A Bradford-based firm has been seeking to offer the type of loans usually described as ‘high cost short-term credit’ but was intending to do so using a firm name that implied the loans would be interest free. However, the Financial Conduct Authority (FCA) has refused the firm’s application for authorisation after taking issue with the interest-free claim. It also had significant concerns over the competence, capability and experience of the firm’s sole director, who was not planning to undertake additional training or engage third-party compliance support.
The firm had planned to offer loans of between £50 and £250 over terms of one to three months. Their headline interest rate would have been 0% but the Annual Percentage Rate (APR) of these would be between 81% and 243% as the firm would still charge a transaction fee. Nevertheless, the original set of policies submitted to the FCA by the firm stated its APR as 0% because it was unaware that transaction fees need to be included in APR calculations. Until it was pointed out to him by the FCA, the director did not know that the firm would need to calculate and publish the APR for its loans. The regulator said it was technically true that there would be no interest charged on the loans but that it was concerned use of the ‘interest-free’ name could be misleading given the fees to be charged.
The FCA also commented that:
- The firm’s proposed affordability and creditworthiness assessment procedure did not explain how it would use income and expenditure details to make lending decisions. This procedure also failed to explain what information the firm would obtain from credit reference agencies or how it would use credit information in lending decisions. The firm said it would not carry out standard credit reference checks but provided no information as to how it would satisfy FCA rules relating to creditworthiness
- The firm did not provide a procedure explaining how it would assess applications for repeat lending
- The firm’s loan agreements did not include the loan term or the interest rate
- The firm did not provide sufficient detail regarding how it would deal with customers in arrears
- The complaints procedure made reference to the European Online Dispute Resolution Platform even though it is not possible to refer high-cost lending complaints to this organisation
- The financial projections submitted by the firm were not sufficiently detailed
- The initial compliance monitoring plan did not explain what compliance monitoring the firm would carry out or how often this monitoring would be conducted. Although the firm did submit a revised plan at a later date the FCA was concerned by the references to “maintaining overdraft procedures” when the firm was not proposing to offer overdrafts and by references to “other departments” of the firm carrying out certain functions when in fact the firm’s director proposed to operate the business single-handedly
The FCA issued a Warning Notice to the firm on March 22 saying it was “minded to refuse” the application. The firm was invited to make submissions in response to this Warning Notice, but when the regulator did not receive a reply to the Warning Notice it issued a Decision Notice stating it would be refusing the application on May 16. The firm did not appeal this decision to the Tribunal so the FCA confirmed the application refusal via a Final Notice dated July 10 2019.
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