Author: Russell J Kelsall

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The Mortgage Charter and changes to MCOB to help borrowers

Mortgage lenders have had a busy time recently. The Government has published the Mortgage Charter (which is a voluntary charter that first charge lenders can sign up to) and the FCA has published Policy Statement 23/8 to enable firms to do what the charter requires. For more on the changes to MCOB, please see my earlier post.

We’ve put our heads together at Walker Morris towers to produce a one page summary of what the changes are and what firms need to do. If you click on it, you’ll get a bigger version of it.

If anyone needs a PDF copy with the embedded links (shown in the image as underlining), please contact me, Jeanette Burgess or Hasan Siddique.

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Less than one month to go before the consumer duty comes into force

The UK Financial Conduct Authority’s new consumer duty comes into force (for most purposes) on 31 July 2023. This will require firms to act to deliver good outcomes for retail customers.

Whilst much has been said about the consumer duty, the FCA’s focus is now on ensuring firms properly implementing it. To help, the FCA published an update on 28 June 2023. It included ten questions for firms to consider:

1. Are you satisfied your products and services are well designed to meet the needs of consumers in the target market, and perform as expected? What testing has been conducted?

2. Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? If so, what changes to the design of your products and services are you making?

3. What action have you taken as a result of your fair value assessments, and how are you ensuring this action is effective in improving consumer outcomes?

4. What data, MI and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?

5. How are you testing the effectiveness of your communications? How are you acting on these results?

6. How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective?

7. What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI and customer feedback is being used to support this assessment?

8. How have you satisfied yourself that the quality and availability of any post-sale support you have is as good as your pre-sale support?

9. Do individuals throughout your firm – including those in control and support functions – understand their role and responsibility in delivering the Duty?

10. Have you identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigants in place?

This is not, of course, a ‘checklist’ but it does give a useful insight into the FCA’s priorities.

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FCA publishes Handbook Notice 110 setting out changes to CONC and MCOB

At the end of June 2023, the UK Financial Conduct Authority (the FCA) published Handbook Notice 110. This set out changes made to the FCA Handbook 2 June 2023 and 30 June 2023. These include:

– changes to CONC 8.3 and TP8 (and changes to PERG 2.9 and PERG 17.7) resulting from the Consumer Credit (Debt Packager Remuneration from Debt Solution Providers) Instrument 2023. This introduces rules and guidance banning debt packers from receiving remuneration from debt solution providers and came into force on 2 June 2023.

– changes to MCOB 11.6 resulting from the Mortgage Affordability Rules (Amendment) Instrument 2023. This implements the Mortgage Charter and allows lenders to offer borrowers a switch to interest-only repayments for six months and a term extension to reduce their monthly repayments and switch back within six months (for more, please see Policy Statement 23/8: Mortgage Charter: enabling provisions and the FCA’s press release). These changes came into force on 30 June 2023.

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End of an era

So today marks my last day as a partner at TLT LLP. It has been an incredible seven years at the firm and we’ve achieved so much including:

– Winning Best Law Firm at the Car Finance Awards for four consecutive years 🚗 🏆
– Advising on some of the most interesting and challenging issues facing consumer, motor and mortgage finance providers ✍️ 💭
– Building strong and long standing relationships with our fabulous clients and trade associations 💪

It has been a real privilege to work with my colleagues both past and present. And it’s fair to say that I’ve picked up some lifelong friends along the way. There have been a lot of laughs too. So perhaps more of an ‘à bientôt’ than a ‘goodbye’.

I am, however, very excited to start my new role at Walker Morris LLP on 17 April 2023. So after a couple of weeks of fresh air, time with the family, walks on the beach and some delicious food and beverages, I’ll be back talking all things consumer, motor and mortgage!

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FCA publishes policy statement and finalised guidance on its Consumer Duty for retail firms

On 27 July 2022, the UK Financial Conduct Authority published a press release, a webpage, a policy statement and finalised guidance on its consumer duty for retail firms. The FCA is clear that it will “set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first“.

Together with my fellow partners, Noline Matemera and Robin Penfold, we’ve prepared a one page infographic on six key takeaways:

There is no doubt that there is a lot of work for firms to do between now and implementation.

