Working hand in hand
The successful integration of AI and human expertise

Published 26 August 2024

Artificial Intelligence (AI) is transforming the collections sector by enhancing operational efficiency and customer interactions. AI can also be used to streamline processes like risk assessment and customer engagement, leading to better outcomes. It also supports agent development by automating repetitive tasks and complementing human expertise. Agents can leverage AI for real-time feedback and personalised training, continuously improving skills and performance. This symbiotic relationship ensures that innovation not only boosts efficiency but also fosters professional growth among staff. By combining AI and human expertise, the collections sector achieves greater effectiveness and adaptability. COEO UK’S CENTAUR APPROACH coeo UK employs a “centaur approach” to AI implementation, referring to the mythical horse-human hybrid. This strategy divides tasks between team members and AI, resulting in a workflow that is part human, part AI. coeo UK employs a “centaur approach” to AI implementation, referring to the mythical horse-human hybrid. Commercial director Ben Calvert explains, “We aim to augment our workforce by removing repetitive, time-consuming duties and allowing intelligence to be utilised in the best way. For instance, by automating processes such as agent audits, AI provides immediate feedback based on recorded transcripts. This allows our QA team to promptly address issues and offer personalised, data-driven training to agents.” TRADITIONAL QA PROCESS In coeo UK’s call centre, ensuring the quality of interactions is crucial for optimising customer experience. The QA team traditionally assesses call quality using a bespoke questionnaire and scorecard system called the QA portal. Specific questions evaluate calls, identifying areas for improvement. This process takes roughly fifteen minutes per call, providing a representative sample of coeo’s entire customer base. The feedback has consistently improved agent performance, turning every call into an opportunity for growth. BREAKING NEW GROUND WITH AI To enhance efficiency and accuracy, coeo UK has adopted a ground-breaking approach to scaling QA assessments using AI. AI algorithms now assess 100% of interactions, ensuring comprehensive evaluations. The QA team collaborates closely with the AI system to calibrate assessments, ensuring accuracy and reliability. This collaboration allows for the identification and resolution of issues more effectively, improving overall performance and customer satisfaction. IMPACT BENEFITS OF AI IN QA The integration of AI in QA processes offers numerous benefits, including scalability, accuracy, efficiency, and proactiveness. AI-driven evaluations reduce human errors and biases, streamline QA processes, and facilitate proactive issue identification and resolution. FINAL WORDS FROM BEN CALVERT “The utilisation of AI in QA represents a paradigm shift in the finance sector, optimising processes and enhancing outcomes for all stakeholders. By embracing AI as a complementary tool, financial institutions can unlock new opportunities for innovation and growth while preserving the invaluable role of human expertise in decision-making and customer engagement. This is how we’ve used artificial intelligence to improve our processes for the betterment of everyone, including our clients, staff, regulators, and all key stakeholders.”

Staying out of hot water
The FCA’s continued focus on financial promotions

Published 21 August 2024

There can be no doubt that the Financial Conduct Authority (FCA) sees financial promotions as a potential high-risk area for consumer harm. They are the proverbial ‘front shop’: the way in which customers become aware of different ways to finance a product. The FCA is already starting to flex its muscles on financial promotions. Firms should therefore act now to ensure they are not on the receiving end of any supervision or enforcement visits. THE FOCUS ON FINANCIAL PROMOTIONS Ever since the FCA took over responsibility for consumer credit, there has been an increasing focus on financial promotions. In May 2022, the FCA issued a Dear CEO letter. It says that the FCA “expects authorised firms issuing and/or approving financial promotions in relation to consumer credit 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”. The FCA identified a number of concerns including: customers being misled into thinking that “the lender will make no checks on credit status, whether with a credit reference agency or by other means” some promotions failing to include a representative APR when one is triggered; and promotions by credit brokers failing to state that they are credit brokers and not lenders. These messages were repeated in the FCA’s financial promotions webinar on 16 November 2022. MORE RECENT DEVELOPMENTS On 17 July 2023, the FCA published a consultation on guidance for financial promotions on social media. This led to, on 26 March 2024, the FCA publishing its Finalised Guidance 24/1: ‘Finalised guidance on financial promotions on social media’ . Some of the key messages from FG24/1 are: The FCA 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”. THE FCA’S DATA-LED APPROACH IS INFORMING THE WAY IN WHICH IT REGULATES All of this activity probably comes as no surprise given the FCA’s financial promotions data from 2023. This says that the FCA continued to increase its “intervention activity in response to poor financial promotions”. For authorised firms, the FCA says 10,008 financial promotions were amended or withdrawn following the FCA’s intervention. The FCA “remain concerned about the levels of compliance with the financial promotion rules”. THE FCA’S CASE STUDIES The FCA has a dedicated webpage on financial promotion case studies. One is on motor finance. This says the following mistakes often happen: mentioning weekly/monthly payment without a prominent representative example using an incentive statement without a prominent representative APR; and …

