been overdrawn at some point in the last 12 months. 19% of this group have no savings, and 30% have less than £1,000 set aside
  • More than 900,000 people in the UK are currently on zero-hours contracts
  • Of those paying mortgage or rent, one in six said they would struggle if their repayments rose by just £50
  • There could be further increases in the cost of living in the coming months and yearsMr Davidson then moved on directly to the subject of affordability and consumer credit. He asked firms to consider that “the key point for today is that a credit check is not the same as an affordability check.” This is largely because a credit check is concerned with the past – what is the applicant’s record in meeting their credit commitments? However, an affordability assessment is concerned with the future – will the applicant be able to make the repayments on the loan or other credit product they have applied for? Despite this key difference, the speaker said that his organisation had seen a number of firms who were relying simply on credit checks when assessing an application, and who were not specifically considering affordability.He stressed that while the consumer credit rulebook does not set out detailed rules as to how affordability should be assessed, mortgage lenders are required to carry out a comprehensive analysis of an applicant’s income and expenditure, and to carry out ‘stress tests’. A stress test is an assessment of whether the individual would still be able to afford the repayments were interest rates to rise.Regardless of whether the FCA Handbook sets out detailed rules for a firm to follow, Mr Davidson said it was good practice to consider:
  • What would be the situation regarding the applicant were interest rates to rise?
  • What would happen if the cost of living went up?
  • Are there any indications of a forthcoming change in the applicant’s circumstances, such as a change of employment?The FCA director made reference to new rules introduced by the regulator, such as the requirements to assist borrowers in persistent debt on their credit card. He also reminded his audience of the requirements for individuals within financial firms under the Senior Managers & Certification Regime, which include the need to treat customers fairly.

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.

 

20Mar

FCA summarises its issues with the motor finance sector

The Financial Conduct Authority (FCA) is conducting a wide-ranging review of the motor finance sector, which will conclude in September 2018. In March 2018, it published an update on the progress of the review.

The regulator’s main findings are:

  • The growth in the sector has been most significant for consumers with higher credit ratings, who might be less likely to experience repayment problems
  • Arrears and defaults are increasing “moderately” but remain fairly low. Arrears and default rates are higher for consumers with the lowest credit ratings, who account for around 3% of motor finance lending
  • Some firms have been found to have commission arrangements that could encourage staff to arrange more expensive finance arrangements for their customers, thus giving rise to potential conflicts of interest. Where this is the case, the situation needs to be properly managed by the firm
  • Some customers are not being provided with key information in an accessible manner
  • Firms need to be alert to market changes, such as the risks of a severe fall in prices for used cars

The FCA adds that its areas of focus for the remainder of the review include:

  • Whether firms are carrying out adequate affordability assessments, especially for applicants with lower credit scores
  • How firms are managing the risks posed by their commission structures
  • Whether customers are being provided with sufficient information to make informed decisions

Regarding the first of these, firms should note that an affordability check is not the same as a credit check, and that finance providers are expected to carry out an assessment of each applicant’s ability to make the required repayments.

Regarding the last of these, the FCA says it has seen cases where “relevant information is spread across multiple documents which may make it difficult for consumers to absorb key information,” and “where information is not sufficiently prominent and may not meet our requirements.”

Examples of the work being carried out by the FCA during the course of the review include

  • Assessing lenders’ approaches to managing the risk of falling asset valuations
  • Analysing customers’ credit reference agency files, to assess relevant trends and indicators
  • Reviewing agreements between lenders and brokers/dealers to assess the potential for conflicts of interest
  • Reviewing firms’ sales practices and processes

The latest publication from the FCA on the subject of motor finance acknowledges that “the motor finance sector has grown rapidly, largely due to the popularity of personal contract purchase (PCP).” The number of point-of-sale consumer motor finance agreements for new and used cars has grown from around 1.2 million in 2008 to around 2.3 million in 2017, and PCP now accounts for 66% of the value of new and used car finance lending, compared to 34% in 2008. Motor finance accounted for 16% of total unsecured debt for consumers back in 2013, a figure which had increased to 24% by 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.

 

16Mar

FCA refuses application of firm to advise on high risk products

The Financial Conduct Authority (FCA) has refused an authorisation application from a Birmingham-based firm that was seeking permission to advise in a number of higher risk areas, including pension transfers and investments such as contracts for difference (CFDs), equities and commodities.

