FCA to introduce rent to own price cap

As has been widely predicted in recent months, the Financial Conduct Authority (FCA) has announced that the costs rent-to-own firms can charge will be capped from April 1 2019. The regulator says that by taking this action they are “providing protection for some of the most financially vulnerable people in the UK.”

The FCA estimates that the cap will save UK consumers as much as £22.7 million per year. It notes that the typical rent-to-own borrower is on a low income and has often missed one or more bill payments within the previous six months. Furthermore, only around one-third of customers of these firms are in work. Despite these adverse financial circumstances, rent-to-own customers face such high charges that they sometimes end up paying four times the average retail price of the goods.

The new measures will require firms to:

  • Limit credit charges so they cannot be more than the cost of the product
  • Benchmark the cost of products against the prices charged by three other retailers – firms will be unable to charge more than the median average of the prices offered by these retailers. Only one of the three can be a catalogue credit retailer
  • Refrain from charging customers higher prices for insurance premiums, or for going into arrears, purely with the aim of recouping lost revenue once the price cap comes into effect. If a firm wants to raise its charges, it would need to be able to prove that this is a legitimate business need

Before the cap and the benchmarking rules are introduced on April 1, February 22 will see the introduction of a compulsory two-day cooling off period for the sale of extended warranties, which will effectively ban firms from selling these warranties at the point-of-sale.

The cap and the benchmarking requirements will apply with effect from April 1 to all products introduced on or after that date, and also where prices are changed on or after April 1 on an existing product. In all other cases the requirements will apply from July 1 2019.

The consultation on these proposals closes on January 17 2019.

Andrew Bailey, Chief Executive of the FCA, said:

“Today’s measures are designed to bring down very high prices in the rent-to-own sector, which is used by some of the most financially vulnerable in our society. A cap will prevent firms charging over the odds for essential everyday items like cookers or washing machines. We believe a cap is the only intervention that will effectively tackle the highest prices. If implemented it will save consumers up to £22.7m a year from excessive charges.

“We want to stop consumers having to pay many multiples more than the price of a product on the high street. These changes build on the measures we have already taken across the high-cost credit sector.”

The FCA has previously expressed its concerns about the way rent-to-own firms treat their customers. The market is dominated by a handful of major players, and three of the largest market participants have been forced to pay almost £16 million in compensation to 340,000 consumers. Ways in which the FCA believed the firms were failing their customers included:

  • Not carrying out adequate affordability checks
  • 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

With high cost short-term lending having been subject to a price cap for some time now, it remains to be seen which area of consumer credit will be next. Organisations such as Citizens Advice are sure to lobby the FCA hard to introduce price controls on other forms of credit. Having campaigned vigorously for a rent-to-own price cap, Citizens Advice chief executive Gillian Guy welcomed the proposals by saying:

“This cap is a victory for people who struggle with the runaway costs of rent-to-own agreements.

“These products are aimed at people who have little choice but to resort to this type of credit, yet they come with crippling interest rates on prices that are far higher than anywhere else on the high street.

“A cap gets to the heart of the problem by stopping costs from spiralling out of control and pushing people into further debt.

“Our evidence has repeatedly shown that well-designed caps can reduce the harm high-cost credit can cause, as they have done in the payday loan market.”

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


Claims cases funded with a Consumer Credit Agreement – are you compliant?

There has been a growing use of law firms using consumer credit agreements to fund client’s disbursement fees. Up to the 1st of April 2014, SRA authorised firms could carry on consumer credit activities under an Office of Fair Trading (OFT) group consumer credit licence which was held by the Law Society, and enabled firms to operate without having an individual licence, provided they were overseen by their professional body.

Under the FCA, there is no equivalent group authorisation meaning that firms carrying on regulated consumer credit activities must:

  • be authorised by the FCA with the appropriate permission;
  • be exempt under the SRA’s arrangements made under Part 20 of the Financial Services and Markets Act 2000 (FSMA); or
  • cease to carry on consumer credit activities.[i]

Consequently, firms that are conducting consumer credit activity need to be authorised by the FCA, unless they are an SRA-regulated firm and ensure that their activity satisfies Part 20 of FSMA. Part 20 FSMA allows for a firm to be considered as an Exempt Professional Firm where their engagement in regulated activity “…arises out of, or is complementary to, the provision of a particular professional service to a particular client… ” (s332(4) of FSMA) and the regulated activity “…must be incidental to the provision by him of professional services…” (s327(4) of FSMA).[ii] There are also a number of conditions that must be met in order to be treated as an exempt professional firm, including not receiving any pecuniary reward or other advantage that isn’t accounted for to their client, which arises out of the activities.

