Dear CEO
Are you doing enough?

Published 20 June 2022

A ‘Dear CEO’ letter is fast becoming the choice instrument of communicating with regulated firms. Such letters serve to focus the attention of a firms’ CEO and accountable senior managers on crucial issues for the FCA. On this occasion, the FCA issued a Dear CEO letter on 6th May 2022 to consumer credit firms demanding immediate action to ensure firms’ financial promotions are clear, fair and not misleading. While this letter was aimed specifically at credit brokers and firms providing high-cost lending products, this warning letter should also be a reminder to regulated consumer credit firms of the FCA’s expectations in respect of financial promotions. ENVIRONMENTAL CONTEXT Driven by the cost-of-living crisis, the FCA expects an increased consumer demand for such products and does not want to see regulated firms exploiting this economic environment by promoting and subsequently advancing unsuitable, unaffordable and unsustainable loans. It has committed to keep the sector under close review by carrying out proactive surveillance and monitoring online credit advertising to check that firms are complying. What firms need to do in response to this Dear CEO letter: REVISIT THE REQUIREMENTS Ensure all relevant staff involved understand the regulatory requirements, including what constitutes a financial promotion, and the basic rules set out in CONC, the Advertising Standards Authority’s Cap Code and associated advice, the Consumer Protection from Unfair Trading Regulations and the relevant data protection regulations governing the provision of opt-out. IMMEDIATE REVIEW Undertake a risk-based review of your financial promotions in use and re-assess against the CONC and CAP Code requirements, prioritising those that drive the highest proportion of customers to apply for credit through your firm; ASSESSMENT OF SYSC Assess your systems and controls around the design and approval of financial promotions are fit for purpose, including but not limited to a financial promotions policy and procedure, staff training, financial promotions register, an approval form, first and second line of defence checks, etc. BOARD AWARENESS Ensure your Board is aware of this letter and the actions to be taken so that sufficient challenge can be raised, and evidence documented. CONSEQUENCES OF IGNORING THIS LETTER In the event the FCA identifies shortcomings in a firm’s financial promotion(s), they will consider what further action may be appropriate to take. They have the power under section 137S of FSMA to direct a firm to withdraw an advert (or its approval of an advert), or to prevent it from being used in the first place. More broadly, non-compliant financial promotions can quite often prompt the regulator to apply more scrutiny to firms, as shortcomings in financial promotions may serve as an indicator of wider deficiencies such as a lack of effective systems and controls, poor governance and/or a weakness in staff competency, capability and sufficient knowledge of the regulatory requirements. Furthermore, the imminent Consumer Duty will bring an added dimension, resulting in a greater expectation on firms to demonstrate their communications enable customers to fully understand the features, benefits and limitations of the products and services they offer.

Navigating the maze
The importance of credit and the Consumer Duty

Published 20 June 2022

Inflation is biting. Food, petrol and energy bills – the essentials for many are rising at rates not seen for a generation. Many households are struggling and will continue to have to make some difficult choices through these challenging times. The demand for credit is therefore likely to rise, as is the support that existing borrowers are likely to require. As a result, the focus on the consumer credit sector from the FCA will be a key priority. This was the key message from Brian Corr, Interim Director of Retail Lending at his recent speech at the Credit Summit 2022, where he emphasised the focus of the FCA on ensuring firms are delivering the right outcomes for consumers who use credit products and ensuring that borrowers get the right help and support from their providers when they get into financial difficulty. As a result, the regulator is focusing on key outcomes and raising the bar through the implementation of the new Consumer Duty. As part of this article, we will look at the key read across to the sector for the Consumer Duty. WHAT IS THE NEW CONSUMER DUTY? The new duty is a package of measures that consists of a new principle, rules, and guidance. There are three key elements which underpin the proposed duty, which are as follows: 1. THE CONSUMER PRINCIPLE This is designed to improve overall standards of behaviour and the current wording which is under consultation is as follows: ‘a firm must act in the best interests of retail clients’ or ‘a firm must act to deliver good outcomes for retail clients’. 2. EVIDENCING SPECIFIC BEHAVIOURS The regulator wishes to see three key behaviours from firms: a. taking all reasonable steps to avoid foreseeable harm to customers b. taking all reasonable steps to enable customers to pursue their financial objectives c. and to act in good faith; 3. FOCUS ON FOUR OUTCOMES The duty is expected to set more detailed expectations around four specific outcomes: communications, products and services, customer service and price and value. In brief, under these proposals, firms will have a duty to make sure their customers are receiving fair value and fair products, that they understand how to use their products/services and receive the support they need to do so. Firms will have to consider the needs of their customers (including those in vulnerable circumstance) and how they behave, at every stage of the product/service life cycle, extending their focus beyond ensuring narrow compliance with specific rules, to also focus on delivering good outcomes for customers. Whilst some firms may already be meeting some or all of the expectations above, a key challenge for many firms ahead of any rules being finalised will be how to evidence the steps taken. The broad nature of the consumer principle alongside a requirement to evidence ‘outcomes’ will put further emphasis on the firm’s culture, governance, management information and recording keeping. FCA EXPECTATION OF FIRMS The FCA has consulted twice on the proposals and expects …