Shining light on an important cause
TransUnion partners with Andy’s Man Club

Published 19 August 2024

TransUnion, a global information and insights company and one of the UK’s leading credit reference agencies, has announced its partnership with Andy’s Man Club, a charity that works to eliminate the stigma around mental health by creating a judgement-free confidential space where men can be open about their challenges. This is particularly important in the Northeast and Yorkshire and Humber regions, where the suicide rate was higher between 2020 and 2022 than in anywhere else in the UK. Andy’s Man Club was chosen by the vast majority of the TransUnion UK team, who were given the opportunity to vote for a charity that the business would support for the next twelve months. Co-founded by Luke Ambler after his brother-in-law Andy Roberts died by suicide aged 23 in 2016, Andy’s Man Club offers men of all ages a judgement-free, non-clinical environment of free-to-attend peer-to-peer support groups. These are led by more than 1,600 trained facilitators, are attended by more than 4,500 men across the UK, with more groups starting up each week. We’re all looking forward to building our relationship with (Andy’s Man Club) and doing all we can to raise awareness about its work, and funds to support such a worthy cause. “Death by suicide is the biggest killer of men under 54 in the UK, with male mental health surrounded by deeply ingrained cultural stigma,” said Luke Ambler, co-founder of Andy’s Man Club. “As Andy’s family, we had no idea of his mental health struggles, and we wanted to help other men who may feel that they have nobody to talk to, or they don’t know where to get the right kind of support. We’ve built a network across the country, and we’re looking forward to expanding it to help even more men in the future.” “Andy’s Man Club is particularly close to our hearts, as one of our team members is a facilitator for the organisation and has shared the powerful and positive impact that it has had on his own life,” said James Robinson, Managing Director of Consumer Interactive at TransUnion UK. “With so many people across our Leeds and London offices having voted to support its work, we’re all looking forward to building our relationship with the team and doing all we can to raise awareness about its work, and funds to support such a worthy cause. “TransUnion UK employees have three paid leave days each year to spend on volunteering. This created a great opportunity for team members to raise awareness – and funds – by participating in the 26-mile Yorkshire Three Peaks challenge, which took place on 16 May 2024. We’re proud to say that more than 100 people signed up for the event, whilst many others supported their colleagues and the cause in other ways. “At TransUnion, we remain committed to prioritising the well-being of our employees. Mental health is a fundamental part of overall well-being, and we believe it’s important to continue encouraging education, normalising conversation and building awareness for mental health …

Forward thinking
Improving customer outcomes through open banking transaction data