To determine whether regulated activities are incidental, the following factors should be considered:

  • The scale of the regulated activity in proportion to other professional services provided,
  • Whether activities that are regulated activities are held out as separate services and to what extent, and
  • The impression given of how a firm provides regulated activities.

If SRA-regulated firms can demonstrate that they fall within Part 20 in relation to consumer credit activities by carrying on the regulated activities in a manner which is incidental to the provision of legal services, and the specific activities arise out of and/or are complementary to the transaction, then they would be regulated solely by the SRA. In this instance, they must then comply with the SRA Financial Services (Scope) Rules 2001 and the SRA Financial Services (Conduct of Business) Rules 2001 (COB Rules).

However, this exemption only applies to SRA regulated firms, and firms that work with such companies need to consider the possibility that they require FCA authorisation. Take, for example, a firm such as a claims management company (CMC) that refers clients to a solicitor that then introduces the client to a lender for a credit agreement (for example to pay for the client’s disbursements); both the solicitor and the CMC could be conducting credit broking particularly where progression of a claim most likely requires the entry into a consumer credit agreement by the claimant.  The solicitor may benefit from the Part 20 exemption whilst the CMC would be acting unlawfully if it did not hold authorisation when required to do so.

For the solicitor to benefit from the exemption at Part 20 they must ensure that they meet the criteria and also ensure that it accounts to the client for any pecuniary reward or other advantage which it receives from the third-party lender.

Those firms that are deemed to be conducting activity regulated by the FCA, and do not meet the criteria to be solely regulated by the SRA such as CMCs, must ensure they are authorised or have appropriate status as an appointed representative. All firms regulated by the FCA for credit broking must comply with the FCA handbooks, which includes acting in accordance with the relevant provisions contained the Consumer Credit Sourcebook (CONC), Principles for Business (PRIN) and Senior Management Arrangements, Systems and Controls (SYSC).

Both the CMCs and law firms that are operating consumer credit agreement funding models need to ensure that not only they hold the correct authorisation to carry out the regulated activity, but also any introducers they work with also hold the correct authorisation.

Failure to be authorised for credit broking activity when required amounts to a criminal offence, and the subsequent consumer credit agreements will be unenforceable.  Due diligence by all firms in the consumer journey is therefore critically important and is part of firms being able to demonstrate their own compliance.  Credit brokers must ensure that their due diligence shows that the lending products provided to consumers they introduce are suitable and in the interests of the consumers.  This includes ensuring that correct processes are followed for affordability as well as having robust arrangements in place to manage risks to customers. 

[i] Solicitors Regulation Authority – Regulation of consumer credit activities: https://www.sra.org.uk/solicitors/code-of-conduct/financial-services-rules/background.page

[ii] Solicitors Regulation Authority – Regulation of consumer credit activities: https://www.sra.org.uk/solicitors/code-of-conduct/financial-services-rules/background.page

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


FCA reveals results of survey of firms’ financial crime concerns

The Financial Conduct Authority (FCA) has published the results of its first industry-wide survey of the financial crime activity being undertaken by firms. More than 2,000 firms were canvassed, including all the UK’s banks and building societies.

Some firms are subject to the detailed financial crime rules in the FCA Handbook, but while many firms are not, such as those in the consumer credit sector, all authorised firms need to have appropriate systems & controls to mitigate the risk that they could be used to facilitate financial crime.

All of the data in the report comes from larger firms who are subject to the detailed rules.

Collectively, the firms reported 548,678,586 customer relationships, of which 427,812,266 (around 78%) were in the United Kingdom.

The 2,000 or so firms reported they had a total of 119,562 ‘politically exposed persons’ as customers – these are people with prominent public jobs who may be in a position to abuse their role for private gain. 1,596,539 other customers were described as being ‘high risk’ for money laundering purposes for some reason.

As for what firms are doing to tackle the risks of financial crime, the firms said they collectively employed 11,500 full-time equivalent staff in financial crime roles. The FCA adds that it believes the industry spends more than £650 million per annum on the fight against this form of crime.

Employees of the firms made 922,544 Suspicious Activity Reports to their internal Money Laundering Reporting Officer during 2017. Of these, more than a third (363,135) were then reported to the National Crime Agency.

