What’s happening with motor finance commissions?

Published 01 February 2024

The issue of disclosure commission complaints is something we have been following in recent times as part of our work on motor finance. On the 11th January the Financial Conduct Authority (FCA) announced that it would be undertaking work in the motor finance market – but on a different area- discretionary commission arrangements. The regulator banned these arrangements in 2021 but it was starting to see a high number of complaints from customers to motor finance firms, claiming compensation for commission arrangements prior to the ban. The FCA found that many of these complaints were being rejected because firms do not think they acted unfairly. As a result, the regulator is using its powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms. They have told us in the interest of time they will appoint the skilled person to carry out the review. Firms that are part of the s166 project should have been contacted by now. There is likely to be a wider sample of firms that are contacted for some details as the FCA is keen to understand what has happened across the entire sector. The FCA should be in touch with these firms before the end of April. While the FCA carries out its investigation it has also paused the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will last until late September. Firms need to alter their processes to ensure the pause is in place and that complainants know what is happening. That includes ensuring all communication about the new deadlines and time limits is clear. There is some useful information for firms on the FCA website. The investigation is in its early stages, but possible outcomes may include customer redress schemes as well as new guidance for the sector. The FCA has asked firms to save relevant information in case of future complaints or redress schemes. The Financial Ombudsman Service also recently investigated some complaints that had been rejected by firms. It found in favour of the complainants in two recent decisions which can be viewed here and here. It’s worth firms taking the time to read these to get a sense of the approach the Ombudsman is likely to take in the future. There is no doubt that they will be involved in the project. It’s clear that there is a lot going on in the motor finance sector and there will be some uncertainty until we see the results of the FCA’s investigation. Experience from other sectors tells us the firms should make sure they are communicating with affected customers by explaining the current changes. Though much of the investigation will relate to historic cases, firms should be focusing on doing the right thing for their customers, particularly against the backdrop of the Consumer Duty. We will continue to engage with the FCA while the investigation is ongoing. If you have …

Changes in Home Credit

Published 22 January 2024

Back in the early noughties, the home credit market was under intense scrutiny for a lack of competition which led to the then Competition Commission investigating the sector. It was thought that it was difficult for consumers to compare products or switch between providers to find the best price. Following the investigation an order was passed that placed various conditions on the sector. Fast forward to last week and we were pleased to hear that the Competition and Markets Authority, the successor to the Competition Commission, has suspended parts of the original home credit order and published an invitation to comment on a proposed review of the order. For some there may be no surprise that just one of the six original larger lenders active in the market remains today. We have seen the home credit market drop away under regulatory pressure and the activities of claims management companies driving complaints. Independent research suggests this might be as much as a 90% reduction. That generates questions and concerns about what happens when regulated credit is stripped away. There is growing evidence that this has led to the growth of illegal lending throughout the UK. Unfortunately, this more significant issue is not getting the focus it deserves. We continue to raise these concerns with both the FCA and HM Treasury. One of the drivers of the original inquiry was down to home credit customers having a lack of other borrowing options. This problem hasn’t gone away. Recent customers will face the same challenges. Many are likely to have turned to family and friends or loan sharks. And we know the lines between these two groups can become blurred quickly. This review covers the “Lenders Compared” price comparison website set up following the order. All lenders were required to list their products on the site, which was to be funded by the larger firms within the market. As larger firms like Provident, Non-Standard Finance and Morses Club have left the market, this is now unsustainable. There is also a question as to whether a price comparison site remains useful to consumers in this area of credit. There is likely to be more relevant information and advice that could be shared with these individuals. We all want consumers to be given clear information about their options for borrowing and the cost of loans, but there has been immense regulatory change in recent years. Regulation now sits with the FCA and lenders in this sector must comply. The introduction of the Consumer Duty is also redefining how firms and their customers interact. The market has changed dramatically since 2007, and parts of the order no longer make sense. The CCTA will call for the review to go ahead and question whether parts of the order need to be updated, given the current state of the market, nearly 20 years on. We will constantly push for more focus on the more significant access to credit questions. As always, if you have views to share, then …