Published 14 August 2024

Brandon Wallace, Product Manager at transaction data intelligence specialist Bud, explains why he believes forward-thinking lenders should use transaction data to improve outcomes throughout the lending lifecycle. Access to credit isn’t just about borrowing money – it’s about empowering people to manage their finances and navigate life’s ups and downs with confidence. In today’s regulatory landscape, ensuring that customers receive fair treatment, support when needed and clear information to make enlightened decisions are more important than ever. Consumer-permissioned transaction data via open banking can help lenders to meet regulatory expectations and drive better customer outcomes. OPEN BANKING TRANSACTION DATA DRIVES CUSTOMER-CENTRIC LENDING Being able to tailor loan products specifically to customer needs, based on real-time insights into financial behaviour is made easy though transaction data. We can gain a clear picture of customers’ financial health, from essential expenses to savings habits. This allows lenders to offer loans that are affordable with rates that make sense – reducing the risk for both parties and helping customers manage their finances more effectively. REGULATORY COMPLIANCE: NOT A HURDLE, AN OPPORTUNITY Navigating regulatory compliance obligations can be daunting, especially for smaller lenders with limited resources. But here’s the twist: meeting those regulatory expectations can actually help lenders serve customers better. The Consumer Duty requires us to deliver good customer outcomes. It sets a higher standard for consumer protection and requires us to prioritise customers’ interests at every stage with clear communication, fair pricing and proactive support. While regulatory requirements often seem like a hurdle, they also present opportunities for innovation. By embracing open banking, lenders can not only streamline compliance but at the same time improve customer outcomes, and ultimately business outcomes. It’s about creating a lending environment that’s fair, transparent and responsive to customers’ needs, fostering trust and loyalty. HOW DOES OPEN BANKING TRANSACTION DATA IMPROVE CUSTOMER OUTCOMES? Building trust and transparency: Decisions based solely on traditional credit scores can be non-transparent and slow to reflect current financial realities. By using real-time spending and income data, lenders can provide clear, transparent decisions. This can make it easier for customers to understand why a product is suitable or not. Convenient and stress-free experience: Open banking automates the collection of financial information, sparing customers from answering difficult questions such as: “How much do you spend on food every month?”. The process is seamless, near-instant, and makes the application experience more user-friendly. Precise affordability assessments: Open banking allows lenders to use actual spending and income data to evaluate an applicant’s true affordability position, instead of relying on generic or outdated bureau data. This ensures that the lending offered is truly reflective of what customers can afford. Personalised solutions: By leveraging actual spending and income data, lenders can tailor their product offerings to fit customers’ real financial needs. This not only reduces financial stress and promotes financial stability, but also aligns with the Consumer Duty regulations, ensuring that lending decisions support fair value and appropriate customer outcomes. IMPROVE YOUR BOTTOM LINE Beyond customer satisfaction and regulatory compliance, …

Regulatory changes in consumer credit
Insights and strategies for the year ahead

Published 12 August 2024

The last twelve months have been a busy period in the regulation of consumer credit. The FCA has continued to focus on affordable lending, customers in financial difficulty and more recently on the treatment of vulnerable customers. That, coupled with Consumer Duty implementation and embedding, including the production of the first Annual Board Report means there has been no let up for firms. At the same time, the FCA have also strengthened their approach to supervision by requiring consumer credit firms to provide extensive new data, reinforcing their data led approach to identifying harm. As we look towards the next twelve months, the FCA will continue to strengthen protections for customers in financial difficulty. Policy Statement PS24/2 brings in new rules from November which includes taking aspects of the Tailored Support Guidance (TSG) and moving them into the FCA Handbook. Given these customers are also likely to be vulnerable, firms will need to ensure their policies, procedures and outcomes monitoring is effective, with the latter providing the evidence that customers are receiving tailored and sustainable forbearance that results in good customer outcomes. The significant changes to consumer credit data reporting, as set out in PS24/3, will require firms to provide extensive granular data on the sale and performance of credit agreements in the form of three new Product Sales Data (PSD) returns. While these requirements come into force on a phased approach, firms need to act now, ensuring they can easily retrieve and report the required data. And in line with existing Consumer Duty monitoring requirements, be able to identify harm with clear action plans to remedy poor outcomes. Given higher interest rates in both the credit card and personal loans market, another area of focus will be Price and Value. This is a key outcome under Consumer Duty which the FCA expect all firms to be able to demonstrate. While the FCA understand that credit risk in certain consumer cohorts is greater, they will be scrutinising firms to ensure they are not capitalising by increasing prices unfairly and offering products that do not provide fair value. The key here is to be able to evidence that the price the consumer pays for the product, and ongoing fees and charges over the product lifetime, are reasonable compared to the overall benefit the consumer receives. Complaint handling will also be an area of focus. The FCA is currently conducting a multi-firm review of high-cost lenders, with preliminary findings indicating areas for improvement. Poor complaint handling exposes firms to a range of issues and firms need to ensure their complaint handling policies, procedures and controls, including root cause analysis is not only compliant with DISP, but also delivers good customer outcomes in accordance with Consumer Duty outcome 4 – Consumer Support. And finally, underpinning all of this, firms must have robust governance practices and risk management protocols to identify, monitor, manage and evidence customer outcomes. During H2, the FCA will be reviewing a sample of Consumer Duty board reports and in accordance …