1,150,000 prospective new customers were turned away by the firms over financial crime concerns, and the firms also refused to carry out further business with 375,000 individuals.

The issues firms said were of greatest concern were:

  • 1st Identity fraud and identity theft
  • 2nd Phishing attacks
  • 3rd Computer hacks
  • 4th Malware
  • 5th Application fraud

However, firms said that they believed the following resulted in the greatest number of victims:

  • 1st Pension liberation fraud
  • 2nd Account takeover
  • 3rd Debit card fraud
  • 4th Advance fee fraud
  • 5th Identity fraud and identity theft

The issues where firms believed the risks were increasing fastest were:

  • 1st Vishing (voice phishing attacks)
  • 2nd Malware
  • 3rd Phishing
  • 4th Computer hacks
  • 5th Account takeover

The countries perceived by the firms to pose the greatest financial crime risk were:

  • 1st Iran
  • 2nd Panama
  • 3rd Russia
  • 4th Iraq
  • 5th Laos

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


FCA confirms ban on debt management director for misuse of client money

The Financial Conduct Authority (FCA) has imposed an outright ban on a debt management firm director who knowingly used client money to buy the firm of which he was a director.

The individual in question was the sole director of the firm between October 2013 and May 2014, and as a result of his actions, around 4,000 customers collectively lost more than £7 million. The individual had previously indicated he would appeal the original FCA decision, made back in May 2018, to the Tribunal.

As with all firms in the consumer credit sector, the disadvantaged customers have no recourse to the Financial Services Compensation Scheme.

The FCA says that the director knew both that his actions were wrong, and that the firm had a significant client money shortfall.

The firm in question had something of a chequered history. The married couple from whom the banned director acquired the firm were themselves banned by the FCA for mis appropriating client money, and the firm itself had its Consumer Credit Licence revoked by the former credit regulator, the Office of Fair Trading (OFT):

Issues identified by the OFT included:

  • Not being sufficiently transparent when describing its services
  • Failing to explain the risks associated with the firm’s rather unusual method of attempting to reduce customer debts
  • Not providing suitable advice

The banned director’s firm used a different method of dealing with customer debts than most debt management firms. The standard approach involves customers making monthly payments to the debt management firm, who then distribute the payment amongst the individual’s creditors. Instead, this firm sought to challenge the enforceability of debt agreements, or to set off mis-selling claims against certain debts, or to negotiate an overall settlement of the debts. In order to make an offer for “full and final settlement”, the firm built up a pot of money for each customer, and it is these pots that the director is said to have mis-appropriated.

The firm’s licence was finally revoked on July 29 2013, and was permitted to carry on trading, subject to conditions, until October 18 2013. The plan was for customers to have been transferred to another firm from that date, however the transfer never took place. The firm instead continued to receive payments from customers until it was placed into administration in May 2014.

Mark Steward, executive director of enforcement at the FCA, said:

“[name of director] blatantly used customers’ money to fund the purchase of [name of firm] from [name of former owner]. This was dishonest and showed a complete lack of integrity. [name of firm] was meant to help people manage their debts, but [name of director]’s actions put them one step backwards and in a worse position than before.

“He is not a fit and proper person and poses a serious risk to consumers. This is the strongest action we can take and will prevent him from operating in financial services again.”

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


FCA reminds motor finance firms of social media promotions rules

The Financial Conduct Authority (FCA) has used its November 2018 Regulation Round-up to take the opportunity to remind motor finance firms of the rules regarding promotions made via social media.

The regulator has said that its Financial Promotions team has found that some motor finance firms are not complying with the relevant rules in CONC Chapter 3 when they post on social media platforms such as Facebook, Twitter and Instagram. The main issues are said to include:

  • Not displaying a representative example when this is required by the rules
  • Not making the representative APR prominent
  • Not mentioning the legal name of the firm – perhaps only mentioning a trading name
  • Not displaying the statement that they are a credit broker, and not a lender; or hiding this statement
  • Displaying monthly costs for a vehicle without indicating whether this is based on a credit or hire agreement

Firms have been urged to re-read the relevant sections of Chapter 3, and also to remind themselves of the social media guidance on the FCA website.

Although the item in the newsletter is specifically addressed to motor finance firms, firms in all sectors of the industry that use social media for marketing purposes need to be aware of the rules. Any form of communication (including through social media) is capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity.

