FCA calls on insurers to take action
Fair value data published

Published 27 November 2023

Motor insurers selling GAP policies will find the recent FCA study and publication particularly significant. In a letter to insurers, the FCA warned, more action was needed to guarantee positive consumer outcomes, especially considering new Consumer Duty. A reminder was sent by the FCA to all insurance companies outlining its expectations to ensure products offer fair value to their customers as they found evidence that some GAP products might be failing in this area. The FCA released its most recent insurance Value Measures Data (Jan-Dec 2022), which has brought to light potential concerns regarding the value of GAP products for customers. Based on this data, it is evident that only 6% of premiums paid by customers for GAP insurance are actually paid out in claims. Furthermore, the FCA has identified instances where certain firms have allocated as much as 70% of the insurance premiums’ value in commission to parties within the distribution chain, including motor dealerships. GAP insurance providers have been instructed by the FCA to demonstrate that their customers are receiving equitable treatment. Failure to do so within three months will result in intervention by the regulatory body. Matt Brewis, Director of Insurance, FCA said: ‘This is an early signal of the work we’ll be doing under the Consumer Duty. ‘Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided…If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.’ In 2021, insurers were required to guarantee fair value in their products, necessitating the submission of periodic Value Measures Data to the FCA. The most recent publication of this data is now available. Please see the latest insurance Value Measures Data. Over the past year, the FCA has implemented supervisory measures against companies that have demonstrated the following: the continued sale of products not providing fair value paying significant amounts of commission to third parties where it was not clear how those commission levels had been assessed as being consistent with fair value discriminatory pricing practices undervaluation of motor claims failure to implement general insurance pricing practices rules weak identification of vulnerable customers poor business interruption claims handling instances of very long waiting times/settlement delays. The FCA confirmed in their Dear CEO, Insurance Market Priorities 2023-2025 that firms should enhance efforts in effectively showcasing the delivery of fair value, encompassing the justification of prices and commission levels. They also confirmed they will intervene to ensure their objectives are achieved in cases where firms do not meet expectations.

Motor finance lenders under the spotlight?
Key developments in the sector

Published 27 November 2023

Motor finance lenders could be forgiven for feeling under the spotlight from the Financial Ombudsman Service, Claims Management Companies, claimant law firms and the Court. James Dipple-Johnstone, Deputy Chief Ombudsman, said at a conference that they had 9,000 motor commission complaints. There’s seemingly no sign of it slowing, so where are we at? THE OMBUDSMAN There are four key developments: Expectation letters have been issued to lenders and professional representatives. A blog has been published on motor commission complaints. Re-organisation of teams into specialist teams (including a team dealing with irresponsible lending and motor commissions) for consistency and operational efficiencies. Adjudicator decisions have been issued to firms generally upholding complaints where there’s is a discretionary model (based on purported breaches of CONC 4.5.2G and Principle 6). But we’ve not seen any final decisions yet. We suspect the drive by the Ombudsman Service is to get more lenders into a similar position (an adjudicator decision and detailed submissions in response). The aim of such approach may be to reduce the risk of a successful judicial review of any final decision. But given the focus on motor commissions, we expect a final decision soon. COUNTY COURT The Ombudsman Service’s position can be contrasted with the Court’s position. In our experience of acting for a number of motor finance lenders, it seems lenders are generally winning around two thirds of claims which go to trial. Seemingly Courts are more likely to dismiss a claim where commission was fixed. But even where the Court has found in a customer’s favour, we’re not aware of the Court awarding rescission. Instead, the Court will often award (at the most) the commission plus interest. BARINGS – ‘GROUP’ CLAIMS IN BIRMINGHAM So far, there’s no binding decisions from the Court on motor commissions. However, Barings Limited have brought claims against eight lenders for multiple claimants (one lender having nearly 2,000 claimants). Barings applied for (a) the claims to be transferred to the High Court and (b) for them to be managed together with lead or test cases. The Court dismissed both applications so (subject to any successful appeal) the claims remain in the County Court, will be split up and transferred to the relevant County Court hearing centres. This means those cases will now process in the normal way. WHAT’S NEXT? With no binding decision from the Court, any final decision from the Ombudsman Service or any public announcement from the FCA, the status quo is likely to remain for now with lenders robustly defending their positions. However, we expect there will be some developments in around six to twelve months which should clarify the position.