THE fraud epidemic
Booming levels of identity fraud

Published 09 February 2022

Fraud in the UK has reached epidemic levels. It’s estimated that there were 3.8 million fraud offences in England and Wales in the year ending June 2019, the scale of which was experienced by Cifas members. The National Fraud Database, which Cifas operates, received a case of fraudulent conduct committed against a member organisation every two minutes on average in 2020. Three in five of these cases related to identity fraud, whereby a criminal impersonated an innocent party, or created a synthetic identity, to open a new account. Identity fraud is a growing issue in the UK largely because of the role it can play in facilitating further crimes, and every individual in the UK (regardless of age, gender or wealth) is a potential target. Recent technological innovations in the payments industry have created a better customer experience for genuine customers. However, the likes of increased automation, quicker processing and faster payments make the industry attractive to criminals searching for ways to bypass measures put in place to detect fraud. For example, by using stolen personal details obtained through the likes of phishing scams, data breaches or a business insider, criminals can commit identity fraud to impersonate an individual and apply for loans and other products. One of the greatest control measures loan providers use to protect against this risk is bank account verification checks, which confirms the destination account for the loan belongs to the individual applying for the loan. Criminals are aware of this, and Cifas members have reported criminals combining the identity fraud with other fraudulent activities to transfer the funds out of the account. One example of this is authorised push payment (APP) scams, losses from which increased by 71% in the first six months of 2021 according to UK Finance. In the era of fast payments, fraudsters can have the funds from the identity fraud deposited into an account and transferred to another account within a matter of hours. One recent example of an APP scam impacting Cifas members was a text message claiming to come from a bank’s fraud department. In this message, recipients were told that a loan had been applied for in their name, and this was followed up by a phone call advising the recipient that once the funds had been received, they should be forwarded on to a ‘safe’ account. Another example reported by a Cifas member saw a fraudster utilising screen-sharing technology to alter a victim’s online banking. By hashing the webpage, the online banking screen showed the fraudulent loan had been paid into the victim’s account by a government department. By convincing the victim that they were calling from that department and the money had been sent in error, the victim forwarded the funds on to another account controlled by the fraudster. In whichever way criminals disappear with the funds from the fraudulent loan, it’s typically the loan provider who takes the financial hit from the identity fraud as they write-off the loan as a fraud loss. Not …