The message from the FCA’s guidance is clear, in that the limitations of any particular form of social media cannot be used as an excuse for failing to follow the FCA’s financial promotions rules. Throughout the guidance, its rules are described as being ‘media neutral’, so Principle 7 about communications being ‘clear, fair and not misleading’ still apply, as do the detailed promotions rules in the COBS, MCOBS, ICOBS and CONC sourcebooks.

One of the main limitations of social media is that the size and length of messages are often limited. This means that social media may be inappropriate for conveying detailed or complex information. The FCA says that firms are permitted to add images into their social media posts in order to ensure that all required information is given but adds that any required risk warnings must appear in the body of the message and not in the image.

Adding a web link to a social media message may also not solve the problem. The FCA says that the message must be compliant with the promotions rules in its own right, regardless of the level of information provided on the signposted webpage.

The requirement for financial promotions to be clearly identifiable as such applies as much to social media as to other communication methods.

Firms are advised that the fact that a customer has chosen to follow a firm on social media or has indicated their approval of a communication – such as ‘liking’ a Facebook post or ‘favouriting’ a tweet – does not indicate explicit consent to receive unsolicited marketing communications.

Social media promotions are likely to meet the FCA’s definition of a non-real-time promotion rather than a real-time promotion, as the extent of the interaction between the firm and the recipients is limited.

Finally, the guidance mentions two important issues regarding forwarding of social media communications, such as via re-tweeting. Firstly, if a recipient forwards a communication, the firm remains responsible for the compliance of the original communication. Secondly, before forwarding any communication received from a customer, a firm must consider whether it would fall under the financial promotions rules and thus make them responsible for its content.

Firms are thus advised to think carefully before using social media promotions. Is the medium being considered appropriate for the message that needs to be conveyed?

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


FOS gives examples of pension complaints

Much of the November 2018 edition of the Financial Ombudsman Service (FOS) newsletter focuses on pension complaints.

Chief ombudsman Caroline Wayman introduces this issue of Ombudsman News by acknowledging that pension-related complaints account for less than 2% of her organisation’s workload, however she also commented that a significant proportion of the complaints made against financial advisers concern pension advice and other issues related to retirement saving.

Also in the newsletter, Keith Richards, chief executive of trade association the Personal Finance Society, warns financial advisers that now consumers have more freedom as to how they access their pension pots, advisers now have additional responsibilities to guide clients through the various options and to give appropriate advice. Mr Richards also says that advisers have an important role in advising clients on whether to transfer from one form of pension arrangement to another, or on whether it might instead be best to leave their retirement savings in the same pension vehicle.

The newsletter includes a number of case studies, all of which relate to complaints the FOS has received about transfers from defined benefit (final salary) to defined contribution pension arrangements. These cases include:

  • An adviser did not recommend a transfer, but this upset the client who said she had been led to believe by her adviser that the transfer would proceed – she wished to withdraw the entire transfer value to start a new business. The FOS ruled that the adviser should have been clearer from the outset about how far they’d be willing to help with her pension, and the adviser was ordered by the FOS to pay a ‘moderate’ amount of compensation
  • An adviser took a long time to give a client a decision on a potential transfer. As the original transfer value was only valid for 90 days, when the client applied for a second transfer value, it was around £50,000 lower. The adviser was instructed by FOS to pay the client the difference between the two transfer values, plus an additional sum for the inconvenience caused
  • An adviser took five months to complete a pension transfer process, and in the words of the client “I did half the work on my transfer”. The FOS instructed the adviser to put the client back in the position he would have been in if the transfer had been completed by his 55th birthday, considering both the lost investment returns for the period between his birthday and the transfer date, and a 50% refund of their fees. Additional compensation was also paid for the inconvenience caused
  • An adviser recommended a transfer from an occupational pension to a personal pension. Later the client discovered that the shortfall in the fund had since been put right by the administrator, and that additional payments had been made to clear the previous deficit. The FOS noted that she had been recommended to transfer out of an occupational pension that offered a guaranteed monthly payment, and that redress should be paid to her for the losses she may have suffered by receiving inappropriate advice

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


FCA asks firms to write to previously unsuccessful PPI claimants

With the payment protection insurance (PPI) claims deadline just nine months away, the Financial Conduct Authority (FCA) has proposed a new requirement that would see firms that sold PPI required to write to around 150,000 customers who have previously had PPI complaints rejected. In these mailings, the firms would need to make it clear that the customers may be eligible to make a new complaint under the Plevin ruling, which relates to a failure by the firm to disclose the commission payment on the insurance contract. The customers affected would be those who have already had a Plevin complaint rejected, but who may in fact have legitimate grounds for a complaint due to an issue known as recurring non-disclosure (RND).

