Responding to data breach claims
A common sense approach

Published 21 July 2021

In the run-up to GDPR, the focus was on the fines that data protection regulators can impose for infringements. Another issue that has become increasingly significant is that of data breach claims, compensation and costly group litigation. Under GDPR and the Data Protection Act 2018, individuals can claim through the courts for compensation for “material” (i.e. financial) and/or “non-material” damage, including distress and loss of control over their personal data. No hard and fast rules have developed regarding the level of compensation. The judge will take into account all the circumstances, including how serious the infringement was and its impact on the claimant. While the amounts to date (under the old Data Protection Act) have tended to be modest, in group litigation with high claimant numbers the total could be considerable. It is also not yet clear whether compensation may be higher now. The Court of Appeal’s decision in Lloyd v Google, currently subject to a Supreme Court appeal, marked a turning point concerning how group claims are brought. A representative was allowed to claim on behalf of himself and an estimated class of 4.4 million people who do not have to opt in to the litigation. If the Supreme Court agrees, we are likely to see an increase in mass data breach claims. We are seeing an uptick in the volume of these types of claims often brought by claims management firms. Often they are spurious and/or not fully documented but the amount claimed is usually small (up to £2500) and firms may be tempted to make a settlement payment as it is not cost-effective to litigate. However, such strategies can open the floodgates to more claims if you are characterised as a soft target. We had a case recently where an employee was claiming compensation for a data breach because his payslip had been sent in error to a colleague; on investigation the colleague had returned the slip unopened to the employer – so in fact there had been no data breach at all! It is therefore important that firms take a common sense approach where each case is investigated and considered on its merits. In Lloyd v Google, the court referred to a threshold of seriousness which it said would undoubtedly exclude a damages claim for an accidental one-off data breach that was quickly remedied. If the court decided that the infringement was trivial it would be entitled to refuse to make an award for loss of control damages. Firms should consider these factors carefully in light of the facts of each case, and the sensitivity of the personal data involved, when deciding whether an offer of compensation is justified. Jeanette Burgess Head of the Regulatory & Compliance Walker Morris LLP

Forebearance
Too much of a good thing?

Published 21 July 2021

The Financial Conduct Authority (FCA) warned consumers in its Mortgages and Coronavirus: Information for Consumers Guidance of 27 January 2021 that: “If a repossession on your home is stopped and you don’t keep up with payments, the total amount you owe will increase. This is because interest will continue to be charged (plus any fees and charges you may owe according to your lender’s tariff of charges). This means you are likely to get less back later if your property is repossessed and then sold by your lender. If property prices fall in the time between now and when your property is sold, you might get less back, or even nothing, if your property is sold for less than you owe.” These risks to the consumer are recognised by the FCA in relation to its recent consultation on draft mortgages tailored support guidance, published on 5 March 2021, which provides that in certain circumstances ‘delaying repossession can lead to poor customer outcomes as a result of increased balances and equity erosion.’ The risks of increased charges and ‘equity’ erosion are also, arguably, inherent in hire purchase agreements for motor vehicles, where forbearance is exercised, unless they are sympathetically addressed by the lender. Where there is no prospect of rehabilitation of the hirer’s arrears, continuing to allow the hirer to use the vehicle, which is a depreciating asset, may involve the hirer in increased charges, and reduce the sale proceeds which would be credited to the hirer’s account on the hire purchase agreement eventually being terminated and the vehicle being sold. The FCA in the Final Notice it issued to Yorkshire Building Society (YBS) on 28 October 2014, in relation to YBS’s handing of mortgage arrears, stated:- “Call handlers also failed to consider all payment options. In cases of long-term unaffordability, this may have included a voluntary sale by the customer or, in appropriate cases, repossession by YBS. YBS failed to recognise the detrimental effect to customers of delays in agreeing solutions and they failed to focus on minimising and preventing delays. While repossession was properly viewed as a last resort for customers in payment difficulties, management did not take account of the fact that where repossession is appropriate, if it is delayed this causes further significant detriment to customers and leaves them in a worse financial position.” Firms must of course comply with CONC and the Guidances issued by the FCA in relation to consumers effected by coronavirus but, on lenders considering forbearance, in certain situations, repossession and sale of a vehicle subject to a hire purchase agreement, may be in the hirer’s interest. Frank Johnstone Consultant Brodies LLP