Solving the puzzle
Bringing all the pieces together

Published 09 February 2022

As 2022 gets properly gets underway, I am celebrating my first year completed in the role of Chief Executive of the CCTA. It has been an unusual year with the pandemic, but I am pleased to say that the numbers have remained strong, and we have managed to introduce a series of changes. So, I should start by thanking our small but perfectly formed team – Lucy, Phill and Brian. Without them I wouldn’t have been able to make any progress. Through them, we have undertaken a review of many of our systems and processes. Just as we closed the year, we saw the departure of Helen McCarthy who had been our Head of Policy. I worked with Helen for a number of years, and she had a specialism in alternative lending that helped us considerably. I know that she also provided advice to some members. I am pleased to say that we have a new Head of Policy and Advice, ready to join us once they have completed their notice period. I will provide more information when it is appropriate. We were keen to move forward with some changes to the way we engage our members. With such a spread of members, it is never going to be perfect, but we have had some ideas about how we might improve the flow. The objective is to set in place some regular communications and then supplement with more targeted information. In this way we can work across the sectors, sharing experience from different elements of consumer credit but also ensure that you have insights that are more specific to your needs. Our CCTA events are important channels for this communication. The plan is that we create a pattern of four all-member events every year – three Summits and an Annual Conference. It was great to use the opportunity in between lockdowns to have our first physical meeting since 2019. We had a great response, and the content was informative and insightful. So, I take the opportunity to thank our panellists Paul Smith, Peter Reynolds, and Denise Crossley. I know from your response, that many of you enjoyed the chance to ask questions and raise issues. Of course, Covid-19 has made this much more difficult than we had expected. However, the experience of operating during a pandemic has also shown us that we can use online facilities. I think you will see more online events during this year, including workshops and roundtable events. Our most important physical event will be our Annual Conference in late April. As you can tell, the pandemic made us stop and think about the venue as well as the timing. We moved away from some traditions that had served us well, but that we wanted to now change. We have already had a good response. You will read elsewhere of the support that we have had from a number of firms in the form of sponsorships. Returning to our mission. A way in which CCTA members …

Year of the squeeze
Increasing strain on household incomes

Published 09 February 2022

Owing to the strains anticipated on households this coming year, 2022 has been named “the Year of the Squeeze” by the Resolution Foundation (an independent think-tank focused on improving living standards for those on low to middle incomes). This comes as no surprise as the new social care levy is applied to national insurance contributions, personal tax allowances are frozen and inflation is high. These together with soaring energy prices, with some predicting annual household energy bills rising to above £2000, is likely to mean that many borrowers, and more specifically those who are vulnerable, may be impacted. As we all know, February doesn’t just see the review of the energy price cap, it also marks the one-year anniversary of the FCA’s Guidance for firms on the fair treatment of vulnerable customers FG21/1 (“the Guidance”). “WARNING” FROM THE FCA It is assumed most lenders will have given the Guidance the priority it deserves, not least because of the FCA’s “warning” at paragraph 1.8 where the FCA states, “This [vulnerability] Guidance is issued under section 139A of the Financial Services and Markets Act 2000 as guidance on our Principles for Businesses (the Principles). It sets out our view of what firms should do to comply with their obligations under the Principles and ensure they treat vulnerable customers fairly.” The message here is very clear – if you don’t follow the Guidance, you will be in breach of the Principles. This reference to the Principles re-affirms the importance we all know the FCA places on conduct more broadly. So what does that mean for firms and their senior managers? SM&CR The Senior Mangers & Certification Regime unquestionably seeks to improve conduct and governance via clear accountability. Therefore, senior managers whose statements of responsibility include vulnerability (and who therefore have of a duty of responsibility to take reasonable steps to prevent or stop breaches from occurring) need to satisfy themselves they have reviewed the Guidance and are confident that their firm is complying with the obligations set out within it. In the event the accountable senior manager cannot evidence they acted in accordance with the Guidance, it may be open to the FCA (on whom the burden of proof lies) to conclude that there has been a breach of the Principles, and/or that the senior manager did not take steps to avoid the misconduct occurring or continuing. EVALUATION ON FIRMS IN 2023/2024 The FCA’s Feedback Statement FS21/4 published in February 2021 sets out the FCA’s intention to evaluate firms against the Guidance during the period 2023-24. The FCA states that it will look to see what action firms have taken and to establish whether there have been improvements in the outcomes experienced by vulnerable consumers. It is likely that this may start with the FCA simply requesting a copy of the firm’s vulnerability policy to assess when it was last reviewed and updated. That isn’t to say that this is all firms need to do. Depending on the risk perceived by the FCA, …