Under Plevin, customers can make a claim if their firm failed to disclose receipt of a commission payment equivalent to 50% or more of the premium.

Where the PPI contract involved payment of a regular premium, firms should assess commission disclosures not only at the point of sale but on an on-going basis. Recurring non-disclosure (RND) is the term the FCA uses for this issue, where a firm may have failed to disclose commission payments received throughout the term of the contract. In essence, the Plevin ruling requires firms to pay compensation to the client if RND occurred during the contract term, even if the initial commission was fully disclosed at point-of-sale.

Essentially the FCA’s guidance to firms is:

  • Firstly, assess a PPI complaint on the grounds of mis-selling
  • If it determines that mis-selling has not occurred, secondly assess the case on whether sufficient disclosure was made of a large commission payment at point-of-sale
  • If it determines that sufficient disclosure was made at point-of-sale, but the contract is regular premium, the case should then be assessed on whether RND has occurred

With the deadline approaching, the FCA needs to act quickly on this issue. The consultation on this mailing requirement lasts for just one month and will close on December 7 2018. The regulator then anticipates publishing new rules in late January 2019, and the firms affected will be required to send all of their mailings by April 29 2019, which is four months prior to the deadline.

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

“The final guidance resolves an area of uncertainty and will ensure fair and consistent outcomes for regular premium PPI complaints.

“The proposed mailings will help certain consumers who have previously complained about regular premium PPI but been rejected to engage with our campaign and consider whether they want to make a new complaint about undisclosed commission before the deadline.

“Together, these measures support the good progress we are making toward bringing the PPI issue to an orderly conclusion in a way that secures appropriate protection for consumers.”

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


FCA chief speaks on regulation and culture

Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), spoke on the subject of corporate culture and its relationship to regulation when he addressed the Investment Association Culture Conference at Mansion House in the City of London in November 2018.

Mr Bailey began by firstly saying that putting regulatory rules in place can lead to a good corporate culture:

“It follows – by assumption I would say – that if you can make enough rules, and of course the right ones, the culture will be good, and trust will be built and maintained.”

However, he then cautioned that this may not always be the case, by adding:

“The problem is that in practice a set of rules tends to underdetermine what needs to be done – it is unlikely that a rulebook will be able to predict and determine every situation that a regulated party can face, and in any event we want to see a world in which regulated parties are encouraged and incentivised to exercise their own judgment reliably and regularly, drawing on their own competence and honesty.”

As an example, he referred to the fact that individuals now have much greater freedoms when it comes to accessing their pension benefits. Many of these individuals will seek professional advice before making any decisions in this area, which in the words of Mr Bailey, places additional focus on the culture and behaviour of those who provide retirement advice.

Another of the FCA chief’s principal messages was to say that “the effectiveness of communication with consumers is in my experience a test of culture.” Directly addressing his audience of investment managers, he made reference to the FCA’s market study which revealed that some investment management firms were not being transparent with customers regarding fees and charges. Whilst the regulator could introduce new rules regarding information disclosure, it remains of paramount importance that the firm clearly communicates the fees and charges information to its clients.

On this subject, Mr Bailey added:

“On their own, rules alone will underdetermine what needs to be done to produce robust outcomes in the interests of users and consumers.”

So, the message to authorised firms is clear – a box ticking approach that ensures compliance with all relevant areas of the FCA Handbook may not be sufficient. Firms must have a corporate culture that promotes good outcomes for consumers, and senior management must set the right example and promote this positive culture at all times.

An earlier 2017 speech by Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, revealed that there are four ways that a firm’s culture can be measured, in the eyes of the regulator:

  • Whether the firm has “a clearly communicated sense of purpose and approach”
  • The ‘tone from the top’ – what example are senior management setting for their staff when it comes to conduct?
  • The governance processes firms have in place to manage conduct risk
  • The incentive schemes used by firms – are staff for example rewarded via bonuses and commission structures to act contrary to customers’ interests

The five Conduct Rules, to be introduced across the industry in December 2019 via the Senior Managers & Certification Regime are also good indicatoes of how to promote a good culture:

  • Act with integrity
  • Act with due care, skill and diligence
  • Be open and cooperative with regulators
  • Pay due regard to customer interests and treat them fairly
  • Observe proper standards of market conduct

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



Scam CMCs forced into liquidation

The High Court has forced two claims management companies (CMCs) into liquidation, after their activities were found to be fraudulent. The High Court is entitled to take this action if it believes it is in the public interest to do so.