A look ahead at 2024

Published 09 January 2024

2023 was a busy year for the consumer credit sector and the CCTA. It saw the introduction of the FCA’s Consumer Duty, new research into the impact of illegal lending and further engagement with our key stakeholders- the FCA, the FOS and HM Treasury on a range of issues. Here we explore some of the developments we expect in 2024. Proposed changes at the FOS The FOS and its current consultation on their plans and budget will be one of our first priorities for the year at the CCTA. These proposals suggest a reduction in the case fee and levy which would be a welcome change for the sector. The FOS is also seeking views on whether Claims Management Companies should pay a case fee for accessing the FOS system. This is a proposal that we have pushed for in recent times. That one side of a disagreement should carry all the costs in a fight between two commercial organisations is unjust. It also allows for bad behaviour and poor quality complaints without consequences. That is why we will be pushing the Ombudsman to go ahead with the proposals. Will BNPL regulation finally arrive? Regulation of the Buy-now Pay-later (BMPL) sector has been expected for some time. We know that regulation is on the way. With the reported use of BNPL now so high it means that this must be inevitable. The unknowns are going to be the type of regulation and the timing. Last summer the Government suggested that BNPL might receive lighter regulation. That did not go down with consumers or other lenders wanting a level playing field. Reform of the Consumer Credit Act The long-awaited review of the Consumer Credit Act (CCA) is also expected. It is likely that parts of the Act will now become part of the FCA Handbook to be more flexible moving forward. We will be working on behalf of members to simplify some of the outdated parts of the Act for firms and consumers alike.  There will be an election…at some point We also know a General Election is coming this year. Sunak is hinting that it will likely be in the latter half of 2024. We will be engaging with politicians across the political spectrum ahead of the election, including Labour’s shadow Treasury team to brief them on the sector. It is crucial that any new government – Conservative, Labour or some coalition – understands the importance of credit for UK families and businesses. The Consumer Duty isn’t done July 2023 was the implementation deadline for the Consumer Duty, but that was just the start. The next steps for the coming year are likely to focus on governance and Management Information. It will be about how you are evidencing that you are doing the right thing for the consumer. The regulator is likely to explore several issues through the prism of the Duty. We have already seen this with value for money around bank savings rates and investment fees. A likely …

Borrowing and spending at Christmas

Published 15 December 2023

At this time of year, there are always stories about how people plan to pay for Christmas. Costs can quickly add up between presents, family expectations, extra travel, and hosting. Combined with the cost-of-living crisis currently facing many, it can be an expensive time of year. This year, different organisations have researched to explore our Christmas spending. New data from the Money and Pensions Service (MaPS) shows that one in four (26%) will likely borrow or use credit for upcoming holidays like Christmas. Consumers were planning to use different methods of borrowing, with credit cards being the most popular at 52%. The FCA also polled the public about their Christmas spending plans. They found that many parents felt pressured to spend, with over a quarter (29%) of parents with young children having already borrowed or intending to do so. The regulator has said that this pressure may mean more individuals are susceptible to loan fee fraud (when a customer pays for a loan they never receive). Therefore, the FCA runs its loan-free fraud campaign, which you can learn more about here. This all raises important questions about borrowing and lending responsibly, but also access to credit. Is it right to borrow? Can the applicant afford it? Will they be tempted to look elsewhere if they cannot access regulated credit? Will they become a victim of fraud? Firstly, no one should feel pressured to spend. Taking on more borrowing than manageable is not a good idea. Lenders must ensure any borrowing is suitable as part of their lending assessment. When individuals do feel pressure, they might exhaust the options open to them. We know, for instance, that consumers of alternative credit do not have many lines of credit available. This is where the likes of the FCA’s loan free fraud campaign and the Illegal Money Lending Team’s Stop loan sharks message become more critical. It is essential that Christmas borrowing does not push people into the hands of fraudsters or loan sharks. Illegal lenders will use this time of year to prey on the vulnerable. Consumers should always use a regulated firm to borrow so they are protected if anything goes wrong. This can be checked on the FCA’s register, and if someone suspects they have been a loan shark victim, this can be reported here. This returns us to the central argument about access to credit. We know that a lot of borrowing is cyclical. People take credit to cover significant life events and pay off in the coming months. It is not uncommon to borrow for a holiday like Christmas, but it needs to be manageable and not push people into the unregulated world. We need to remember that without access, the demand remains. There needs to be a varied credit market to serve the needs of different consumers to help them manage their finances.