Points of view
Political engagement – the major players and CCTA plans

Published 21 July 2021

Right now, Treasury officials are working on the Future Regulatory Framework (FRF) review. The FRF is considering how the regulatory framework for financial services needs to adapt to be fit for purpose in the future. CCTA submitted a response to a consultation on the review that recently closed. Given member struggles with the interpretation of rules between the FCA and the FOS, we thought it odd that the Financial Ombudsman Service (FOS) was not included in the review. We called for this to be reconsidered in our submission. We continue to raise our concerns about the FOS and Claims Management Companies with the Treasury and officials in our regular meetings. TREASURY SELECT COMMITTEE Arguably one of the most influential select committees in the House of Commons, the Treasury Select Committee (TSC), is tasked with holding the government’s Treasury department to account. It also examines the administration and expenditure of public bodies like the FCA and the FOS. Membership of select committees reflects the current makeup of the House of Commons. The TSC is chaired by Conservative MP Mel Stride. The committee can also start inquiries of its choosing. These often involve an invitation for written submissions, along with oral evidence sessions with various organisations. In the past they have looked at personal finances and access to financial services. We regularly try to engage with members of the committee and met (virtually) with a few of them last year to brief them on the sector. WHAT HAVE THEY BEEN WORKING ON? The Treasury Select Committee currently has an open inquiry into the work of the FOS. This has included committee hearings and correspondence between the outgoing Chief Executive and committee Chair. The committee was due to hear from the FOS management once the organisation has published this year’s budget, but it is unclear if this will go ahead, at the time of writing, due to Caroline Wayman’s departure. The committee has been one of the strongest critics of the FOS in recent months so we will continue to engage with them on the management of the FOS and the role of the new Chief Executive. ALL-PARTY PARLIAMENTARY GROUPS All-Party Parliamentary groups (APPGs) are cross party groups formed around a specific topic or interest. Though APPGs have no formal powers, they bring issues onto the parliamentary agenda and can be a good way to educate and build relationships. Representatives of the House of Commons and Lords sit on the various groups. There are APPGs on alternative lending, credit unions and financial education for young people. Unsurprisingly, the group on alternative lending is the one we are most aligned to. Recently the group produced a report on Lending and borrowing post-covid. The Report covered a wide range of issues including the future viability of credit files and the likely increase in illegal lending because of the pandemic. PARLIAMENTARIANS Outside of the various committees and groups in Parliament, from time-to-time other parliamentarians will become interested in our sector. This could have been as the …

First steps
SM&CR: A job done?

Published 21 July 2021

SM&CR: A JOB DONE? Following the introduction of the Senior Management and Certification Regime (SM&CR), to date the focus within Financial Conduct Authority (FCA) solo regulated firms has been concentrated on implementing and embedding processes within their business as BAU (Business as Usual) processes. The 31 March 2021 was a milestone date as this marked the day by which all firms must have completed their implementation of SM&CR. Does, therefore, passing this milestone date mean that you and Senior Manager Function holders (SMFs) can relax and focus on other things, especially as the flood of headlines related to SM&CR in 2019 and January 2020 has now died down? SM&CR has not had the same headlines over the past year. This is, however, likely to be due to everyone’s attention and energy being spent on managing the impact of COVID-19. In addition, there hasn’t been any visible high profile enforcement action taken against individuals under SM&CR, which has led some commentators to suggest that SM&CR lacks teeth. However, based on our experience of helping clients engage with regulators, it would be mistake for firms and SMFs to regard SM&CR as job done. In this article, we consider: •  why SM&CR should still be one of your key priorities? •  what the areas you should focus on are •  how to progress those SM&CR focus areas. WHY SM&CR SHOULD STILL BE ONE OF YOUR KEY PRIORITIES The implementation of the SM&CR regime to all FCA regulated firms is not seen by the regulator as the end point of journey. Rather, implementation is viewed as being only the beginning of the journey to ensure that firms are delivering both commercial and regulatory objectives. The FCA is expecting SM&CR to be the catalyst for driving change in how firms operate and the outcomes they deliver. 31 March therefore, marks the start of a journey for all solo regulated firms which will impact how they are governed and how they operate. The Prudential Regulation Authority’s (PRA) ‘Evaluation of senior manager and certification regime’ which surveyed banks and insurers (which have been subject to SMCR for some time) provides an indication of the level and type of changes that regulators, including the FCA, will expect to see within consumer credit firms. The PRA’s evaluation found: • over 90% of SMFs said that SM&CR had brought about meaningful change in behaviours • 97% of firms had integrated (to some degree) SM&CR into their BAU practices in a way that went beyond simple regulatory compliance • 94% of SMFs said that SM&CR has brought about ‘positive meaningful change to behaviour in industry’ through ‘clearer articulation of authority and had improved focus on accountability and responsibility’. Examples of changes that have been driven by SM&CR are: •  enhanced decision making by increasing the focus on responsibilities •  Improved culture •  enhanced compliance and ethics training, whistle blowing procedures, misconduct reporting, induction programmes, succession planning. SM&CR provides the FCA with a powerful supervisory and enforcement toolkit through which it can …

