Category: FCA

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FCA makes rules and guidance extending pause for handing complaints about motor finance discretionary commission arrangements

On 24 September 2024, the UK Financial Conduct Authority (the FCA) published a press release and Policy Statement 24/11: ‘Extending the temporary changes to handling rules for motor finance complaints’ (PS24/11). PS24/11 effectively implements the changes proposed by Consultation Paper 24/15: ‘Extending the temporary changes to handling rules for motor finance complaints’.

The changes to DISP Appendix 5 come into force 26 September 2024.

The key changes are:

– the pause on the requirement for firms to provide a final response to DCA complaints within 8 weeks, giving complainants the right to go to the Financial Ombudsman (which was due to end on 25 September 2024) will be extended to 4 December 2025 (see DISP App 5.2.1R(2));

– there are new requirements on keeping consumers informed about the pause (see DISP App 5.2.5AR to DISP App 5.2.5CR);

– the timeframe for consumers who receive a final response on relevant complaints to decide whether to refer their complaint to the Financial Ombudsman is extended to 29 July 2026 (at the earliest) (see DISP App 5.2.9R(3)); and

– requirements to maintain and preserve relevant records will remain in place until 11 April 2026 (see DISP App 5.3.1R(2)(b)).

There are some interesting points for firms:

– the FCA makes it clear that PS24/11 is relevant to “motor finance providers” and “motor finance credit brokers, including motor dealers“;

– the FCA’s view is that neither the original pause, nor these changes, “prevent consumers or their representatives from … taking legal action“;

– the ongoing judicial review (which is due to be heard between 15 and 17 October 2024), and the Court of Appeal cases dealing with commissions (where judgment is reserved), are relevant to the FCA’s decision making; and

– because “many motor finance agreements involving DCAs were made, or ended, more than 6 years ago, it is likely that the 3-year rule [on time-barring] will be more relevant for consumers“.

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FCA consults on further pause for handing motor finance discretionary commission arrangements

🚨 Earlier today, on 30 July 2024, the FCA published a consultation paper entitled ‘CP24/15 – Extending the temporary changes to handling rules for motor finance complaints’ and a press releaseproposing to extend the current pause to the time that firms have to respond to motor finance complaints about discretionary commission arrangements.

📆 The FCA says it proposes to set out its next steps in May 2025 (and not September 2024).  By then, the FCA says it’ll have analysed: (a) the data it has collected from motor finance firms and (b) the outcome of Barclays’ judicial review of the Financial Ombudsman’s decision to uphold a DCA complaint.

✋ The proposed pause to 4 December 2025 will allow the FCA to (for example) consult on a redress scheme or ask firms to deal with motor finance complaints relating to discretionary commission models.  Firms will not be required to respond to such complaints before 4 December 2025.

📝 The FCA also proposes to give consumers until the later of 29 July 2026, or 16 months from the date of their final response letter, to refer any complaint to the Financial Ombudsman Service.

👨‍💻 The deadline for responding to the consultation is 28 August 2024.

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Financial Conduct Authority publishes principles for developing credit information industry-led remedies

On 20 May 2024, the UK Financial Conduct Authority published principles for developing credit information industry-led remedies.

In December 2023, the FCA published its final report on the credit information market study. The FCA proposed that various remedies should be introduced by industry-led work (including input, where necessary, from the FCA).

The FCA’s final report expects the Credit Reporting Governance Board (the CRGB) will seek input to progress and implement industry-led remedies. The FCA has therefore published the following principles pending the CRGB’s formation:

1 Seek and consider input from all relevant stakeholder cohorts (including, but not limited to, stakeholder cohorts represented on the Interim Working Group (the IWG)).

2 Proactively consider how any steps or decisions might negatively affect the CRGB’s ability to decide longer-term policy or implementation options.

3 Consider how potential approaches or solutions align with the CIMS proposals, the emerging CRGB objectives being developed by the IWG and the Consumer Duty.