The collection payment journey
Improving collection rate efficiency

Published 27 November 2023

When exploring how to maintain collection rate efficiency, businesses can be overwhelmed with challenges. For many, limited payment options, shifting consumer behaviour, and the economic impact on payment habits are prominent stumbling blocks. Let’s explore these difficulties and how Payment Solutions Providers (PSPs) can support businesses in improving collection rates and streamlining the payment journey. DATA When payments are unsuccessful, businesses often find themselves in the dark, unsure of why the transaction failed or how to rectify the problem. This can lead to a frustrating and time-consuming process for both businesses and customers. By partnering with PSPs who provide comprehensive data analytics on customer payments, such as payment decline codes, businesses can gain deeper insight into the reason behind unsuccessful collections. A data-driven approach enables businesses to identify the root causes of payment issues and implement strategies to boost success rates. CONSUMER BEHAVIOUR AND PREFERRED PAYMENT OPTIONS Customer payment method preferences are constantly evolving, and businesses must adapt to these changes – understanding how customers prefer to make payments is crucial for optimising collection rates. Limited payment options can be a significant barrier to successful collections. Businesses can address this by partnering with PSPs who offer a variety of payment options. For example, offering Open Banking alongside traditional payment methods provides greater flexibility for customers, as well as boasting up to 97% authorisation rates for businesses, surpassing the rates of credit or debit card transactions. Partnering with PSPs who offer cost-effective Open Banking payments, alongside an array of other options, can be a key catalyst for businesses in streamlining their collection process. By staying attuned to customer behaviour and adapting to their needs, businesses can ensure a streamlined payment experience and ultimately improve collection rates. ECONOMIC IMPACT Changes in the UK economy have had a profound impact on how people make payments, with up to 95% of the population expressing their concerns about the cost-of-living crisis. Rising costs alongside economic fluctuations are influencing customers’ ability to make timely payments. Businesses should work with PSPs who can help them adapt to changing customer needs, such as using data to identify optimal times to take card payments. By doing so, businesses can adapt to customers’ evolving financial situations and maintain consistent collection rates by providing flexible payment methods. FINAL THOUGHTS By understanding transaction data, offering an array of payment options, and adapting to changing payment method preferences, businesses can embrace solutions that enhance collection rate efficiency. Be sure to speak with your existing PSP to dive into the aforementioned strategies, or connect with key partners in the ecosystem who offer a tailored approach to payment solutions.

Embracing Consumer Duty and automation
A win-win for financial institutions

Published 27 November 2023

Automation has become an integral part of nearly every facet of our lives. One area where automation is making significant strides is in the realm of the Consumer Duty. Automating these responsibilities not only enhances the customer experience but also brings a multitude of benefits to businesses. AUTOMATION IS CHANGING THE CONSUMER DUTY LANDSCAPE The introduction of the Consumer Duty by the Financial Conduct Authority stands out as the most substantial regulatory overhaul in the last two decades, signifying a fundamental shift in consumer protection standards. This innovative framework mandates financial institutions, encompassing banks, insurers, and investment firms, to prioritise delivering favourable outcomes for their customers and actively prevent foreseeable harm. These regulations require companies to provide clients with clear, understandable information, offer products and services that genuinely benefit them, and provide support when required. With a strong emphasis on responsive customer service, the ultimate objective is to ensure that using a product, resolving an issue, or exercising the right to switch or cancel is as smooth as the initial purchase. The advent of the Consumer Duty is poised to revolutionise the financial services landscape, reshaping how businesses interact with their customers and paving the way for an ethical and customer-centric industry. THE KEY TO SUCCESS Going beyond the realm of obligatory regulation, a conscientious embrace of the Consumer Duty, further optimised through automation, can produce significant advantages for financial institutions. This approach not only upholds their reputation but nurtures enduring customer loyalty and stimulates economic expansion. Clients who experience authentic support during trying circumstances are more inclined to become loyal patrons, rendering it a strategic necessity for banks and lending institutions to incorporate these principles. THE RIGHT SOFTWARE IS ESSENTIAL The implementation of the Consumer Duty measures hinges on the discovery of the appropriate financial software solution that automates and simplifies consumer-oriented processes while enhancing cost efficiency by reducing time spent on manual tasks. Given the firm establishment of the Consumer Duty, businesses are compelled to explore software solutions that come equipped with the essential features for regulatory adherence. The pivotal factor is adaptability, enabling companies to customise payment arrangements and decision criteria to match the unique requirements of each customer. This guarantees that the customer remains the focal point of every business decision. The Consumer Duty is not just a regulatory obligation; it’s an opportunity for financial institutions to create a brighter future for themselves and their customers. By embracing these principles and harnessing the power of automation, institutions can safeguard their reputation, foster loyalty, and contribute to business growth. In this new era of responsible banking, it’s not just about compliance; it’s about redefining the relationship between financial institutions and the people they serve.

