Consumer and Retail Finance – November/December 2018

Credit Cards Print publication


Walker Morris risk series stampLatest from the FCA, including new measures on high-cost credit and overdrafts; other sector news.

Financial Conduct Authority (FCA)

Stop press!! On 18 December 2018, the FCA announced the next package of measures forming part of its high-cost credit review. It announced proposals to change how banks charge for overdrafts, published the results of its review into the retail banking market, made new rules strengthening the protections for consumers using home-collected credit, catalogue credit and store cards, started consulting on further measures on buy now pay later offers, and published final guidance for registered social landlords to provide greater clarity about the activities for which they are likely to require authorisation as credit brokers.

In relation to home-collected credit, the FCA issued a consultation in May 2018 on information requirements for refinancing and further borrowing, and on guidance on its interpretation of section 49 of the Consumer Credit Act 1974 (CCA), which prohibits the canvassing of cash loans off trade premises. The new rules and guidance are largely the same as those consulted on. The FCA’s guidance on section 49 of the CCA came into force immediately, on 19 December 2018. Firms have until 19 March 2019 to fully comply with the rules and guidance on explaining the comparative costs of borrowing. See chapter 2 of the feedback document. The FCA’s analysis shows that consumers who use home-collected credit over long periods do not appear to suffer significant economic harm as a result in the same way that can be seen in other parts of the high-cost credit markets. The FCA is not currently planning to develop proposals for a price cap.

In relation to catalogue credit and store cards, the FCA is proceeding with the proposals in its May 2018 consultation paper, subject to some minor changes. See chapter 3 of the feedback document.

Chapter 4 of the feedback document is a consultation on additional proposals to apply requirements on buy now pay later offers more widely and to make them more transparent, as well as a proposal to prevent backdated interest being applied on repaid sums up to the date of payment. The consultation closes on 18 March 2019 with final rules due to be published in June 2019.

In relation to overdrafts, the FCA is consulting until 18 March 2019 (again, with final rules due to be published in June 2019) on proposals to simplify the pricing of all overdrafts and end higher prices for unarranged overdrafts.

The FCA’s final report into retail banking business models can be found here, setting out areas for further work. Written submissions in response to the report are requested by 15 February 2019.

On 22 November 2018, the FCA announced its proposal to introduce a price cap on rent-to-own firms to protect vulnerable customers from high costs. Under the proposed cap, which is subject to consultation until 17 January 2019 and is expected to come into force on 1 April 2019, credit charges cannot be more than the cost of the product. Firms will need to benchmark the cost of products against the prices charged by three other retailers. The FCA is also introducing a two-day cooling off period for the sale of extended warranties, effectively banning firms from selling these warranties at the point of purchase. The ban will come into force on 22 February 2019. In chapter 6 of the consultation paper, the FCA sets out its approach to promoting the availability and awareness of alternatives to high‑cost credit (a further update on alternatives to high-cost credit is also covered in chapter 6 of the feedback document published on 18 December 2018).

On 1 November 2018, the FCA’s Director of Supervision (Retail and Authorisations) delivered a speech on ‘Realising the benefits of purposeful leadership’. He believes that the consumer credit sector has become a safer place for borrowers and spoke about the challenges still faced by the sector, including the evolving ‘vulnerability landscape’ and uncertainty around change and regulation. He said that “regulatory change will continue in high-cost credit markets as long as we continue to find evidence of considerable harm to consumers which flows systematically from business models”.

He also gave some examples of what healthy cultures look like, compared with those firms that are “hell bent” on simply being compliant with the rules, and discussed accountability and leadership – “leadership is vital in ensuring a firm’s purpose is the right one and setting the tone for the rest of the organisation and putting in place systems, controls, governance and training, and incentives to drive them through”. He asked attendees to “pause for a moment of self reflection on the business models and the cultures of your firms. We are not going to demand that you adopt any particular strategy or culture. But I think there is a lot to be said for a purposeful culture which is about the outcomes for consumers not just about compliance with rules and box-ticking”.

The approach to consumers, the duty of care and consumer credit are some of the key specific issues raised by the Financial Services Consumer Panel, one of four independent statutory panels. See the FCA’s recently published response to key comments from the independent panels’ annual reports for 2017/18.

In relation to consumer credit, the Consumer Panel commented that the FCA should have a clear vision of what a good consumer credit market looks like for consumers and that it should not only focus on ‘traditional’ high-cost products but also on credit cards, unauthorised overdrafts, guarantor loans and other forms of higher-cost credit such as instalment loans. The Panel argued that the FCA has been reluctant to act decisively on financial products that contribute most to over-indebtedness (credit cards, overdrafts) and suggested that the FCA has adopted a ‘piecemeal’ approach to high-cost credit, rather than looking at the market as a whole.

On 27 November 2018, the FCA announced that it is delaying the launch of its credit information market study from Q4 2018/19 to June 2019. It will collect evidence to gain a better understanding of the potential for harm in this market and, if necessary, identify remedies.

In a speech delivered on the same day, the FCA’s Executive Director of Supervision (Investment, Wholesale and Specialists) set out the FCA’s view on how well UK financial services are managing risks associated with new technology, using analysis from the FCA’s cross-sector survey on firms’ technology and cyber capabilities. She warned that, on the basis of the data that the FCA is currently collecting, it sees no immediate end in sight to the escalation in tech and cyber incidents that are affecting UK financial services. The FCA says that the speech, survey report and infographic about how to react to a ransomware attack are relevant for firms whatever their size. The report draws out the different responses from large and smaller firms and the FCA encourages all firms to consider how its findings apply to them.