4 Specifically consider the impact on different firms (including small businesses) and consumers, including by taking into account effects on:

4.2 customers with characteristics of vulnerability, and

4.1 financial inclusion

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FCA publishes data on Mortgage Charter uptake

On 22 March 2024, the UK Financial Conduct Authority published data on firms who have signed up to the Government’s Mortgage Charter.

The key points are:

– There are 48 signatories to the mortgage charter (making up around 90% of the mortgage market).

– The data suggests at least 760,000 accounts benefitted from one or more of the options set out in the Charter.

– Around 90,543 mortgage accounts have temporarily reduced their monthly payments under the FCA new rules.

– Between July 2023 and January 2024, the monthly payments on around 123,000 accounts were reduced as people switched to temporarily paying interest-only or extended their mortgage term (making up around 1.4% of the regulated mortgage contracts). Only 103 term extensions were reversed.

– The data says 67 properties were repossessed within 12 months of missing the first payment. Firms say these were for customer-driven reasons.

– It is difficult to estimate the total number of borrowers who have taken up one or more of the options set out in the Charter.

– The FCA reminds firms that the options under the Charter form only part of the support. All borrowers can contact their lender and discussion their options (see, for example, the industry’s ‘Reach Out’ campaign. This support could include contract variations or appropriate forbearance measures.

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FCA publishes finalised guidance on financial promotions on social media

Earlier today, on 26 March 2024, the UK Financial Conduct Authority published a press release and finalised guidance on financial promotions on social media.

There’s much in the guidance but some headline points for now are:

– The FCA has repeated its guidance that it expects financial promotions to be standalone compliant. While promotions of complex financial products “might require additional supporting information or disclosure“, the “initial promotion needs to remain compliant in and of itself“.

– The requirement for prominence in the FCA’s handbooks is “media-neutral“. Firms should consider the existence guidance on prominence. Firms should ensure information which is required to be displayed prominently “is displayed without needing click-through or any other optional action to view it“.

– Social media may not always be appropriate to promote financial products.

– There are some examples of how an unregulated BNPL financial promotion could be published.

– Firms are reminded of the consumer duty and how it could apply to social media.

– There is a real focus on influencers (or finfluencers).

– There’s guidance for firms on what ‘in the course of a business‘ means. The FCA makes it clear that this includes any level of commerciality. There are also some examples in paragraphs 4.20 to 4.27.

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FCA publishes a portfolio letter to consumer lenders

On 20 March 2024, the UK Financial Conduct Authority published a portfolio letter to three portfolios in the consumer lending market: high-cost lending, ‘mainstream’ consumer credit lending and credit unions.

The FCA says it priorities to ensure markets function well are:

– reducing and stopping serious harm;

– setting and testing higher standards; and

– promoting competition and positive change.

For its promoting competition and positive change priority, the FCA has a focus on providing access to affordable credit. The FCA says firms should consider ways they can support customers (for example, using effective signposting) but not compromising standards. The FCA encourages firms to think about innovating and providing greater access to affordable credit.

For its reducing and preventing harm priority, the FCA says:

– firms must lend responsibility and sustainably: The FCA says it’s “more important than ever to ensure your firm makes sound affordability and credit-worthiness assessments”. Whilst the FCA has “seen some improvements, we remain concerned about sludge practices” (ie unreasonable barriers). Firms using artificial intelligence need to test its effectiveness. Re-lending most be done affordability, responsibility and sustainably.

– firms must ensure the price paid for a product or service is reasonable compared to the overall benefits: The FCA’s price and fair value requirements in consumer duty is a key development. The FCA acknowledges lending to certain cohorts can be greater and may lead to increased prices but firms should not “capitalise by increasing prices unfairly and offering products that do not provide fair value”. The fact that there is a price cap for high-cost short-term credit does not mean the cap provides fair value: it is a maximum rate.

– firms must support customers in financial difficulty: The FCA says “many firms were not considering or taking sufficient account of consumers’ individual needs or circumstances or providing appropriate tailored forbearance”. The FCA encourages firms to ensure it is acting in compliance with its rules and the Tailored Support Guidance (and new changes are likely to happen by the end of June 2024).