The odd one out
What’s being said on Buy-Now Pay-Later

Published 09 February 2022

The Treasury’s consultation on Buy-Now Pay-Later (BNPL) has recently closed. This consultation sought opinions about the Treasury’s plans to bring the product into regulation, following the findings from the Woolard Review, which highlighted the risk of consumer detriment. It included different policy options on how best to achieve ‘a proportionate approach to regulation of BNPL’. While the Treasury considers the responses it has received, it is interesting to see the views across different parties as they share their submissions. The CCTA has responded, but we can now see what other trade associations and consumer groups like StepChange and Money Advice Trust have said on the matter. Unsurprisingly, some views differ across the wider credit industry and consumer groups, but there were also areas of agreement which throw up bigger questions about the future of consumer credit regulation. Firstly, it is worth noting the speed at which the use of BNPL has grown. Last month it was reported that 42% of 16–24-year-olds had used it in the last twelve months. Very quickly it has become an accepted method of payment. The rapid growth demonstrates the need for the Financial Conduct Authority (FCA) to be able to act more quickly. It takes too long for the regulator to be able to step in and act on new and emerging products. Over a year ago the Woolard Review found consumer detriment, but we are still at the stage of considering responses to the proposals for how to regulate the product. There can be no doubt that a proportion of the lending to BNPL (and salary finance schemes) has replaced loans that would otherwise have been made by FCA-regulated lenders in both the mainstream and non-standard consumer finance sectors. Many agree that the government and the FCA should be able to act more quickly to address new products, but also to not delay the introduction of new rules. The Money Advice Trust were one of these organisations, saying they were “concerned that there could be a substantial delay before the new regulations are put in place. The government and the FCA should act to put the protections proposed in this consultation in place as soon as possible, to reduce harm to vulnerable groups”. The treasury has also suggested that some areas of the consumer credit act no longer seem to make sense, so shouldn’t be applied to BNPL. In particular, the consultation refers to section 55 of the Consumer Credit Act (which deals with the disclosure of information) as being inflexible. This is true but, if it is the Government’s view, the approach should be to review and amend the requirements of that section for all consumer credit products. Such a review could help ensure the requirements for pre-contractual information in all cases, better reflect the product and meet the needs of consumers. StepChange were also supportive of this idea, commenting that: “BNPL exemplifies the reasons the CCA communications framework is in need of updating for the modern, digital credit market; ideally the framework …

The vision
Helping everyone achieve financial welllbeing

Published 09 February 2022

Wellbeing has long been a focus for many organisations in the financial sector. Wellbeing hubs can offer employees and customers a wide range of helpful support and services from exercise and nutrition to sleep and mental wellbeing. Often though, organisations have not given as much consideration to a critical piece of the jigsaw, Financial Wellbeing. At some stage, most of us will have encountered someone saying (or even said it ourselves) how life would be that much easier if we just had ‘a little bit more money’. But Financial Wellbeing is less about how much money people have and more about how they use what they have. It’s about people’s ability to get to grips with their money, their confidence in dealing with key financial decisions such as credit and debt options. It’s about being open and honest with our income and expenditure, while knowing how to balance these in good times and bad. It’s about being enabled to make well-informed financial decisions focused both on short-term needs and longer-term goals. It’s about developing the skills and knowledge to manage our money well, but also having the self-awareness to understand our attitudes and behaviours when it comes to our finances Because ultimately, our financial lives play a foundational role in our overall wellbeing. Numerous statistics make for tough reading regarding the UK’s relationship with its money. The Financial Conduct Authority (FCA) reported in 2020 that 28% of UK adults had low confidence in managing their money, while 14.2 million adults (27%) had “low financial resilience”, defined by the FCA as having problem debt, low or erratic income, or low savings. Finding positive ways forward can be challenging, especially when so many still view talking about money as taboo. The Money and Pensions Service found that 29 million adults (52%) say they do not feel comfortable talking about money. This discomfort can be particularly acute for employees working in the finance and credit sector, with assumptions easily made that working with money automatically equates with personal confidence and capability in managing money. Organisations similarly struggle, with CIPD/Close Brothers reporting that over half of large UK organisations do not yet have a Financial Wellbeing strategy in place, which likely can be seen played out by the 67% of UK employees reporting that they don’t feel their employer places importance on their financial health. With the link between mental and financial health becoming ever clearer, especially highlighted in the current situation with employees feeling more anxious than ever, this is a real concern. Many organisations rightly seek to address these issues by helping and supporting people who get into financial difficulties. But The Money Charity sets its sights further back, aiming to equip people of all ages and at all stages with what they need to hopefully never get into those situations. In other words, prevention rather than cure. The Money Charity’s vision is that everyone achieves Financial Wellbeing by managing their money well. For over 25 years, we have been helping people …