The FCA was particularly concerned as to the competence of the person nominated by the firm to carry out the controlled functions of CF1 (Director), CF10 (Compliance Oversight) and CF11 (Money Laundering Reporting Officer). These concerns led to wider issues over whether the firm could satisfy some of the FCA’s Threshold Conditions, including 2D (Appropriate Resources) and 2E (Suitability).

The FCA has previously communicated its concerns about firms offering CFDs, which include:

The risk of “rapid, large and unexpected losses” for investors in these products
Ordinary retail clients taking out CFDs and trading in them when they do not have a sufficient understanding of how the products work
Firms not putting in place sufficiently rigorous anti-money laundering controls in place to manage the increased risks posed by higher risk clients

The nominated individual, referred to as Employee A in the FCA’s Final Notice, does not hold any recognised financial services qualifications. According to the authorisation application, she is intending to take the ICA Advanced Certificate in Compliance, but her existing experience consists of nothing more than a few online courses and seminars. She has been employed in compliance roles in the past, but the FCA describes these as being “in an ‘administrative/ compliance support’ capacity without regulatory responsibility for, or substantive involvement in, ensuring regulatory compliance.”

At an interview with the FCA, the individual failed to demonstrate that she understood the nature of the permissions the firm would require, could not explain what anti-money laundering controls the firm would use, and did not appear to understand the CFD product in any great detail.

The FCA’s Final Notice reads:

“The interview panels considered that Employee A was unable to demonstrate the expected level of knowledge in key areas, including being unable to provide a response to a number of important questions.

“On a number of occasions, Employee A was only able to provide responses to questions that should have been within her knowledge by referring to written material brought with her to interview.”

It is no surprise that the FCA subjected an application for CFD permissions to the highest level of scrutiny. The FCA has conducted a review of CFD sales, covering the period between July 2015 and June 2016, and found that 76% of retail consumers who bought CFD products during this period suffered some form of loss.

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.

15Mar

Card firm fined by FCA for not disclosing cost of add-on product

The Financial Conduct Authority (FCA) has imposed a fine of £1,976,000 on a credit card provider that failed to fully disclose the costs of an add-on product.

Furthermore, the firm has also been instructed to pay a massive £168,781,000 in compensation to the 1.2 million affected customers. This figure reflects the total amount of the charges that were not disclosed.

The add-on product, known as a Repayment Option Plan (ROP), allowed customers benefits such as: the opportunity to freeze their credit card account, take a payment holiday for one month each year, avoid late fees for one month per year, and receive SMS alerts relevant to their account.

Whilst the firm correctly informed ROP customers that there was a monthly charge for this service, it neglected to tell them that the plan could attract interest of up to 79.9%, which would be compounded if the customer failed to pay off their card in full at the end of the month. In an FCA review, the regulator found that the firm did not provide this important information in 100% of cases.

The problems lasted all the way from June 2003 to April 2016, when sales of the ROP were suspended at the request of the FCA. From June 2003 to April 2014, consumer credit was not regulated by the FCA, so the firm will be voluntarily refunding the charges imposed on its customers during this period.

The FCA believes that the firm’s actions breached two of its Principles for Business: Principle 6 (Customers’ interests, otherwise known as Treating Customers Fairly) and Principle 7 (Communications with clients).

Affected customers will be contacted by the firm and do not need to do anything to receive their compensation.

It is likely that the firm will resume sales of the ROP in due course.

Mark Steward, Director of Enforcement and Market Oversight at the FCA, said:

“[The firm] failed to make sure customers were informed about the full cost of the ROP when it was offered to customers. Most [The firm] customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing. Customers are entitled to be told all relevant information when being offered financial products. These were very serious breaches.

“[The firm] has decided now to do the right thing by acknowledging the wrong-doing and offering to compensate its customers. We are pleased the firm has extended the compensation to customers who purchased the ROP before we took responsibility for regulating the consumer credit market.”

A spokesperson for the firm said:

“The FCA believes that [we] should have been more explicit when discussing ROP over the phone, that the product was a purchase transaction, and as such would attract interest in the event the customer didn’t pay their bill in full.

“We recognise that this call could have been clearer and apologise to all impacted customers where we fell short of the high standards that we set ourselves.

“As a result the FCA and [ourselves] agreed that [we] will refund interest charges that customers have paid on ROP. [We have] also been fined just under £2 million. Our aim now is to put things right as quickly as we can by refunding the interest element of ROP to customers.”

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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