Changes at the FOS

Published 08 December 2023

Earlier this week, the Financial Ombudsman Service (FOS) published its Plans and Budget consultation for 2024/25. While these are first steps, we believe that they are heading in the right direction.  The consultation details changes to the organisation’s funding model, including a £100 reduction in the case fee, a decrease in levy payments and plans to consult on charging professional representatives, which include Claims Management Companies (CMCs), to bring cases to the FOS.  We have been working on reform of the organisation and the complaints system for some time. Members will know that we have engaged with the FOS from the board level to the frontline teams interacting with firms daily, so it is good to see some steps in the right direction.   Firstly, it is good news that the proposed case fee is set to drop as this affects all firms. Businesses have endured year-on-year increases in recent times. We have often discussed the burden the case fee places on firms, particularly for small and medium-sized businesses, so it is promising that the FOS wants to try to bring this down.  It is also promising that the Ombudsman will move forward with plans to charge CMCs to access its service. CMCs have long been a feature of the alternative lending market.  We have raised the poor practices shown by some CMCs again with the FOS and those responsible for regulating the sector. Firms see many poor cases brought by CMCs due to the lack of incentive to submit a higher quality claim when they bear none of the financial cost.  Lenders have struggled with poor practices, including receiving a high volume of cases where they have no record of the customer ever taking a loan. There have been concerns that customers weren’t even aware that CMCs were bringing cases in their name, as the proper authority has not been obtained. This put a significant strain on many businesses so it is good to see that they will now be charged a fee. Hopefully, this will encourage them to bring forward only legitimate cases.   Firms will still pay a case fee in these circumstances, but CMCs will also be charged if these proposals move ahead. FOS are seeking views on the amount as part of the consultation. These changes could be significant, but they are still at the consultation stage. Some of the proposals would need secondary legislation to be laid before Parliament by HM Treasury before they could be implemented. Still, it is promising to see the start of that process with some publications from the Government in recent days.  As you would expect, we will continue to engage with the FOS on its plans. Our CEO, Jason Wassell, will attend the FOS Industry Steering Group next week to discuss these proposals in more detail. And the association will also submit a formal consultation response.   We encourage members to do the same or share their views. If we can demonstrate how these changes would help firms and better support those customers …

Level playing field in consumer credit?

Published 03 December 2023

BNPL and Big Tech shake things up Unsurprisingly, consumer credit regulation plays an essential part in the lending market. A level playing field in consumer credit is a crucial principle. Firms of different sizes and formats and providing various products need access to the market. We can see some areas where we may come off track with the current discussions about regulating Buy Now Pay Later (BNPL) and Big Tech entering into financial services. These developments open up some great discussions about how consumer credit is regulated. They pose some challenges for the Financial Conduct Authority (FCA). More BNPL firms come into FCA regulation, but BNPL is still unregulated This issue came back to the front of my mind with the end of a set of temporary permissions that some firms had to provide FCA-regulated products while sitting out the regulatory regime. Those firms with regulated credit products must now have the correct FCA permissions. It has brought in some BNPL firms like Klarna into the FCA orbit. The vital point is that the BNPL product is still not regulated by the FCA. It is interesting to see what is happening, made more difficult by rumour and speculation. Regulation of BNPL continues to be a hazy area. There have always been regulated firms providing the unregulated BNPL product, including some CCTA members. We need clarity and want a level playing field for all consumer credit firms. Some firms, though far fewer, still say that BNPL is not a credit product and should continue to be a non-regulated product. Did the Government wobble on regulation? Our last City Minister, Andrew Griffith, was thought to have been floating a lighter regime for BNPL, and indeed, we had heard him say directly that this was a cheap form of accessible credit. I took from what we heard that this was a way of filling some of the growing gap between supply and demand. However, that raises questions about that level playing field in consumer credit. The flag was raised, and many organisations rushed to join the battle. It is also fair to say that this pause in regulation raised considerable concerns amongst the debt charities. There were joint letters of complaint and plenty of words on why BNPL regulation should be pushed on. It will be interesting to see whether the new Minister is sceptical or returns to the more traditional view. Our long-held position is that we should try to keep the regulatory burden to a minimum so we can certainly understand those promoting new products looking to develop their case for exception. However, we need an even approach. Big Tech enters That theme continues into the FCA’s interest in Big Tech potentially entering into financial services. There are some big questions about whether those firms can create a market advantage from the large amounts of data they hold. A debate that we know will roll into 2024 and beyond. We know that data is an integral part of the market. We …