The right balance
How effective are digital consumer journeys?

Published 21 July 2021

In May 2020 a Digital Sandbox Pilot was launched by the Financial Conduct Authority (FCA) and the City of London Corporation. The pilot ran from November 2020 through to February 2021. 28 teams took part, to test and develop innovative products and services in response to challenges presented by the Covid-19 pandemic. FCA BACKGROUND Our experiences and engagement with the industry indicate that developing a permanent digital testing environment would provide significant value to financial services. The Digital Sandbox pilot was aimed at trialling this environment, by providing support to products and services which are at an early stage of development. Data has become increasingly pivotal to the way firms operate and engage with each other and the consumers they serve. This means that longstanding challenges like data access and standardisation are increasingly a barrier for market participants and innovators. We also receive requests for support from firms which don’t match the eligibility criteria of the regulatory sandbox, but whose proposals may nonetheless deliver desirable innovations in UK financial services. We piloted the following features as the foundations of a digital sandbox: •  access to synthetic data assets to enable testing, training and validation of prototype technology solutions, for example transactional banking data sets, SME lending data and customer accounts •  an Application Programming Interface (API) market place where digital service providers list and provide access to services via APIs • integrated development environment in which applicants can develop and test their solution •  a collaboration platform – to facilitate an ecosystem of key organisations that will provide support and input to digital sandbox participants, such as incumbents, academia, government bodies, venture capital, and charities •  an observation deck – to enable regulators and other interested parties to observe in-flight testing at a technical level, to inform policy thinking in a safeguarded environment. We are provided support to innovative firms and organisations looking to tackle challenges relating to, or exacerbated by, coronavirus. The pilot focussed on three pressing areas: •  frauds and scams •  vulnerability •  SME lending. Between 8-10th February, the teams presented their progress throughout the pilot. The FCA are currently in the process of determining their next steps regarding future iterations of the digital testing environment. An independent evaluation process currently being undertaken by Grant Thornton will help guide these discussions, with the pilot being assessed against five success criteria: 1. Innovation – role played in encouraging innovation in financial services to the Covid-19-related challenges detailed in the use cases. 2. Speed – role played in enabling quicker testing and development of proof of concepts. 3. Collaboration – role played in fostering collaboration, facilitating diversity of thinking and creating an ecosystem of key organisations. 4. Pilot features – the effectiveness of the key features of the pilot (see below) in stimulating and accelerating innovation. 5. Sustainable future – role played in informing and assisting the design and future operating model of a permanent digital sandbox. CCTA member PrinSIX was selected as part of the Vulnerabilty Team, tasked …