Inhibition
It’s done differently in Scotland

Published 09 February 2022

In the context of debt recovery litigation, the obtaining of a decree (judgment) should not be an end in itself and this is particularly true in relation to volume debt recovery litigation. The purpose of a court decree is to enable the creditor to obtain payment from his debtor of the sums of principal, interest and expenses (legal costs) due in terms of the decree. To achieve payment, either in full, or by instalments over a period of time, it is important that the creditor has a clear and defined strategy in relation to, firstly, the selection of accounts for litigation, to ensure that they are appropriate to be litigated on and, secondly, the enforcement of decrees to maximise the prospects of repayment. An inhibition is sometimes stated to be similar to a charging order in England and Wales and while both are generally obtained after the creditor has obtained a decree or judgment, there are significant differences. For example, a charging order is recorded against the debtor’s home or other property and entitles the creditor to thereafter apply to the court for an order to sell that property. An inhibition, however, is registered personally against the debtor and is a passive diligence (method of enforcement) in that an inhibition does not entitle the creditor to sell or to apply to sell the debtor’s heritable property (land or houses). As an inhibition is registered in the Register of Inhibitions against the debtor and not a particular property, it inhibits or prevents the debtor from selling any land or houses he may own in Scotland. While an inhibition does not entitle the creditor to sell the debtor’s land or house, it prevents the debtor from selling or re-mortgaging his heritable property, without the consent of the inhibiting creditor. Where a creditor has registered an inhibition against his debtor but has been unable to enforce his decree and get payment, it is not uncommon for the debtor, sometimes several years later, to try to sell his house, only to find that he is unable to do so, as there is an inhibition registered against him. In this situation he must arrange to pay the inhibiting creditor before he can sell the property affected by the inhibition. INHIBITION: SOME KEY POINTS • On obtaining the extract decree from court, a creditor does not need to make a separate application to court for an inhibition but is required to instruct Sheriff Officers to serve the inhibition on the debtor and register it in the Register of Inhibitions. • An inhibition is personal to the debtor and applies to all land or houses owned by the debtor in Scotland. The creditor does not need to specify a particular property to register an inhibition. • An inhibition only applies to heritable property (land and houses already owned by the debtor). It does not apply to heritable property acquired by the debtor after the inhibition has taken effect. • An inhibition prevents the debtor from voluntarily dealing …

A landmark judgment
Lloyd V Google LLC

Published 09 February 2022

BACKGROUND The dispute involved former director of consumer watchdog ‘Which?’, Mr Lloyd against Google LLC alleging breach of duties as data controller under the Data Protection Act 1998 (DPA). Mr Lloyd alleged that Google had been secretly tracking online activity of millions of iPhone users and had used the data for commercial purposes without the users’ knowledge/consent. He sought to bring the claim acting as representative for all individuals affected. Compensation of £750 was sought in respect of each individual, which would result in a total damages order of £3 billion if successful. SUPREME COURT As Google is a Delaware corporation, Mr Lloyd required the court’s permission to serve the claim form on Google. The Supreme Court refused permission, effectively preventing the claim from proceeding. It held that the DPA cannot reasonably be interpreted as conferring on a data subject a right to compensation for any (non-trivial) contravention without the need to prove material damage or distress to the individual and therefore the claim was ‘doomed to fail’. Further, it was held that a representative action is not a suitable vehicle for claims of this nature where damages were not identical on the basis that individual class members would not be participating in the action. WIDE-RANGING IMPACT The judgment has been held as a resounding victory for UK business in the wake of recent concerns as to the emergence of a ‘compensation culture’ surrounding low-value and/or minor infringements of data protection law. Data protection claims for loss of control of data have been squarely shut down. WHAT YOU SHOULD CONSIDER MOVING FORWARD 1. The judgment does not prevent group actions entirely moving forward, but rather adds some interesting clarity on the restrictive approach that the courts will adopt. The court did not state that Google could not be liable for damage caused to groups of consumers, but the damage claimed must be material and the losses sustained by each individual were not uniform and would differ. 2. Future representative claims may involve a class action. Claimants bringing class actions have tended to rely on group litigation orders to pursue their claims. As they are ‘opt-in’ (i.e. where individuals have to take active steps to join the claimant group) they can be a less favourable option for claimants as the economics and administrative burden are far less advantageous. 3. Very significant difficulties exist for claimants in bringing ‘opt-out’ class actions (such as in this case). Although there are fewer hurdles for claimants to overcome and the group of people represented may be far wider, this makes them a greater financial risk for businesses both in terms of the potential frequency with which such class actions may be commenced and their scale. 4. Representative claims remain an option for litigants, but in the light of this judgment, it is difficult to see how damages claims of this nature can easily avoid the individualised assessment discussed in this case. Accordingly, in many instances it is unlikely to be financially viable for individual claimants …