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FCA tells firms to improve their treatment of struggling small business borrowers

On 12 July 2022, the UK Financial Conduct Authority published a press release telling firms to improve their treatment of struggling small business borrowers together with (a) its review into small and medium enterprise collections and recoveries and (b) a ‘Dear Chair’ letter to firms.

The FCA reviewed the practices of eleven banks. It found a number of issues including:

– lenders not treating small businesses fairly when trying to agree sustainable payment plans (for example, arranging clearly unaffordable payment plans);

– staff not having the right training to provide effective support to consumers and to make fair decisions;

– lenders not having clear policies to help staff identify and support vulnerable customers; and

– not having quality assurance and testing for their processes to ensure that they deliver fair results for consumers.

The FCA has given feedback to individual firms. It has also written to the chairs of all retail banks with small business customers. The FCA makes it clear that their ’Dear Chair’ letter is based on the existing principles, rules and guidance. It reminds firms that it will not wait for the introduction of the consumer duty in 2023 to take action where it finds evidence of customer detriment.

The ‘Dear Chair’ letter makes it clear that “all regulated firms offering lending to individuals and relevant recipients of credit (“RRCs”) should consider the findings and recommendations and where necessary, act on them“. The FCA expects “accountable Senior Manager(s) to proactively engage to achieve good practice when overseeing SME collections and recoveries“.

The FCA has set out some of its expectations in the ‘Dear Chair’ letter. These include:

– Where borrowers are treated as if they have a regulated credit agreement, either by requirement or voluntarily, firms should be able to demonstrate they are meeting these standards.

– Policies and procedures are clear with adequate information to support staff to make judgements when required.

– Systems and controls should be arranged to help with the delivery of fair customer outcomes.

– Firms should be able to accurately maintain records and be able to use such records to test whether they have delivered fair outcomes. Firms should also be able to produce customer records without gaps in a timely manner;

– Firms should be able to demonstrate forbearance and due consideration are being offered in accordance with CONC 7.3.4R (where it applies).

– Where CONC 7.2.1R applies, the firm must establish and implement clear, effective and appropriate policies and procedures for the fair and appropriate treatment of customers, who the firm understands, or reasonably suspects, to be vulnerable.

– The management of third parties should be subject to a suitable risk framework that helps ensure fair treatment of SMEs

– The FCA encourages all firms to carry out both quality assurance and customer outcomes testing for customer processes. This assurance should follow a holistic approach so that the customer’s overall outcomes are understood and these are assessed for fairness. There should be clear evidence that root cause analysis is effectively identifying opportunities to improve customer outcomes.

– Staff should receive suitable training that equips them to effectively support SME customers to receive fair outcomes during collections and recoveries.

– Senior management should receive effective MI that allows holistic oversight of SME customer treatment during collections and recoveries

– Senior managers responsible for collections and recoveries should have suitable levels of awareness and oversight of SME customer matters including treatment during collections and recoveries.

The FCA is expected to publish its review of its final findings into firms’ provision of appropriate support to borrowers in financial difficulty both during and after the COVID-19 pandemic, and next steps. This publication is currently expected on Q3 2022.

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European Parliament publishes press release on proposed new Consumer Credit Directive

On 12 July 2022, the European Parliament published a press release on a proposed new Consumer Credit Directive. These proposals are for a new Directive which will replace the EU’s Consumer Credit Directive from 2008.

The key points from the press release on the proposals are:

– it will aim to protect consumers online from credit card debt, overdrafts and loans that are unsuitable for them;

– it should cover credit agreements up to €150,000 (but Member states can implement a higher limit);

– a lighter touch regime for small value loans (up to €200), interest-free and without charge loans, or loans to be repaid within three months with minor charges;

– a creditworthiness assessment which requires information on a consumer’s current obligations or cost of living expenses. For those with thin credit files, other information can be considered (for example, non-bank lending, telecommunications and utilities bills);

– the European Banking Authority will be encouraged to published guidelines on how a creditworthiness assessment can be undertaken;

– consumers will be given clear information to allow them to make informed choices (including having all essential information in one place);

– consumers should be reminded of their right to withdraw within 14 days;

– credit advertisements should contain a clear and prominent warning that borrowing money costs money, and they should not encourage consumers who are over-indebted to apply for more credit; and

– overdrafts and credit overrunning products should be regulated.

Parliament negotiators will now talk with both the European Council and Commission on the final shape of the rules.