Reducing the burden

Published 08 August 2024

The end of July saw the first anniversary of the implementation of the FCA’s Consumer Duty. This meant vast amounts of work undertaken by regulated firms to prepare, looking to embed the Duty in every stage of the customer journey.  We have supported CCTA members through this process, but it is no means finished, as we know this will be a continual process, especially as requirements for closed products and the Annual Board Report have now come into force too. There is no doubt that the introduction of the Duty has meant extra regulatory requirements which come at a cost. These additional costs can particularly hit small firms, and we know there is more to come with the introduction of the new Product Sales Data requirements next year, for example. For this reason, it was good to see the FCA launch a call for input last week, focused on looking to simplify its retail conduct rules and guidance. The regulator is particularly keen to address potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit. They have also said that they want to include appropriate flexibility in the rules to be responsive to future changes and innovation. The FCA wants to hear from firms on issues including: which detailed rules or guidance could be simplified to rely on high-level rules, or have interactions with other rules which could be clarified the appropriate balance between high-level and more detailed rules the potential benefits and costs from simplifying rules The FCA has said that it has already committed to a post-implementation review of the Consumer Duty, so they are not seeking responses with suggestions for changes to the Duty within this project. The CCTA will be taking part in this process. We are interested in hearing from members if you have any recommendations. Are there particular areas you can identify that need to be clarified or are no longer required? This is your opportunity to raise these points. Staying with reducing the regulatory burden, the FCA has also recently confirmed the creation of an independent Cost Benefit Analysis (CBA) Panel to add to the other statutory panels that work with the regulator. The panel has been tasked with assessing the proportionality of proposed policy changes that the FCA would like to introduce. It will provide advice to the regulator on preparing and improving CBAs. The Panel began reviewing the CBAs of proposed new policies on 1st August. It will review them in advance of publication, allowing the regulators to consider its recommendations. We hope the creation of the Panel will mean that the impact of potential policy changes on firms will be fully considered, especially from the point of view of regulatory burden and cost to firms. It is good to see the regulator taking these steps to consider the future regulatory requirements. The FCA is after all, tasked with delivering competitive markets that work well for consumers. We need to ensure that the correct …

A change in direction?
What a new Labour government could mean for the industry

Published 07 August 2024

GENERAL ELECTION RESULT Labour won the recent General Election with a landslide victory. The party now has a majority in the House of Commons of 170, close to what Tony Blair achieved in 1997. However, they achieved a relatively modest share of the vote for a governing party. This coupled with low voter turnout, may undermine that majority in the coming months and years as they look to introduce their legislative programme. Small parties also did well with the Liberal Democrats achieving their best election result, and both the Greens and Reform picked up a handful of seats for their respective parties. The Conservatives suffered their worst result in history. Rishi Sunak has announced that he will stand down as leader once arrangements for choosing a successor are in place. So, we can expect a full leadership election soon. THE NEW LABOUR GOVERNMENT From a financial services perspective, we have seen little surprise in who has been appointed so far. Rachel Reeves has become the first female Chancellor and Tulip Siddiq MP has been appointed Economic Secretary, with responsibility for financial services regulation. Siddiq has shadowed this brief for the last few years and has commented recently that she intends to “tear down barriers to growth” and has also called on the Conservatives to stop delaying the regulation of the Buy Now Pay Later (BNPL) sector. WHAT DO WE KNOW ABOUT LABOUR PLANS? During the election campaign, Labour managed to say as little as possible, sticking to key pledges made by Keir Starmer. The manifesto also made little mention of the financial services sector, beyond recognising the contribution it makes to the UK economy. It did refer to the cost-of-living crisis and the need to improve financial resilience. The party also released a publication in January called “Financing Growth” which was largely an appeal to businesses which focused on the need to promote growth and competition. Part of this was about distancing the party from a previous anti-business stance. Another possibility for the future is a ‘Fair Banking Act’ that has been introduced in other countries. This included details on creating a national financial inclusion strategy, and there are rumours that the Labour Government may appoint someone (likely to be connected to the Financial Inclusion Commission) to look at this issue in further detail. This document also mentioned plans to regulate the BNPL sector so this might be something we see them move quickly on. Elsewhere we know that the Labour Party has always been supportive of the Credit Union movement so expect this to continue. Another possibility for the future is a ‘Fair Banking Act’ that has been introduced in other countries. A bill of this kind would likely call on high street banks to lend to underserved communities or provide funding to do this. Banks may not be forthcoming, but there is also a role for us here to explain how the alternative lending sector can be part of the solution and help with access to credit. One …