Significant challenges ahead
Review of the pre-action protocols

Published 09 February 2022

The start of 2022 sees the continuation of the Civil Justice Council review of the pre-action protocols (PAP), which may result in changes to the process. While some would be welcomed, others may present significant challenges to the debt collections industry. There are four key areas which are being looked at for debt claims; however, one key message should absolutely remain the same and that is to encourage engagement between the debtor and creditor (or their appointed representative). Increased engagement helps to reduce the number of claims being initiated through what is already a creaking justice system. The original debt PAP unfortunately did not have that desired effect. Here are the main areas being looked at: 1. TIMEFRAME TO RESPOND TO THE LETTER OF CLAIM Currently, the allowance is thirty days for the debtor to respond which, overall, is appropriate and we do not feel this needs to change. If a debtor were to engage before proceedings have been issued, stating they were seeking assistance from a third party in managing their debts, the industry standard is to offer a thirty day hold. It therefore makes sense to allow the same time for the customer to seek advice in responding to a claim and keep it consistent. 2. CONTENT OF THE LETTER CLAIM This was an area of contention in the original debt PAP with the potential requirement to include certain documents in the Letter of Claim, particularly a copy of the credit agreement. It is an area that we still believe is not necessary when considering what PAP is trying to achieve i.e. early engagement to avoid litigation. There are many reasons why someone chooses not to engage; for example, fear or embarrassment, but the number of people that do not engage because the debt is disputed is generally low. The information contained in the Letter of Claim would generally allow an individual to identify the debt in question. If not, and the debtor raises a dispute, the matter would be referred back to the Client with all activity temporarily suspended. 3. LANGUAGE AND LENGTH OF PAP The debt PAP is, after all, a legal document designed for a particular purpose and, while generally we welcome attempts to use more “plain English”, the language used currently is both clear and concise. 4. INTEGRATION INTO MONEY CLAIMS ONLINE Any steps being considered that would digitalise the process for all parties are very welcome. As a business, we have taken numerous steps to allow debtors to follow a digital journey, should they so choose and feel this progress is significantly overdue and fundamental to treating customers fairly. In summary, reform is something to be welcomed by the industry. However, it needs to strike the correct balance between encouraging early engagement and the fact that this is a legal process. Engagement is a barrier that is faced across the industry, from early stages of delinquency through to litigation and is something businesses continually strive to improve. While societal attitudes to debt have …