– firms must handle complaints and redress requirements effectively: The FCA says it remains “concerned” and expects “to see more widespread improvements in how firms handle complaints”. The FCA is currently processing a complaints multi-firm review involving a small number of high-cost lenders.

– firms must have appropriate systems and controls in place to mitigate risks of financial crime: The FCA acknowledges that the current market conditions increase the risk of illegal money lending and domestic financial abuse. Firms should improve their processes, procedures and practices.

– firms must have robust governance practices, ensuring effective oversight and risk management: The FCA says firms must have “robust governance practices guaranteeing effective oversight and rigorous risk management protocols to identify, monitor and manage operational risks”. The FCA says there are issues across the consumer lending market but failures are “particularly acute” in parts of the credit union and high-cost portfolios.

For the setting and testing high standards priority, the FCA reminds firms about the effect of the introduction of the consumer duty. The FCA says it is not “a once and done exercise”. The FCA also reminds firms of policy changes including the proposed reform of the Consumer Credit Act 1974, the introduction of product sales data returns and changes allowing credit unions to offer hire purchase, conditional sale and insurance distribution services.

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FCA decides to investigate the use of personal guarantees given for certain small business lending

On 5 March 2024, the UK Financial Conduct Authority published a press release announcing it is investigating the use of personal guarantees given to lenders to support loans made to certain small businesses. The follows the Federation of Small Businesses making a ‘super-complaint’ to the FCA.

The FCA’s perimeter is, in fact, fairly limited for business lending. It only applies to such lending where (in broad terms):

– the borrower is an individual or a relevant recipient of credit (being a partnership of two or three persons not all of whom are incorporated, or an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership); and

– the amount of credit is no more than £25,000.00.

The FCA will:

– collect data between April 2024 and June 2024 to understand when lenders entering into a regulated credit agreement are asking for guarantees;

– review samples of firms’ policies and procedures;

– work with the Financial Ombudsman Service to monitor the level of complaints; and

– consider whether lenders need further guidance in CONC.

The FCA has also published its response to the super complaint.

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Financial Conduct Authority decides to take action on certain motor finance commission complaints

🚨 So yesterday was an interesting (and busy) day for motor finance lenders and dealers. Firstly, the FCA decided to intervene into motor finance commission complaints. Secondly, two Ombudsman decisions were published on discretionary commission arrangements entered into before 28 January 2021.

🗞️ So what happened?

✍️ The FCA published a webpage about motor finance commission complaints and a press release too.

✋The FCA has paused the 8 week deadline for responding to motor finance complaints where (a) there was a discretionary commission model in place for an agreement before 28 January 2021 and (b) the complaint was made on or after 17 November. This pause lasts until 25 September 2024.

🤔 The lack of any consultation means there are many unanswered questions. For example, what happens to letters of claim? Is there any impact on litigation cases? And what steps should firms take to investigate paused complaints (the Ombudsman has already been in touch on that!).

🕵️ The FCA is using its powers under Section 166. This means some firms will have a skilled person looking into their practices. We know from our clients that meetings are already being booked in today and on Monday.

🪧 But what has the Ombudsman done?

The Financial Ombudsman Service has issued two detailed decisions from an Ombudsman upholding complaints (and one which was not upheld). They both conclude that discretionary commission models are unfair and the customer should effectively only pay the interest at the rate at which the dealer would receive no commission.

There’s much to say on this but some initial points:

(a) It hard to reconcile that guidance and a principle meant that firms should have done significantly more than CONC 4.5.3R required (either before or after the changes in 2021

(b) The approach bears very little resemblance to our experience of dealing with hundreds of similar claims before the Court.

(c) The proposal on redress takes no account of the complexity and reality of a customer’s decision to get a car on finance.

📋 So, what next?

Given it’s fashionable to do three point slogans then mine is: reflect on the developments, prepare for next steps (including, probably, more customer communications) and clearly decide and implement your strategy.