A new day…
A new government, a new fraud strategy

Published 07 August 2024

As the dust settles on an eventful election campaign and newly appointed Ministers find their feet, it’s only right that we should ask what next for fraud policy under the new Labour Government. If the 2010s were something of a ‘lost decade for the counter-fraud community, then the 2020s were the rebounder with the publication of the UK’s first ever Fraud Strategy in 2023. A little over a year later we have a commitment to a second one; the Labour Party’s manifesto promising to introduce “a new expanded fraud strategy to tackle the full range of threats, including online, public sector and serious fraud. We will work with technology platforms to stop their platforms being exploited by fraudsters”. While the cynics may be tempted to say that another strategy will be little more than a paper-based exercise with little impact outside Whitehall, this high-level political commitment is something the counter-fraud community should welcome. First, there are those that would argue that we’ve not actually had a national Fraud Strategy, but a consumer Fraud Strategy, given the lack of focus on fraud against business. The University of Portsmouth’s Annual Fraud Indicator 2023 estimated that around £150bn in fraud is committed against the private sector each year. It is therefore encouraging that the new Government has committed to expanding policy in this area. Second, despite some encouraging initiatives with social media and technology platforms in the Online Fraud Charter, it is still far from clear what these would even deliver in practice. There are encouraging signs that the new Government intends to do more in this space, with commitments to building both carrots and sticks into the relationship with the tech sector. The announcements made by Labour in opposition give hope that the new Government is committed to maintaining the upwards trajectory of fraud as a priority. Third, there is a specific focus on the need to get a grip on the scale of fraud against the public sector. In opposition, Labour committed to introducing an offence of ‘fraud against the public purse’ and to introducing a ‘Covid Corruption Commissioner’ to tackle procurement fraud and sector fraud running to up to £40bn – dialling up investment in this area could reap significant rewards. These are encouraging signs of new pace and ambition for fraud policy in the UK. But beyond these, where are the gaps that the incoming Government needs to fill? A good starting point is the Cifas Fraud Pledges 2024, launched in May of this year. Specifically, there are three things the new Government should do to really shift the dial in the fight against fraud. 1) Give fraud and economic crime the leadership and prominence they need and deserve. The Government could do this by creating a Minister for Economic Crime, reporting directly into the Prime Minister with responsibility for driving change and coherence across the system. With policy responsibility split across numerous government departments, without institutional change the response risks remaining sclerotic. 2) It is essential that the …