Artificial Intelligence
How AI can help your dealership make more sales

Published 27 November 2023

Artificial intelligence (AI) is set to shake up the car buying process. With AI at your side, get ready to increase sales and improve operational efficiencies across your business.   CHAMPION YOUR ONLINE OFFERING Marsh Finance spoke to three of our partners, who overwhelmingly agreed that customers now favour online car purchases versus in-store, with some purchasing a car without even viewing it. AI can help you deliver on this rising customer preference, through fully automating the customer journey. Customers can engage in genuinely lifelike conversations with artificial intelligence through chatbots and virtual assistants, taking customer experience to unparalleled levels. PREDICT CUSTOMER TRENDS AND BEHAVIOURS The ability to meticulously track and decipher buyers’ ever-evolving patterns and behaviours, thus facilitating customer segmentations, serves as the gateway to unlocking unparalleled revenue growth and operational efficiencies. Simultaneous data analysis and tracking can bring vital information to car dealerships, which can be used to drive sales and inform future marketing decisions. OVERHAUL OF YOUR CRM Automation is the future, and AI provides the means to champion automation. Daily, it’s easy to feel overwhelmed with admin tasks. By adopting AI, you can create automatic replies to emails and automate operational processes. A survey undertaken by People.ai in conjunction with Harvard Business Review found that one company saw a 15% increase in bookings per sales rep after automating manual Customer Relationship Management data entry. Cutting through the manual processes and replacing them with AI could transform your business’s efficiency. HOW TO GET STARTED Here are some tips to get started with using AI in a car dealership: Define your objectives: Determine your specific goals and objectives for implementing AI in your dealership. Whether it’s optimising sales or enhancing customer experience, having clear objectives will guide your AI integration strategy. Assess your data infrastructure: Evaluate your existing data infrastructure and ensure it can support AI applications. Identify the data sources available, such as customer data, sales records, service histories, and website interactions. Start small and prioritise: Focus on a specific area where AI can deliver immediate value. Starting small allows for more straightforward implementation and showcases tangible results. Explore AI solutions and partners: Look for reputable vendors or partners specialising in AI for the automotive industry. Assess their expertise, track record, and the suitability of their solutions to your dealership’s needs. Train and educate your team: Provide training and education to your staff to foster AI adoption and ensure smooth integration. Embracing AI is an iterative process. Start with small steps, learn from the outcomes, and continuously refine your AI strategies based on feedback and insights gained along the way.