Pulling focus
Take a customer-centric approach to avoid regulatory issues

Published 20 July 2021

Through our proactive support of firms and our work as a Skilled Person, we have seen a substantial volume of activity arising from the FCA’s thematic focus within specific sectors of financial services. One recent area of focus has been the payday sector, with the FCA focusing largely on responsible lending and complaint handling. Firms in this sector, as in any other, wish to ensure good outcomes are provided to customers, as per the mission and values they lay down as their reason for doing business. If the desire to consistently improve customer outcomes is the premier consideration, there is certainly also a place on firms’ agendas for operating a technically compliant business – after all, this is essentially what is meant by ‘operating to the letter and the spirit of regulation’. We have recently seen the FCA starting to focus on other sectors of financial services such as guarantor lenders, home collected credit and pawnbrokers, even some initial activity around the motor sector. The focus of attention is still very much on responsible lending and complaint handling, but in addition we are starting to see relending and arrears and collections being an increasing focus. For firms in this sector, who have operated under the jurisdiction of the FCA for a number of years now, there can still be challenges in ensuring that they are sufficiently focused on the outcomes they are providing, rather than looking at compliance from a ‘technical’ perspective. How do firms ensure they are looking at their customers’ outcomes holistically to inform technical compliance, and not the other way round? MANAGING ATTENTION There is no such thing as no attention from the FCA, and neither would we suggest we would want this as an industry. During the early stages of COVID, we witnessed fantastic collaboration between firms and the FCA at the start of an emerging problem. During these early stages, we saw firms proactively influencing the FCA’s decision making through the recounting of their joint experiences, and it ultimately led to good – and consistent – support for customers in a difficult time for many. Proactivity comes into play quite nicely when looking at this issue, as being proactive is an effective means of avoiding unnecessary issues crystallising within your customer base. Being able to demonstrate your proactive approach to looking at customer outcomes can be an effective means of preventing matters from escalating if an unanticipated issue does affect your customer base and attract the attention of the regulator. We look at three areas where firms can do this right now. RESPONSIBLE LENDING Responsible lending was already a major area of concern for the FCA and regularly landed in the FCA’s risk outlook prior to the Coronavirus pandemic. As a result, the FCA clarified and updated its affordability requirements in 2018. The regulator has been unequivocal in its requirements in regards to responsible lending practices. When investigating why poor practice can occur, it is important to look at the guidance currently available to lenders. …

New driver
The future regulation of consumer credit

Published 20 July 2021

The regulation of consumer credit will be changing. That is the only certain thing we know. How regulation changes, or when it changes, are unknowns at this stage. We are certain that there will be changes to the regulation of consumer because: the UK has left the European Union (EU), creating both a need and an opportunity for change in areas of regulation that were driven by EU rules; the Government is working to develop the future regulatory framework (FRF); a new CEO in in place at the Financial Conduct Authority (FCA) and a major transformation programme for the organisation is underway; the recent review of the regulation of unsecured credit (the Woolard Review) made 26 recommendations for change; and there is a longstanding commitment to review the remaining provisions of the Consumer Credit Act (CCA). Following the UK exit from the EU, relevant EU laws and regulation have been ‘onshored’ as a short-term measure. In the longer-term the Government intends to use the UK exit as an opportunity to review and update the regulatory framework for financial services in the UK. A recent consultation from the Treasury set out the Government’s proposed approach to the regulatory framework. The intention is for Parliament to set high-level policy objectives for financial services regulators, with much of the detail of regulation moving from legislation to the regulators’ rule books. Moving regulation from law – both primary legislation and regulations – into regulatory rulebooks will be a mammoth task and will keep Government, Parliament and regulators busy for years to come. It could well be the financial services equivalent of painting the Forth Road Bridge. But there were two glaring omissions from the Treasury consultation – specific regulation of consumer credit and the role of the Financial Ombudsman Service (FOS) in the regulatory framework. Consumer credit touches the lives of the majority of ordinary working people in the UK. Given this, reviewing and updating regulation of consumer credit should be more of a priority for the Government and regulators. Consumer credit regulation is split currently between the CCA and the FCA rulebook, resulting in an uneasy marriage of detailed rules – based on the way consumer credit worked many years ago –  and principles-based regulation by the FCA. This creates a strong case for a comprehensive review of consumer credit regulation – a point we have made to the Government and to the Treasury Select Committee, which is also looking at the future of financial services in the UK. The exclusion of the role of the FOS from the work on the future regulatory framework is both curious and disappointing. The impact of the FOS is significant, across financial services and the role of the FOS really needs to be considered as part of any work reviewing and updating the regulatory framework. In tandem with the Treasury work on looking at the regulatory framework, Christopher Woolard (former interim CEO of the FCA) conducted a review of the regulation of unsecured consumer credit. The …