Increasing uncertainty
Consumer-led litigation

Published 05 August 2024

THE INCREASE IN CONSUMER-LED LITIGATION The past ten or so years have seen an explosion in consumer-led litigation. For example, the Supreme Court has considered the following: whether there is an unfair relationship where a lender keeps 71.% of a premium paid for a policy of payment protection insurance as a commission: Plevin v Paragon Personal Finance Limited the meaning of concealment, and its impact on limitation, in the context of claims relating to the sale of payment protection insurance: Potter v Canada Square the limitation period for claims under the unfair relationship provisions: Smith & Burrell v Royal Bank of Scotland whether parking charges imposed on a customer for overstaying their allocated time were a penalty or unfair: Beavis v ParkingEye. THERE ARE MORE CASES TO COME And there are more important cases to come later in 2024 and early 2025 including: the pending appeal in the Court of Appeal on what duties (if any) are owed by motor dealers to customers where those dealers receive a commission from the lender for their introduction. the pending judicial review in the High Court on the Financial Ombudsman Service’s decision of a complaint made against a motor finance lender relating to the non-disclosure of commission and the commission arrangements. This involves issues over the application of CONC 4.5.2G and Principle 6 to discretionary commission models. the pending appeal to the High Court on (a) whether the County Court has exclusive jurisdiction to consider claims under the unfair relationship provisions and (b) whether it is permissible for one claim form to be used to bring a claim for a significant number of unconnected claimants seeking remedies under the unfair relationship provisions. THE EFFECT OF SUCH CASES ON REGULATION Firms will always encourage certainty. If the legal position is certain then it allows firms to budget, to plan, to grow and to seek investment. Uncertainty leads to instability. What is often said about the consumer credit regulatory system is that it has three different (and arguably competing) approaches: it has mandatory rules (for example, form and content requirements) with often significant sanctions for getting it wrong it is principle based (see the Principles for Businesses); and it is outcome based (see Consumer Duty). These three different approaches create uncertainty. But the developments from the Court can also introduce additional uncertainty and effectively introduce regulation which was not part of the framework. For example, Plevin effectively said that the lender should have told the customer about commission even though there was no legal requirement to do so. The unfair relationship provisions also provide broad grounds for challenging a relationship: the combined effect of Potter and Smith introduce further uncertainty (but firms can use delay as an argument why the relationship is not unfair, or why no remedy should be awarded). WHAT SHOULD FIRMS DO? The regulatory regime is both complex and uncertain. The increase in consumer-led litigation has simply increased that level of uncertainty and effectively acts as another form of regulation. Firms should …

Consumer Duty – one year on

Published 01 August 2024

It has now been one year since the Consumer Duty came into force for new and existing financial products and services. We are sure that firms will agree; it has been quite a journey so far! The implementation of the Duty has been a somewhat phased approach. The financial services industry had deadlines in relation to approved implementation plans and information exchange requirements. We are now at the stage of the final, hard deadline set for firms under the Duty, that deadline being Annual Board Reports and closed products and services. Over the last year, firms have been living and breathing the Consumer Duty. The 31st July 2024 deadline now requires firms to have produced board-level reporting, covering their focus on good consumer outcomes as well as governance, culture and conduct. The deadline also brings into the scope of the duty, closed products and services. The CCTA has issued guidance to members throughout their implementation journey. For board reports and closed products, we issued our latest guidance paper. Members can access his via the Member Hub. The guidance paper provides useful information and advice around the content of your annual board reports. It covers aspects such as the type of data and information expected in board reports, what level of data would be appropriate, as well as proportionality and the layout and format. We have always said that this is a journey, rather than a destination. Firms should be aware that the final deadline by no means signals the end of your focus on the Consumer Duty. Firms should continue to monitor the outcomes that retail customers receive and work not only to address any harm or detriment but look to improve on those outcomes throughout their business operations. We remind firms to ensure that they have a particular focus on vulnerable customers to ensure that such customers are receiving, at least, as good outcomes as the wider target market. The CCTA will continue to support and guide its members going forward. Look out for further communications as our dialogue with the FCA develops. No doubt the regulator’s focus will move from implementation and embedding of the Duty to reviews and insights into industry-wide compliance with the requirements of the Duty. In addition, firms should continue to monitor the FCA’s Consumer Duty webpage for firms, which is regularly updated and can provide useful insights into the regulator’s expectations. This will also include information around their latest event ‘Consumer Duty- 1 year on’, held on 31st July 2024. A recording of the webinar is now available. The event focused on the impact in this first year, examples of good practice, areas for improvement, and FCA priorities for the year ahead. We will continue to engage with the regulator with the regulator as their insights on the Duty develop and it will continue to be a topic of discussion at many events, including our annual conference in October. As ever, the CCTA Advice Line Service is available for any member seeking support …

What’s happening in the motor finance market?