Pioneering the future of lending
Balancing opportunity and responsibility

Published 27 November 2023

Navigating the dynamic consumer credit landscape requires more than just adequate information. It calls for in-depth insights into regulation and innovation, paired with a strong understanding of the consumer and their circumstances. THE REVOLUTION OF OPEN BANKING AND THE RISE OF CONSUMER-CENTRIC STRATEGIES Open Banking is pivotal in recent technological advancements, revolutionising lending by enhancing transparency, improving risk assessment, and delivering much more personalised products and services. Technology is vital in helping financial institutions adhere to the FCA’s new Consumer Duty. With millions of customer interactions, technology, such as AI analytics, automates compliance monitoring, detects vulnerable customers, provides real-time guidance to agents, improves efficiency, and allows continuous refinement of processes. It can ensure fair treatment of customers and help organisations meet regulatory requirements effectively and confidently. QUALCO’S INNOVATIVE APPROACH QUALCO is dedicated to delivering AI-driven solutions that modernise and enhance credit and financial operations. We are committed to pioneering the economic future by tapping into the power of technology, data and industry expertise. Central to our efforts is QUALCO 360, our suite of pre-built systems designed for managing Performing Loans, Non-Performing Loans, Non-Performing Exposures, and credit portfolios. Enriched with analytics, machine learning capabilities, and digital engagement tools, our constantly expanding solutions ecosystem enables businesses to swiftly adapt their operational activities to meet the ever-changing demands of customer behavior. QUALCO 360 helps manage debts and payments across all sectors, including banking, retail, utilities, and various businesses. It covers the entire credit process, from regular payments to early missed payments and legal actions for recovery, for both secured and unsecured loans.

The threat of conversion fraud
A problem for the motor finance sector

Published 27 November 2023

After conducting vehicle provenance checks for the last twelve months, we found over 600,000 vehicles advertised on Auto Trader which already had a live finance agreement. Were your vehicles in that list? Are your assets protected? If your data isn’t on our database you are exposed to greater risk. Over a twelve month period we looked at private and trade adverts and found that, across 240 lenders, over 600,000 vehicles that were still in finance agreements. This sample was for less than one tenth of the whole finance industry, suggesting an even bigger problem throughout the sector. At Auto Trader, we are surfacing existing finance agreements to potential buyers to avoid conversion fraud, but if your data isn’t on our database this information won’t be provided. To avoid the costly and time-consuming processes of repossessing the vehicle or outstanding funds, simply contact Auto Trader to set up a data supply feed today. The process is simple and free of charge. We can accept data from your preferred agency (i.e., HPI), meaning little work for you. The threat of conversion fraud is real and can result in: loss of assets loss of income wasted compliance team time Avoiding this risk is vital for any small business. We’re here to help. Contact us today by emailing karan.ridgard@autotrader.co.uk.

Engaging on the FCA’s Product Sales Data consultation

Published 24 November 2023

Anyone in consumer credit will likely know about the FCA’s recent consultation on Product Sales Data (PSD) reporting. The FCA has stated that the proposals aim to collect further data from the market to inform their supervisory and policy approach. The proposals would mean data would be provided to the FCA on every loan issued across credit cards, motor finance, etc. That includes information about every customer. The FCA themselves say that 120 million credit agreements currently cover around 40 million individuals. They are also requesting “back book” data on every agreement that is currently live. This is a massive amount of data for the regulator to hold. We have concerns across a range of areas The CCTA has concerns not only about the regulatory burden that reporting on this scale will place on firms (with smaller firms likely to be disproportionally affected) but also if it is right or safe for a financial regulator to hold this level of data. This clashes with the ideas that are developing in financial services around data protection. We continue to talk about data minimisation, seeking out and keeping only the personal information required. If these plans go ahead, the level of data the financial regulator will hold about the UK public and their intimate financial details will be a step change. As part of our advocacy work on the issue, we have been raising these concerns with various stakeholders since the publication of the consultation and directly with the regulator. That work has included journalists who cover financial services and regulation. We briefed the Sunday Times about the proposals and what they would mean for consumers. Along with our briefings, we supplied comments about the impact the data reporting would have on alternative lending. This week, we saw a piece published in the Sunday Times, which can be read here. (behind paywall). It picks up on the main CCTA concerns about the proposals and the additional burden likely to fall on small firms. The association is also quoted. The piece was also picked up the CityAM, providing some extra coverage of our arguments. More to be done The official consultation has now closed. However, as part of our continuing work on the issue, we ask members to review the more detailed proposals. Please share concerns in terms of what is workable. We will be looking to raise these directly with the FCA in the coming weeks.