Changing times
Creating a new CCTA – building on strong foundations

Published 20 July 2021

I am pleased to add my welcome to this edition of our relaunched magazine. I am delighted to write as the new Chief Executive of the Consumer Credit Trade Association. My first step is to thank my predecessor, Greg Stevens, who retired at the close of 2020. As many of you know, he stepped in as Chief Executive back when the CCTA was going through some testing times. Over the years, he brought the organisation back to good health and its prominent position. He has steered the ship, continuing to avoid the reefs and shallows through some difficult times for consumer credit. Over the last few years, he has been working on moving to the next chapter for the CCTA. And I know we will also wish him well with his own personal story as he steps back. CREATING A NEW CCTA It is now no secret that during 2020 we entered into discussions about how this might be the catalyst for a series of changes to the association. Both Greg and I felt that the pandemic was another reason for action, but longer-term trends were already in place before then. There were regulatory pressures across the consumer credit sector—both increased regulation and more uncertainty on critical issues like affordability. We both felt that there were concerns about the lack of understanding of our members’ customers. That a set of regulators educated and trained in bank-lending often found it hard to understand the nature of the financial need and the benefits of the services provided. At the same time, changes to the market were placing pressure on all trade associations. In our discussions, we could see the opportunity to develop a single voice for alternative consumer credit that can engage with key stakeholders – regulators, Government, and other influencers. This was the chance to ensure that the model was fit for the purpose. Leaner and more agile.Our aim was, and is, to develop a natural home for lenders and supporting companies. Always allowing members to decide their level of engagement. Following positive talks, made more difficult because of Covid-19, the directors came to their decision. Taking up my role on the 1st January, I had my first opportunity to introduce myself to you at our CCTA Spring Summit just a few weeks ago. If you did hear that presentation, then much of what I say in this article will be familiar. Much has changed over the years, but the association’s mission remains close to what it has always been. ADVOCACY One thing that has not changed from the times of our foundation is the need to work together. There has never been a more critical time for strong advocacy. We recognise that we need to have allies and good relationships for us to be effective. Sometimes our role as an association is to explain what our part is in terms of society. This is why you will hear us talking about our vision of a well-regulated market, providing responsible credit …

CCTA Response to the Treasury Select Committee Report on the Future Regulatory Framework of Financial Services

Published 06 July 2021

The Treasury Select Committee has today published its report on the Future Regulatory Framework of Financial Services. It is good to see that the committee has recommended that the Treasury consider how the decision-making processes of the Financial Ombudsman Service (FOS) would interact with the future regulatory framework for the FCA, something we called for in our written evidence to the committee. The HM Treasury consultation currently makes no mention of the FOS. The CCTA does not believe there is any sense in looking at the regulatory framework and not including the role of the FOS in that. The potential impact of the FOS is significant, across financial services. We believe there is a strong case to review the role and accountability of the FOS, to ensure it works as part of the regulatory framework rather than working against it.

CCTA thoughts on the FOS Annual Complaints data

Published 26 May 2021

The FOS has released its annual complaints data today. From a quick glance, what jumps out is the high upload rates for complaints about home credit and guarantor loans. Uphold rates for both of these are currently over 80%, compared with the average uphold rate of 31% across all products. However, there is more to this when the detail is explored. On home credit complaints, the uphold rate jumped from 39% to 84% in one year, while the number of complaints remained stable. How could there be such a dramatic change in how lenders were dealing with complaints? This shows there must have been a change in approach from the FOS around how these complaints were dealt with. Firms were trying to understand what had driven this change, keep up with interpretations from the FOS and work out how to best deal with future complaints. In the year following the jump in uphold rate for home credit, complaints rose from around 1,500 to over 22,500. The picture is very similar on guarantor loans. With the current FOS case fee of £750, it is easy to see how this number of complaints becomes untenable for firms. There is a clear connection between FOS uphold rates increasing and a sharp rise in complaint volumes soon afterwards. This is likely to have been caused by the “claims culture” being driven by CMCs, looking for other sectors to exploit after PPI. The actions of the FOS have effectively encouraged more complaints, some of which are purely speculative. We will continue to raise the concerns of our members around a constantly evolving approach from the organisation and their lack of action to push back on CMC poor practice.