Crossing the waters
How to fund your business

Published 09 February 2022

Lending money is what you do. Swapping your lender hat for a borrower one requires careful consideration. Navigating the various funding options available with the specialist lenders in the market is about finding the best fit for your business. And what about raising funds via issuing shares? The following sets out the pros and cons of common funding options for consumer finance businesses. WAREHOUSE LENDING Loans are originated and sold to a new SPV (special purpose vehicle). The lender provides secured debt into the SPV, funding a pre-agreed percentage based on borrowing base calculations. Top-up funding needed for the balance will be locked in (“subordinated”). Loans are serviced under a servicing agreement entered into with the SPV. PROS • Risk is more balanced between parties • There is a limit on how much the credit provider can make CONS • Requires available capital or other additional funding • Initial set-up costs can be higher due to the relative complexity of the structure and need to ensure regulatory compliance FORWARD FLOW A form of asset purchase arrangement. Loans are originated in accordance with pre-agreed eligibility criteria, and those that fit the criteria (“eligible loans”) are automatically purchased by the lender. Pre-funding of the loans is made by the lender at regular intervals, based on pipeline, for 100% of each consumer loan. Loan origination and servicing fees are taken. PROS • 100% funded by the lender so better if access to capital is tight • Risk passes to the lender and the loan sits on the lender’s balance sheet from day one • Avoids paying interest on debt capital that may not be generating a return CONS • Can be difficult to find multiple funders as the ‘best loans’ are taken by the first lender • Additional risk for the lender is balanced by a lower return for the loan originator • Possible loan buy-back clauses for certain non-performing loans SPOT SALE A lending business with an identifiable or established loan book can enter into a one-off sale of the loans comprised in it. As with a forward flow arrangement this involves selling the economic interest in the loan but without any ongoing commitment to sell other existing or future loans. PROS • Helps active balance sheet management and economic risk passes to purchaser • No ongoing commitment to sell other existing or future loans CONS • Repurchase obligation for ineligible or otherwise recalled loans • Potential liability for redress events in respect of loans sold SENIOR LOAN FACILITY A more traditional secured loan arrangement, to refinance loans which have already been issued or provided as liquidity for entering into new loans. Funds drawn immediately begin accruing interest, so the loan originator may need to fund interest payments for loans that are not yet generating any return. PROS • Allows for the syndication of the loan, giving the possibility of a much larger facility • Control and ownership of the loans is retained (unless an event of default occurs) CONS • Requirement …

A culture of openness
Meeting the challenge of the Consumer Duty

Published 09 February 2022

There is quite often an assumption, that as all businesses offering financial services are regulated by the same governing body (the FCA), they’re all delivering the same level of service … wrong! The need for the new Consumer Duty reflects that whilst there is a basic standard that is required of firms, the bar can, should and has to be raised. The FCA want “firms to be incentivised to compete in the interests of consumers.” This is a competition we should all be fighting to win. The proposed new rules mention ensuring “retail” customers are getting the right outcomes and that “retail” products are suitable, so it would be very easy to think it doesn’t apply to those of us in organisations that don’t offer typical financial products. However, cast your minds back and the approach very much resembles the launch of Treating Customer Fairly (TCF) and how the six outcomes needed to be interpreted and adapted to financial institutions, across all industries who serve consumers. So how, as organisations not offering typical products, can we make sure that we’re measuring our ability to deliver what is in the interests of consumers? WHAT DOES RETAIL MEAN? For me, we should simply ignore that word and focus on it being about customers, and the outcomes our “products”/services drive. In our industry (Debt Purchase) as an example, that could be about how we ensure customers understand that they’re not incurring any interest or charges on their account with us, so they need to prioritise their outstanding bills that are increasing on an ongoing basis. That might feel counterintuitive, as surely we need to collect what we can, but if the customer is incurring more debt, is it really in their best interests to encourage them to use their disposable funds to repay cheaper outstanding debt? Conversely though, it might be in the customer’s best interest to clear outstanding defaults on their credit file, it’s a balance we must be able to evidence, to show that outcomes are in the overall best interests of the consumer. It’s important to consider how a firm’s behaviours and culture may affect good customer outcomes. For example, are your colleagues confident in flagging and addressing issues and incidents when things don’t go to plan? If not, those challenges may never be resolved, unintentionally giving the customer a poor outcome. It’s important to build a culture of openness to make sure you’re notified when things go wrong, so you can fix them and ensure issues are fully understood to allow changes to be made to drive improvements over the longer term. The Consumer Duty is simply an evolution of Treating Customers Fairly, one which we should all embrace and be able to comfortably believe and evidence that we are acting in the best interests of consumers at all times.