Consumer and Retail Finance – July 2017

Credit Cards Print publication


The FCA’s recent flurry of activity, including extending the Senior Managers and Certification Regime, and other sector news.

Financial Conduct Authority (FCA)

We have seen a flurry of activity over the past month.

On 31 July 2017, the FCA published the feedback statement from its review into high-cost credit. It says that the review provides clear evidence that FCA regulation of high-cost-short-term credit has delivered substantial benefits to consumers.  The FCA has decided to leave the existing payday loan price cap in place and not to extend it to encompass any other products at this stage. The cap will be subject to review again in 2020.  The review highlighted concerns with other high-cost credit products, including in relation to unarranged overdrafts and rent-to-own, home-collected credit and catalogue credit sectors.  A consultation will follow in spring 2018.   On the same day, the FCA published its consultation paper on proposed changes to the rules and guidance on assessing creditworthiness in consumer credit.  Comments are requested by 31 October 2017.  See the press release for links to both documents.  The FCA has also published an occasional paper “Preventing financial distress by predicting unaffordable consumer credit agreements: An applied framework”.

On 26 July 2017, the FCA published its consultation paper on extending the Senior Managers and Certification Regime to all firms authorised under the Financial Services and Markets and Act 2000.  The proposals affect almost all financial services firms (including limited permission consumer credit firms) and their staff.  Comments are requested by 3 November 2017.  See our recent briefing for further details.

The FCA also recently published the findings from its thematic review of staff incentives, remuneration and performance management in the consumer credit sector.  It is consulting on a proposed new rule and guidance (CONC and non-Handbook) to help ensure that firms take appropriate steps to identify and mitigate the risks arising from the way their staff are paid and managed.  Comments are requested by 4 October 2017.  See our recent briefing for further details.

The FCA has analysed responses to its Call for Input on the planning phase of the review of retained provisions of the Consumer Credit Act.  It intends to publish a summary of the responses and outline the scope for the review.

It has now published a policy statement on “FCA regulated fees and levies 2017/18”, including feedback on the consultation and ‘made rules’.  Fee-payers were due to be invoiced from July onwards for their 2017/18 periodic fees and levies.  See the “Next steps” section on page 9 for further details.

In a recent speech, FCA Chief Executive Andrew Bailey talked about retail banking in the UK, which he described as “a big agenda of work for the FCA”.  In addition to the feedback statement on high-cost short-term credit, in July 2017 alone we have seen publication of a thematic review on “Customer understanding: Retail banks and building societies” (which will inform the FCA’s strategic review of retail banking business models) and the findings from the FCA’s review of how firms handle complaints about packaged bank accounts.

The FCA consulted on enhancing conduct of business rules for firms providing contract for difference products to retail clients in late 2016/early 2017. It recently published a statement providing an update on the consultation and its policy work in this area.

The FCA announced a number of changes to its Advice Unit (part of Project Innovate), including expansion of the Unit’s scope to firms developing automated advice models within the mortgage, general insurance and debt advice sectors.

It also recently issued a statement on the use of the interbank rate in online currency converter tools, following concerns that payment and e-money institutions may have used such tools in a misleading way.

On 27 July 2017, the FCA reported that Lloyds Banking Group has agreed to set up a redress scheme for mortgage customers who incurred fees after they fell behind with their mortgage payments.

In relation to anti-money laundering, the FCA published its finalised guidance on the treatment of politically exposed persons for anti-money laundering purposes.  It expects firms to take appropriate but proportionate measures in meeting their financial crime obligations and the guidance provides clarity on how firms should apply the definitions of a politically exposed person in the money laundering regulations in the UK.  The FCA published a number of separate reports on 5 July 2017 alongside its annual report and accounts for 2016/17, including one on Anti-money laundering.

The House of Lords secondary legislation scrutiny committee raised concerns about the lack of effective Parliamentary scrutiny of the new money laundering regulations which came into force on 26 June 2017.  It has now published correspondence with the Economic Secretary to the Treasury on this issue.

Feedback from the FCA’s consultation on proposed amendments to the Decision Procedure and Penalties Manual and Enforcement Guide in light of the new regulations has been published in Handbook Notice 46.

In addition, HM Revenue & Customs has published updated anti-money laundering guidance for money service businesses and the FCA has published a webpage on the notification requirements in the money laundering regulations for FSMA-authorised firms.

Finally, HM Treasury is consulting until 16 August 2017 on the impact and drafting of regulations intended to improve oversight of the anti-money laundering supervisory regime.  At the same time, the FCA is consulting on a sourcebook for professional body supervisors on anti-money laundering supervision.  The FCA consultation closes on 23 October 2017.

Other news

The PRA published a Statement on consumer credit following its review of consumer credit lending, which examined PRA regulated firms’ asset quality and underwriting practices for credit cards, unsecured personal loans and motor finance.  The statement summarises the review’s findings (see section 2) and outlines issues arising for PRA-regulated firms that provide consumer credit to consider and act upon.  The review highlighted concerns across all three consumer credit markets.

In a recent speech, the Executive Director for Financial Stability Strategy and Risk at the Bank of England considered recent developments in household debt, noting the very rapid growth of consumer credit, with outstanding car loans, credit card balance transfer and personal loans having increased by 10% in the past year.

A Creditworthiness Assessment Bill – to require certain matters to be taken into account when assessing a borrower’s creditworthiness – had its first reading in the House of Lords on 28 June 2017.

We reported in the previous update that the Queen’s Speech included plans for a Financial Guidance & Claims Bill to (among other things) establish a new body with responsibility for coordinating the provision of debt advice, money guidance, and pension guidance.  The government has since published the response to its December 2016 consultation on this topic, reporting that the majority of respondents welcomed the proposed changes.  The Bill itself has now reached the committee stage in the House of Lords, the first chance for line by line scrutiny of the proposals.

We also reported that the government intends to repeal the Victorian legislation on bills of sale and replace it with a Goods Mortgage Act enabling individuals to use their existing goods (for example, their car) as security for a loan, while retaining possession. The Law Commission is now consulting on draft clauses intended to form part of the new Bill.

The government has announced a new regulatory regime for FinTech firms from January 2018 which will allow them to access data from all of an individual’s bank accounts, at the individual’s request.  This could lead to a range of innovations giving consumers greater control over their bank data and financial decisions.  This development comes from the revised EU Payment Services Directive (known as PSD2), which will be implemented in the UK through the Payment Services Regulations 2017.  These have now been published.  Consumers will also see the end of card-charging.  The FCA published its main consultation on implementing PSD2 in April 2017.  It recently published a follow-up consultation on authorisation, registration and reporting forms.

The Financial Services Consumer Panel has published a position paper on consumers and competition, following on from an evidence review and consumer survey commissioned last year to inform and stimulate debate about consumers’ role in driving competition in retail financial services markets.

UK Finance, the new financial services trade association, launched on 3 July 2017.  It merges the Asset Based Finance Association, British Bankers’ Association, Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. On 20 July 2017, UK Finance published the latest update to its Access to Banking Standard, which aims to help minimise the impact of bank branch closures on customers and local communities.

The Banking Standards Board launched a consultation paper on proposed supporting guidance to help firms identify and deal with the risks and issues that may arise when assessing staff fitness and propriety for the purposes of the Certification Regime.

Over in Europe, a recent decision of the European Court of Justice confirms that the debt recovery practices of third party debt collection agencies can fall within the scope of the Unfair Commercial Practices Directive.