Category: Consumer credit

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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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FCA speech on supporting customers through tough times

Earlier today, on 23 March 2022, Brian Corr, Interim Director of Retail Lending at the UK Financial Conduct Authority, delivered a speech to Credit Summit 2022 on the FCA’s priorities for credit regulation.

The key points from Mr Corr’s speech are:

– Consumers are “facing significant pressure from the rising cost of living” and the credit industry will need to “respond again to these new circumstances – and be ready for future challenges when they come“.

– The FCA’s key focus will be on “the outcomes consumers get from credit markets, underpinned by our more adaptive, more assertive, and more innovative regulatory approach“.

– The FCA needs “credit markets that are innovative, competitive, and focused closely on delivering the right outcomes for the consumers they serve“. Credit “matters greatly for consumers” but “also brings significant potential for harm – so firms needs to be cautious and diligent“.

– Firms should focus “ever more closely on delivering the right outcomes for their customers“.

– The proposed consumer duty is “intended to be flexible to allow us and you to respond to circumstances. That means you don’t need to wait for us to give detailed rules – you can get a head-start now by making sure you have the right mindset, culture and data in place, and looking for gaps between where you are now and where you’ll need to be“.

– Firms need to understand their customers and how they’re affected  by the products and services firms provide. Products must be suitable. Information must be clear and transparent so customers can properly assess what is being sold. Firms need to be responsive.

– The FCA will continue to maintain its focus on helping borrowers in financial difficulties. The FCA is “running a comprehensive programme on how borrowers in financial difficulty are treated so that we can ensure those who need help are getting it“. The FCA expects to issue a full report in “the second half of 2022“.

– There is ongoing work to help people who struggle to access credit.

– The FCA has “seen nothing to indicate that FOS’ approach to assessing affordability complaints, including loans involving relending, is out of line with our expectations. Our own experience is that firms have too often failed to meet our expectations on affordability, including relending. We see no case for lowering these standards – we won’t help consumers one bit by making it easier for firms to lend them money that they can’t pay back“.

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FCA publishes final report on strategic review of retail banking business models 

On 20 January 2022, the UK Financial Conduct Authority published its final report following its strategic review of retail banking business models, together with a webpage and press release.

This report follows the FCA’s progress report from June 2018.

The key points from the final report are:

– large banks have a strong position but are facing challenge from others;

– low levels of consumer engagement have historically contributed to high barriers to entry and expansion;

– digital challenges have rapidly gained a share of the personal current account and business current account markets

– competition in the mortgage market has increased (causing yields to come down)

– yields for consumer credit firms have fallen too (particularly on unarranged overdrafts);

– large banks did proportionately more micro-business lending under the government schemes than most other banks; and

– increased competition and innovation have improved outcomes for many consumers and some small businesses.

The FCA says it will be “discussing the points raised in our 2022 Final Report with firms and consumer organisations but are keen to hear from other stakeholders”. The FCA has invited written submissions by 31 March 2022.

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Government publishes consultation on regulation of unregulated Buy-Now Pay-Later

On 21 October 2021, the UK Government published a webpage and a consultation on the proposed regulation of unregulated (or, more accurately, exempt) buy-now pay-later (often called BNPL) agreements.

This consultation follows the recommendations set out in The Woolard Review, and the Government’s announcement on 2 February 2021 that it intended to bring unregulated interest-free BNPL products into regulation.

The consultation asks a number of questions and sets out some of the Government’s thoughts on how the regulatory regime may work for BNPL agreements.

The deadline for responding is 6 January 2022.

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FCA publishes updated information sheets (to be used from 25 October 2021)

On 24 March 2021, the UK Financial Conduct Authority published updated consumer credit information sheets for arrears and for defaults. These new information sheets must be used from (and including) 25 October 2021. The current information sheets should continue to be used up to (and including) 24 October 2021.

For copies of the new information sheets, please visit: https://www.fca.org.uk/firms/information-sheets-consumer-credit.

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FCA publishes website reminding consumer credit firms of Brexit changes

On 13 April 2021, the UK Financial Conduct Authority published a webpage reminding consumer credit firms that:

– Brexit changes to pre-contractual information (a final ‘au revoir’ to the SECCI and ECCI!); and

– information for firms subject to CONC 2.7.2R(4)(a),

must be implemented by 31 May 2021.

The end of the transitional provisions mean the post-Brexit disclosures must be used from 1 June 2021.

If pre-contractual information (formerly the SECCI or ECCI) disclosed under Section 55(1) of the Consumer Credit Act 1974 is non-compliant then the agreement is unenforceable without the Court’s permission (see Sections 55(2) and Section 127(1)(za) of the Consumer Credit Act 1974).

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FCA publishes extended finalised guidance: ‘Cancellations and refunds: Helping consumers with rights and routes to refunds’

On 1 April 2021, the UK Financial Conduct Authority published a press release and extended finalised guidance (aimed mainly at insurance providers, and credit and debit card providers) on helping consumers with rights and routes to refunds.

The FCA had published finalised guidance in October 2020, but this was due to lapse on 2 April 2021. The extended finalised guidance takes effect from 2 April 2021 and, unlike the earlier guidance, “remains in place during the exceptional circumstances arising out of Covid-19 until varied or revoked”.

The guidance for credit card and debt card providers says:

– The FCA expects credit and debit card providers to handle section 75 and chargeback claims “in a reasonable timescale”, and FCA reminds firms of their obligations to treat customers fairly.

– If there are delays in processing claims, the FCA expects firms to clearly explain the reason for the delay.

– If a credit or debit card provider declines a consumer’s section 75 or chargeback claim, the FCA expects they should “explain the reasons for this clearly and fairly and explain any further options that the customer might have. This might include checking to see if they are covered under a policy of travel insurance, including policies held as part of a packaged bank account”.