Friends and Family can’t pick up the slack

Published 20 May 2021

It has been a busy time period for alternative lending sector. In recent years it has faced many challenges including a constantly changing approach from the Financial Ombudsman Service and the impact of the ‘claims culture’ driven by Claims Management Companies. Many firms have already left the market. Since 2016 the number of firms offering HCSTC has more than halved. To add to this there has been much media speculation about the future of various companies in wider sector in recent weeks. We await news about the future of Amigo loans, but it has been confirmed that Provident is to leave the sector, shutting down its home credit business that has been operating for over 130 years. For some this will be seen as a victory, another firm gone. But we know that when supply is affected, the demand remains. Provident served over 300,000 customers at the end of 2020 which now must look elsewhere. These are individuals and communities that have been left behind by mainstream lenders. Whenever market exit is mentioned, there is often the misconception from the FCA that borrowing from friends and family can move in to fill the space left behind. In reality, things are not so simple. There must be money available to lend out, which is not the case for many. We know that a large number of households in the UK have little or no savings to help deal with financial shocks themselves, never mind supporting friends and family. The Covid-19 pandemic will also have had a negative impact on the financial situation of many households. Borrowing from friends and family can also quickly turn toxic, damaging relationships and causing them to breakdown. There is a fine line between ‘friend’ and illegal lender. The Woolard Review noted the recent change and innovation within illegal lending. It is becoming more sophisticated. The Illegal Money Lending Team in England has also expressed their concerns over the growing use of social media platforms to manipulate and blackmail victims. They are also concerned about the impact the Covid-19 pandemic will have on finances at a time when legal credit continues to dry up. Stakeholders need to be alert to consequences of the decreased availability of credit. To do this they need to understand the alternative lending consumer and why they use these forms of credit. Regulators in particular need to understand how the market operates. The FCA should take a holistic approach to regulation, looking at the entire lifecycle of a credit product and the associated customer outcomes to avoid negative consequences.

CCTA CEO comments on Provident Financial decision to close down home-collected credit and Satsuma brands

Published 10 May 2021

Commenting on the decision by Provident Financial to close down their home-collected credit and Satsuma brands, Jason Wassell, Chief Executive of the CCTA said: “This news is shocking and yet not a surprise to those watching alternative lending. We have long been concerned that the current regulatory framework does not work for the market, or its customers. The result in this case is that access to credit will be reduced for hundreds of thousands of people. “These are individuals and communities that have been left behind by banks and mainstream lenders. They access the non-standard market for reasons such as major life events, variable income, or a lack of credit history. They are often seeking small amounts to manage their finances in a flexible way. “The constantly changing approach by the FOS, along with the increasing claims culture being driven by Claims Management Companies, is making it difficult for firms to operate and attract investment. These factors together led to major market exit in the high-cost short-term credit sector, and it has now spread to home credit. “Market exit is likely to continue across the sector if these problems are not addressed. The outcome will be that access to credit is reduced for a group of consumers who will struggle to borrow elsewhere.” About the CCTA The Consumer Credit Trade Association (CCTA) is one of the oldest trade associations in the UK. Established in 1891, we have a long and influential history. Our objective is to support and develop an effectively regulated alternative lending market. We seek to provide responsible access to credit for all. Our members are often described as alternative lenders, developing alternative credit products, serving customers often ignored by mainstream financial services. Member firms include: car finance; guarantor lenders; home-collected credit; short and medium-term lenders; and smaller businesses working in niche lending sectors. About Provident Financial Provident Financial plc (‘the Group’ or ‘PFG’) is the leading provider of credit products to consumers who are underserved by mainstream lenders. They serve 2.3 million people through credit cards, vehicle finance and personal loans. PFG current employs 4,865 colleagues across the UK. They are not a member of the CCTA.