Whilst the United Kingdom is no longer a Member state, and already has in place many of these protections, it is likely that HM Treasury’s commitment to review the consumer credit regulatory regime will include looking at what is happening in the European Union (but, of course, the United Kingdom does not have to follow those proposals).

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FCA urges consumers struggling with price rises to seek help

On 6 July 2022, the UK Financial Conduct Authority published a press release urging consumers struggling with rising prices to seek help from their lenders. This press release follows the publication of a recent ‘Dear CEO’ letter, and press release, to consumer lenders.

The FCA and MoneyHelper are urging consumers to:

– contact their lenders if they are struggling to make their payments;

– contact MoneyHelper if they are worried about money

The FCA and MoneyHelper have also published five top tops:

– open up and talk to someone about your challenges

– work out your debts

– prioritise your debts

– shop around for affordable credit

– set a budget

This press release is in a long line of financial difficulty communications from the FCA. The FCA is expected to publish its review of its final findings into firms’ provision of appropriate support to borrowers in financial difficulty both during and after the COVID-19 pandemic, and next steps. This publication is currently expected on Q3 2022.

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Financial Conduct Authority warns businesses to stop misleading credit adverts

On 6 May 2022, the UK Financial Conduct Authority published a press release and a ‘Dear CEO’ letter to consumer credit firms telling them to stop using misleading terms in their advertising.

The FCA has written to almost 28,000 consumer credit firms “warning them not to use terms such as ‘no credit check loans’, ‘loan guaranteed’, ‘pre-approved’ or ‘no credit checks’ when marketing loans”. The FCA’s concern is that firms are giving consumers a misleading impression that they will automatically get a loan.

The FCA’s ’Dear CEO’ letter says:

– it expects authorised firms who are issuing and/or approving consumer credit financial promotions to “ensure that all communications of financial promotions are clear, fair and not misleading and otherwise comply with the rules set out at CONC 3. This includes ensuring that those to whom a financial promotion is addressed, or at whom it is directed, understand the nature of the firm’s regulated activities”;

– it has identified a number of financial promotions including phrases like “‘no credit checks loans’, ’loan guaranteed’, ‘pre-approved’ or ’no credit checks’” (some of which could lead consumers to believe that there are no credit checks);

– some firms promoting high-cost short-term credit have failed to include the late payment warning under CONC 3.4.1R;

– whilst the FCA is aware that some advertising media “might appear to pose challenges for firms in meeting” the FCA’s requirements, those rules are “media neutral” and the FCA considers it possible to comply (but it is relaxed on some minor changes to the warning for platforms which do not accept logos);

– some promotions have failed to include a representative APR; and

– certain promotions by credit brokers fail to state they are brokers and not lenders (as required by CONC 3.7.7R).

The FCA also reminds firms of the requirement to comply with the codes published by the Advertising Standards Authority.

Whilst the FCA says the ’Dear CEO’ letter applies to credit brokers and firms providing high-cost lending products, it has clear read-across to other consumer credit products.

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Advertising Standards Authority publishes replacement ruling that credit financial promotion was irresponsible

On 11 May 2022, the Advertising Standards Authority published a replacement ruling deciding that a radio advertisement for the online shopping provider Very was irresponsible.

The radio advertisement “featured a woman who stated, “My Bella is logo mad. I tell you what, she’d rather go to school in her socks than in trainers that aren’t Adidas or Nike. But, I wanted to treat her, so I went to Very and got all the stuff she wanted, and I was able to spread the cost. This was a really big year for Bella, and I want her to smash it …”, followed by a voice-over that stated, “With Very Pay, you have a choice of ways to pay for this very big school moment. Life is this very moment””.

The Advertising Standards Authority decided that the advertisement “pressure on parents to purchase branded shoes or other expensive designer items, on the basis they could play a significant role in their child’s success at school” and that “branded shoes, in and of themselves, were not a necessity in the same way that school shoes were more generally”. It also decided that the advertisement’s “messaging explicitly connected the use of a form of credit to buying more expensive goods, such as branded goods, and played on the anxieties parents might feel about their children starting or returning to school”.

The Advertising Standards Authority therefore concluded that the advert breached BCAP Code Rule 1.2 (on responsible advertising) because it “irresponsibly encouraged the use of credit to finance spending on expensive branded goods”.