Credit, Collections & Insolvency News
As the Evening Standard delicately put it on Wednesday last week, having taken over consumer credit from the “light touch” Office of Fair Trading some five years ago, the Financial Conduct Authority is now firmly in charge and is sinking its teeth into lenders’ backsides.
The FCA has shown its teeth several times recently, including the publication of the final findings of its review of the car finance market. The regulator was not happy, it has to be said. It railed about dealer commissions arrangements; explanations that car dealers provide about finance; and how firms assess the affordability of car finance applications.
The car finance industry has moved on leaps and bounds since the FCA took control, and it’s unfortunate there’s little recognition of this. Quite whether what’s needed now is a nudge or a boot is unclear, although the FCA’s inclination is clear.
The findings report raises a more fundamental question about the new consumer credit regulatory regime. Can it really make any sense for one of the world’s most significant financial services regulators to have to supervise around 15,000 small businesses (our estimate) that are in business to sell products and services other than financial services?
There are some clues about what the FCA thinks about this in the report this week. The regulator said “We were particularly concerned that some lenders appear to take the view that it is sufficient that a broker is FCA-authorised, as it can be assumed that they will be compliant with FCA rules (as the FCA will monitor compliance)”
The FCA reminded lenders that they are required to take reasonable steps to ensure that persons acting on behalf comply with the consumer credit sourcebook, CONC. Is an FCA-authorised car dealer, or a bicycle shop, or a dentist acting on behalf of a lender when they make an introduction? In a regulatory sense at least, they are surely acting on their own behalf, unless they are Appointed Representatives.
Regardless of that point, a lender still has a duty under the FCA’s Principles for business, to exercise due care in running its business. It would, for example, seem careless to accept introductions from a firm that is misleading customers about finance on its website.
If a lender is now to be required to take steps – even ‘reasonable’ steps – to ensure compliance of its introducers, this seems quite different. It seems likely to involve on-site inspections, reviewing policies and procedures, and checking they are followed.
Quite apart from the cost of doing that for the lender, it seems burdensome for small firms such as car dealers, retailers, or beauty salons with limited permissions.
Perhaps limited permission firms should all become Appointed Representatives of specialist Principal firms, but the extra cost and supervision involved is unlikely to be attractive. Fortunately, new technology may offer a solution.
As the FCA acknowledges, albeit rather begrudgingly, the increase in car showroom quotation systems may help to achieve compliant processes. We believe the retail point of sale finance sector provides a useful benchmark for what can be achieved. With their fast staff turnover, it’s particularly difficult for retailers to train staff to discuss credit options. The answer for many has been to employ technology to ensure a user-friendly compliant process at point of sale. Many of the recent entrants to the fast-growing sector retail POS sector are fintech companies, often with substantial backing from global investment firms.
We think the FCA may conclude that non-financial firms that only provide access to point of sale solutions provided by authorised firms no longer need to be directly authorised themselves. They might either be exempted (although that would require a change to the law) or could be made Introducer Appointed Representatives. With the right technology, full permission firms would have full control over regulated activities at point of sale.
Judging from last week’s car finance report, we suspect the FCA would not be too upset to stop having to regulate thousands of small car dealers, retailers, golf clubs, beauty salons and others.
Julian Rose, Director, Asset Finance Policy (former Head of Asset Finance at the Finance & Leasing Association)