CS Lending Summit – challenges in consumer credit

Published 17 November 2023

In a post-pandemic world, there has been a shift in the way people attend industry events. So, it was great to participate in the CS Lending Summit operated by Credit Strategy. For us, there was interest in how Consumer Duty continues to be a mandatory discussion point and how there is more focus on access to credit. CS Lending Summit has long been a chance to review the lending agenda and look ahead. This was no different as we heard about some of the significant issues. There was a great session on what is happening regarding the use of credit, especially during this period of economic volatility. Consumer Duty is high on today’s agenda. I was delighted to be asked to contribute as a speaker and to chair the Consumer Duty session. Consumer Duty has been a priority for the Consumer Credit Trade Association and our members for the last few years. Discussions about what the Consumer Duty might be in practice, consultations and implementation programmes have been challenging. It was interesting to hear from various firms about how they approached this matter. The examples included considerable changes to credit products alongside increased communication and engagement. Consumer Duty is not just a matter for today’s agenda. We know it will be with us for the foreseeable future. One of the questions I wanted to ask is what the next phase might look like. Everyone can point to issues within their sector that might be reviewed through this new prism. We have already seen the FCA intervene with the banks regarding passing on interest rate rises to savers. There are several other areas where the FCA has started to talk about whether a particular approach might not fit with Consumer Duty. I think that we will see more of this. Will this be a way to pick up on issues the FCA feels are untidy and make changes without specific rules or consultation? Access to credit is always on our agenda. We are always interested in discussions about access to credit. Our founding members formed our association over a century ago to push out new credit products to expand access to communities underserved by mainstream lenders. So it was interesting to hear Steve Brigham of Moneyline talking about their experience as the “lender of last resort”. Many of the issues they face seem very familiar. However, I think it is fair to say that many of our members tend to serve a higher-income grouping. Anyone with a view of what is happening can see that illegal lending is increasing. The research from Fair4All estimates that about three million people have used loan sharks over the last three years. We know that the Centre for Social Justice came up with just over a million people currently involved with illegal lenders. All the panellists picked up on the growth of Buy Now Pay Later. Expanding outside of FCA regulation. By now, we have enough research to suggest that BNPL has filled part of …

Supporting Talk Money Week

Published 09 November 2023

We are now well into Talk Money Week 2023 run by the Money and Pensions Service (MaPs) which we are supporting. The purpose of Money Talk Week is to break the taboo of talking about money and encourage individuals to speak about their finances, something we still seem to struggle with here in UK. It is an annual campaign that organisations of all kinds can get involved with. Despite the current spotlight on household finances, talking about money remains a taboo. People find it difficult to open up about money worries, and don’t access the expert advice available to help them find a way forward. This is a shame because the research shows that when people do talk about their finances, they make better and less risky financial decisions, and feel less stressed and anxious. By talking more about money, we can build financial confidence and resilience to face income shocks, life events and whatever the future holds. This year MaPs are encouraging consumers to do one thing that could help improve their financial wellbeing- it could be checking your pension or talking to your child about pocket money. Think about what your one thing could be. It’s no secret that many consumers are currently struggling with the cost-of-living pressures. It keeps coming up in the press and also got a mention in this week’s Kings speech. As we head into the winter months which often come with an increase in spending, lenders will need to think about how they can proactively engage with their customers to support them if required. Part of that is about making sure that individuals know where to turn to for advice. The Money Helper website contains a huge range of information, tools, and guidance about all aspects of money so is a great place to start. Here at the CCTA we are always keen to support external campaigns that fit with the vision of our association. At the heart of the CCTA is a commitment by our members to lend responsibly. It is important that consumers should only borrow when it is in their best interests to do so. This is also part of a wider debate about the need for access to credit. When used appropriately credit is an important tool to help individuals manage their finances. We need to ensure there are range of products that meet the needs of consumers to help them manage their finances effectively.