Published 26 July 2024

After a mortgage, the purchase of a vehicle is often the second largest expense within a household, which is why a range of motor finance options have developed over the years to assist families in making this purchase. The CCTA membership includes motor finance firms of different sizes with various specialisms across the sector. With motor finance being such a large financial services sector, the Financial Conduct Authority (FCA) has carried out various pieces of work into the sector over the years. In 2021, the FCA banned what are referred to as discretionary commission arrangements (DCAs). This removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance. Moving forward to January this year, the FCA announced that they would be carrying out further work on the issue of DCAs. They confirmed that there had been a high number of complaints from customers (some driven by claims management companies) to motor finance firms claiming compensation for commission arrangements prior to the introduction of the ban. The FCA believed that some firms were unfairly rejecting such complaints from consumers based on the applicable legal and/or regulatory requirements at the time of the transaction. This was also reflected in two Financial Ombudsman Service (FOS) decisions where the complaints had initially been rejected by firms but were overturned by the FOS upon investigation. Recognising the potential large-scale impact of these developments, the FCA announced the following: Use of the powers under s166 of the Financial Services and Markets Act (FSMA) to appoint a skilled person to review historical sales of motor finance agreements involving DCAs. A temporary pause in the 8-week limit within which firms are required to provide a final response to complaints. Extending the time limit for complainants to refer complaints about DCAs to the FOS after a final response. As part of the skilled persons review many motor finance firms from across the sector were contacted and asked to share information with the regulator. This included asking firms for full, clear and transparent information in respect of their past DCAs which had to be supplied at pace. Through this the FCA hopes to gain a thorough understanding of the different types of commission models within different businesses. The regulator is now analysing the information it has received. If it finds widespread misconduct it will act accordingly. While the FCA carries out its investigation, there are also lots of relevant cases going through the courts which may have an impact on the FCA’s action. This includes a judicial review of the FOS, launched by Barclays which we understand the FOS will challenge. The FCA plans to communicate a decision on next steps by the end of September but these court cases on likely to have an impact on proceedings which could see the FCA having to extend its review. The CCTA regularly holds roundtable sessions for our motor finance members which cover issues such as the above. If you are interested in attending or …

What would be in the CCTA Manifesto?

Published 02 July 2024

As we head towards polling day for the general election on the 4th of July, we have now seen the manifestos from all the main political parties. The purpose of a manifesto is to outline the steps a party would take, if they get the opportunity to form a government. From what we have seen most of the 2024 manifestos have been light on the detail around consumer credit and financial inclusion- understandably there are other issues that grab the headlines like NHS waiting lists and illegal migration. But this has led us to think about what we would put in the “CCTA Manifesto”. What would the CCTA be calling for from the next government as the main trade association representing alternative lenders? Firstly, access to credit has been central to the CCTA since its creation in 1871 so it’s not surprising that we would want the future government to address the sharp contraction we have seen in the alternative lending market. We don’t have enough lenders to provide credit to poorly and under-served communities. Lenders have left the market in recent years, and new firms have not entered it. There has been a sharp rise in illegal lending. We would be happy to work with any organisation looking to address the issue of access to credit. We are also looking for a more positive narrative from policymakers when talking about the sector. Taking the points above, we need them to accept where we are publicly. They also need to discuss how the future will involve lenders who are Consumer Credit Trade Association members. Though we all support the growth of community lenders and Credit Unions (indeed they form part of the CCTA membership) they cannot alone fill the gap left by commercial lenders. A more positive narrative from policymakers would reassure and encourage investors and new entrants. We will work to help government understand the non-prime customer. The CCTA is also supportive of more regulatory certainty. FCA rules are open to interpretation, making it difficult for lenders to know where they stand. In recent times we have been working with the CCTA members to better understand FCA’s expectations. This is particularly important for smaller firms. Focusing on SMEs, the CCTA is made up of a range of small and specialist lenders. We would ask for the government to understand the additional regulatory burden that falls on these firms. There is also a need to ensure these firms can access funds and basic banking services moving forward. We would also call on the next government to address the current claims culture. Claims management companies (CMCs) have had a big impact on the alternative lending sector in recent years. The FOS’ current consultation on charging CMCs to access their service is a welcome step but the next government must ensure that this change gets over the line and allows the necessary parliamentary time. If not, CMCs will continue to exploit different sectors of the market and continue to deliver poor outcomes …