Engaging on the FCA’s Product Sales Data consultation

Published 24 November 2023

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

CS Lending Summit – challenges in consumer credit

Published 17 November 2023

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

Supporting Talk Money Week

Published 09 November 2023

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

Regulation of BNPL – an update

Published 06 November 2023

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

Minister talks about access to credit

Published 20 April 2023

We are always interested in hearing from Andrew Griffith, Economic Secretary to the Treasury. He is also referred to as the city minister because financial services fall within his area of responsibility. So when he spoke at the Mansion House about Financial Literacy and Inclusion, it was good to hear him talking about the importance of access to credit. It was even better that he recognised the role that the Government and regulators have in the supply of credit. We talk to many investors, especially international ones, concerned about what is happening with UK FS regulation. We agree fully that the best intentions can lead to regulations that will increase financial inclusion. His reference to the problems with affordability is one that we welcome. Affordability was a bad experience for many lenders. Affordability is an excellent example of a regulatory obsession that has gone off track. Unfortunately, arrears and defaults are part of lending, at the core is an understanding of risk. These happen when people encounter the unexpected, the loss of a job, a boiler breaking down an illness without sick pay. No affordability test will prevent these from causing problems for a borrower. Many people live with the cost of credit, adapt to their position, pull back from some expenditures at times, and look for new ways to bring in income like working an additional shift. Over the last few years, we have seen the development of a model that does not take this into consideration. So what we have seen is the exiting of many firms from the market due to regulatory issues, along the lines set out by Mr Griffith. More than a million people use illegal lenders in the UK. This fall in access to credit is not without consequence, elsewhere organisations like the Centre for Social Justice are telling us that over a million people in England are using illegal lenders. We are happy to play our part in attempting to tackle the growth of illegal lending, and it was not that long ago that we sought to create stronger connections between our members and the illegal money lending teams. Including carrying a piece in our CCTA magazine and running a workshop for our members. Later Mr Griffith refers to a return to the concept of “caveat emptor” or buyer beware. That is certainly not the direction the FCA has been moving in recent years. Increasingly the responsibility rests with the lender and away from the borrower. Consumer Duty is the most explicit demonstration of this, as the responsibility for a good outcome sits with the lender. The customer really is a passenger on this journey. We could get into a much longer discussion about “agency”, but that is for another day. But there is agreement. To end on a positive note, everyone agrees that we should do more to increase financial literacy. We need everyone to understand more about the options available to them, the benefits and the consequences if things go wrong. …

Increasing regulatory burden leads to a drop in regulated supply

Published 13 April 2023

We are currently reviewing the FCA Strategy to determine its implications for our members. That is being considered alongside the FCA’s proposed regulatory fees and levies. Too often regulators set rules that work well for the big banks and mega insurance companies. The FCA often fails to recognise the important part played by smaller firms and that increasing regulatory burden needs to be considered. There has been a decline in UK-regulated credit for many as lenders exit. The CCTA has been pointing to the decline in regulated credit as more alternative lenders leave the market. These are lenders that are not easily replaced so families across the UK have fewer options when it comes to credit. The Centre for Social Justice has highlighted the growth of illegal lending in the UK. They travelled the breadth of the country to understand where and how illegal lending takes place; commissioned polling of over 8,000 UK adults; compiled and analysed the largest sample of known victims to date; and heard first-hand the powerful stories of those exploited, often by ‘friends’ who turn out to not be friends at all. More than a million people using illegal lenders in the UK In England today, they estimate that as many as 1.08 million people could be borrowing from an illegal money lender. We believe this is the first independent evidence that shows loan sharks circling as we see regulated supply drop away. There are those that try and create an equivalency, between non-prime and illegal lending. However, there is a chasm in terms of the protections provided by regulated lenders and the threats that often come from organised crime involved in illegal lending. Anyone finding themselves in trouble with an FCA-regulated firm knows that they can rely on consumer protection rules. Ultimately they can turn to the Financial Ombudsman or the courts. Those borrowing from illegal lenders have no such comfort and can become embroiled in further criminal activity. The CCTA will be reporting back on the increasing regulatory burden and other issues at the upcoming Summit on 26th April 2023.  If you are a member, then sign up. CCTA Events Diary