The two linked companies, based in Warrington, claimed they could recover lost monies on behalf of investors who had suffered losses in alternative investment schemes. However, the Insolvency Service’s investigations found that there was little or no prospect of any funds being returned to the investors.

The companies sourced their business via cold calling and told the victims of the failed alternative investments that they could act on their behalf in return for payment of an upfront fee.

The company’s employees went as far as to claim that they had been appointed by the Insolvency Service to carry out the claims activity. Many of those contacted said the callers were “aggressive and persistent”.

Later, the companies failed to co-operate with the insolvency Service investigation, save for an attempt by the director to claim that his companies had been hijacked by fraudsters, and that he was unaware that the cold calls were even taking place. He denied that upfront fees were taken, and instead suggested that fees were only taken out of monies recovered on behalf of investors.

Insolvency Service chief investigator David Hill said:

“[Name of company] employed aggressive sales tactics to prey on people who had already lost money, seemingly with the aim of scamming them.

“Members of the public, who have lost money in any kind of investment, should be wary of anyone calling them out-of-the-blue, claiming to be able to recoup their investment losses.

“The Insolvency Service will investigate and shut down the activities of such companies.”

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



FCA director speaks on ‘purposeful leadership’

Jonathan Davidson, Director of Supervision – Retail and Authorisations at the Financial Conduct Authority (FCA) recently spoke on the subject of “purposeful leadership”, and how it relates to a firm’s culture.

Addressing the Consumer Credit Trade Association Conference on Leadership in a Disruptive World in November 2018, Mr Davidson began by speaking of how the FCA wanted to achieve “cultural transformation in financial services”, and that he also wanted firms “to move beyond a compliance mindset.” Of course, all authorised firms need to comply with each of the rules in the FCA Handbook which apply to them, however no firm can afford to see regulation as simply a box-ticking exercise and must always be mindful of what their corporate culture is, and whether it encourages fair outcomes for customers.

Although the FCA remains concerned about certain practices within the sector and continues to devote a lot of its resources towards supervising credit firms, his next set of remarks heaped praise on the sector for the improvements they had made. Here, Mr Davidson commented:

“We are seeing rapid, extraordinary and positive change. Since I joined the FCA 3 years ago, this sector has made immense progress in offering UK consumers better outcomes.

“Many firms have significantly enhanced their approaches to affordability and as a result are making better-informed decisions about whether a loan is affordable. Altogether, I would assert that the sector has become a safer place for borrowers.”

He did add a note of caution though when he commented on how likely it was that credit firms would be faced with the issue of how to treat vulnerable customers. The speaker told his audience that he considered many “gig economy” workers to be vulnerable owing to their uncertain income levels, and that many young people were vulnerable as they sought to pay off student loans and meet the costs of getting on the housing ladder. Furthermore, large swathes of the UK population are vulnerable to rising costs of borrowing as interest rates begin to rise.

Next, Mr Davidson highlighted the case of a consumer who had taken more than 100 payday loans of £100 each over the last few years. Although every one of these loans had been repaid, he commented that the consumer in question was now in “a cycle where only a few days can elapse between her paying off a loan and needing to take a new loan.” He asked firms to note that the Financial Ombudsman Service had recently upheld irresponsible lending complaints in similar circumstances, on the grounds that “the lender should have recognised the emerging pattern of unsustainable debt.”

Payday lending firms were reminded of the FCA’s recent Dear CEO letter, which called for them to consider whether compensation should be paid to their clients, including those who had not submitted any complaints.

Turning to the subject of culture, Mr Davidson warned that the FCA had seen evidence of “a very small number of firms [who] appeared to be trying to make easy money from a vulnerable population.” These remarks related specifically to some firms in the debt management sector. He went on to describe “a flagrant disregard for systems and controls” and added that “these firms aren’t getting it right, but they also aren’t trying to get it right.”

He summed up a key attribute of the forthcoming Senior Managers & Certification Regime by saying of management:

“You are not just accountable for your own actions but – to a reasonable extent – for those who work for you.”

Finally, although the credit sector was praised earlier in the speech, Mr Davidson spoke of “a high proportion of firms [who] operated high-risk incentive schemes with little awareness of the risks driven by these schemes and inadequate controls to address them”. He urged firms to put in place systems and controls where their remuneration system has the potential to encourage staff to act contrary to the interests of 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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