Regulation of BNPL – an update

Published 06 November 2023

We think the FCA announcement on Buy Now Pay Later (BNPL) activity is interesting for several reasons. First, it is fascinating that over 1 in 4 adults had used BNPL in the second half of last year. This raises some critical questions about the regulation of BNPL. The FCA believes about 14 million people used BNPL in the second half of last year (2022). That is about 27% of the population over six months, compared with 17% in the preceding twelve months. If we want to mess around with the statistics, then that suggests that we are heading towards doubling earlier figures. BNPL increases – meanwhile, credit supply drops I think that points to a tangible need for credit when the credit supply for many communities is withdrawn. We know from our work that we have seen a reduction, especially in working-class communities. Home-collected credit is a product that tens of millions of individuals have used over the last century. Over the last few years, we have seen it drop around 80%-90% in lending. That drop is due to regulatory intervention while demand remains as high as ever. Unfortunately, the consequence of that is the growth of illegal lending. Fair4All did great research in their report, As One Door Closes. They built upon the work of the Centre for Social Justice. In their study, they revealed that an estimated 1.1 million people in England use illegal lenders. Like all credit products, BNPL can deliver significant benefits for UK families. It can help close the gap when appropriately used. We need a more significant discussion about access to credit and supply and demand. The regulation of BNPL Of course, another standout is that the FCA has again used powers under the Consumer Rights Act 2015. That is because BNPL continues to be unregulated like other credit products. A more cynical observer might suggest these concerns around the contract are not the most significant issues when discussing BNPL. There are bigger matters. And for transparency, the Consumer Credit Trade Association does have members that provide BNPL products. It is a small group within our broader membership, but it does mean we hear different perspectives. From that, we know we need to have more certainty about the future of BNPL regulation. That is fair to both the lenders and the borrowers. There has been some public debate about the regulation of BNPL. How will BNPL be regulated? Should it be handled differently from other parts of consumer credit? Suppose we are considering a change of approach to regulating credit for BNPL. If we are thinking of how to control other innovative products. Then, we need to talk about a level regulatory playing field. Unfortunately, the current credit market does not work for many families in the UK.

Quick off the mark
Why consumers need self-service with a safety net

Published 18 July 2023

Digitalisation of operations is not a black and white solution, and there will always be a need for human interaction which is crucial for businesses to manage debt and arrears conversations. However, automation of processes can reduce costs, and it can positively enrich the relationship you have with your customers and provide them with more confidence to have a meaningful interaction with your business. Advantages arise on the company’s side and on the customer’s side. PROS FOR COMPANIES • Cost and Time Savings: Self-service solutions streamline processes, reducing operational costs and freeing up resources for more valuable tasks. • Improved Efficiency: Automated self-service platforms allow for faster and more efficient handling of customer requests, leading to increased productivity. • Data-Driven Insights: Self-service systems generate valuable data that can be analyzed to gain insights into customer behavior, preferences, and trends, enabling better decision-making and targeted marketing strategies. • Scalability: Self-service options can easily accommodate a growing customer base without requiring a proportional increase in staffing or infrastructure. PROS FOR THE CUSTOMER • Convenience and Accessibility: Self-service options provide customers with quick and easy access to the services they need, anytime and anywhere, without the need to wait for assistance. • Empowerment and Control: Self-service puts customers in charge of their interactions, allowing them to manage their needs independently and at their own pace. • Faster Resolutions: With self-service, customers can find answers to their queries or resolve issues more swiftly, without the need to wait for a support agent’s availability. • Personalization and Tailored Experiences: Self-service platforms can leverage customer data to deliver personalized recommendations and solutions, enhancing the overall customer experience and satisfaction. Aryza, the market leader in process automation, launched Aryza Recover as a digital response to COVID-19. This tool aids customers facing payment difficulties by suggesting alternative solutions like ‘breathing space’ or debt management. It enables businesses to assess customers’ ability to pay and propose suitable options. Businesses have embraced self-service solutions for managing debt, maintaining personalized experiences. Surprisingly, 65-80% of consumers using self-help methods set up payment plans. However, some customers prefer agent assistance, necessitating systems that offer the same benefits. Personalized customer service focusing on individual needs is crucial. For self-service customers, Aryza offers a hybrid “agent-assisted” approach. Consumers transition into agent mode when struggling, flagged as vulnerable, or desiring human interaction. Automated solutions outperform traditional debt collection methods, with over 30% of consumers engaging and 20% making payments when four or more payments behind. In the current era, digital systems combine efficiency, intimacy, and operational automation, preserving customer relationships. Integration is quick, achieving significant cost savings while maintaining customer satisfaction.