On 20 November 2018, the FCA published a research summary for banks and building societies on designing effective current account prompts which aim to increase consumers’ engagement with their current account, raise awareness of the current account switching service, and highlight developments in the retail banking market.

On 6 December 2018, the FCA published its findings on how mortgage lenders treat customers with long-term mortgage arrears and provide forbearance to affected customers. In a speech delivered on 6 November 2018, the FCA’s Executive Director of Strategy and Competition spoke about the FCA’s vision for the mortgage market, following the publication of interim findings from its mortgage market study. In related news, the FCA and Prudential Regulation Authority (PRA) are jointly consulting until 22 March 2019 on proposals for new reporting requirements for mortgage lenders and home finance administrators.

On 14 December 2018, the FCA introduced new rules on handling complaints about authorised push payment fraud. See the press release.

The FCA has reminded firms of their obligations under CONC 3, after its financial promotions team identified that some motor finance firms were not complying with the rules, particularly in relation to posts on social media platforms. Firms are directed to the FCA’s finalised guidance on social media and customer communications. The FCA has also recently seen examples of furniture companies failing to comply with the rules on their websites.

On 14 November 2018, the FCA published the findings of its review of how firms have implemented its whistleblowing rules, which were introduced in September 2016. The FCA sets out its expectations of firms and senior management, and provides identified examples of good practice and areas for improvement.

On 10 December 2018, UK Finance and the Association for Financial Markets in Europe submitted their joint response to the FCA’s consultation on proposed guidance for firms preparing Statements of Responsibilities and Responsibilities Maps under the Senior Managers and Certification Regime (SM&CR). They are widely supportive but would like to ensure that statements communicating policy or supervisory expectation are kept to the appropriate publications and do not effectively introduce new regulation.

The FCA published a letter which was sent in August 2018 to the chairs of remuneration committees of level 1 firms, setting out how the FCA plans to assess these firms’ remuneration policies and practices throughout 2018/19 and what this means for the recipients of the letter in their Senior Management Function 12 role.

On 16 November 2018, the House of Commons Treasury Select Committee published a letter to the Committee Chair from the FCA’s Chief Executive, regarding the FCA’s plans to ensure the accuracy and integrity of the data in the Financial Services Register. Among other things, the letter refers to the SM&CR and the recent consultation to introduce a ‘Directory’.

As part of its proposed financial crime strategy, which focuses on anti-money laundering, anti-bribery and corruption and fraud, the FCA intends to publish at the end of Q2 2019 a discussion paper on the roles and responsibility of industry and consumers in tackling fraud. The FCA recently published a report analysing the results of its first annual financial crime data return.

On 19 November 2018, the Head of the Financial Crime Department delivered a speech in which he discussed financial crime, artificial intelligence and the FCA’s approach.

The following day, the FCA’s Executive Director of Strategy and Competition delivered a speech on the conclusions of the Cryptoassets Taskforce, whose final report was published at the end of October 2018. Among other things, he spoke about the three major harms associated with cryptoassets (to consumers, market integrity and the risk of financial crime) and the proposed next steps of the FCA and HM Treasury in this area.

On 28 November 2018, the FCA published its revised Approach to Authorisation and feedback statement, following the publication of its consultation paper in December 2017.

The FCA is consulting until 14 January 2019 on regulatory fees and levies: policy proposals for 2019/20. A Handbook Notice will be published in Q1 2019.

On 7 December 2018, the FCA published its latest quarterly consultation paper, which includes proposed changes to SUP 16, to ensure compliance and increase accuracy of Firm Details reporting.

On 19 December 2018, the FCA published a policy statement confirming the revised Payment Services and Electronic Money Approach Document and Handbook changes following consultation feedback. The FCA says that firms should note the Handbook changes in the policy statement and the guidance in the revised Approach Document and adapt their practices accordingly.

Other sector news

On 9 November 2018, the House of Commons Treasury Select Committee launched an inquiry into consumers’ access to financial services. The inquiry will focus on the interaction between vulnerable consumers and financial services firms. The closure of bank branches and a fall in the number of free-to-use ATMs are noted as areas of concern.

On 23 November 2018, the same Committee launched another inquiry, this time into IT failures in the financial services sector. Written evidence is requested by 18 January 2019. The inquiry will focus on: the common causes of operational incidents in the sector; the ways in which consumers lose out as a result of such incidents; and whether regulators have the relevant skills to adequately hold people to account. According to the FCA, several high-profile cases of disruption to retail banking services in the first half of 2018 contributed to an increase in complaints to certain firms.

On 14 November 2018, the Chair of the Treasury Committee commented on a letter from the Economic Secretary to the Treasury about so-called mortgage prisoners, customers trapped in expensive deals and unable to remortgage because of the tightening, in recent years, of affordability assessment criteria and/or because their ‘zombie banks’ no longer offer new products. Also see the press release from UK Finance.

The Creditworthiness Assessment Bill, a Bill to require certain matters to be taken into account when assessing a borrower’s creditworthiness, is not now expected to have its second reading debate in the House of Commons until 25 January 2019.

The Minimum Service Obligation (High Street Cashpoints) Bill, a Bill to require banks to provide cash machines to be made available on designated streets and to enable local authorities to designate streets that require cash machines in towns of more than 5,000 residents, is also due to have its second reading debate in the House of Commons on 25 January 2019.

Recent research carried out by debt charity StepChange –  ‘Locked Out: Examining the impact of problem debt on people’s housing situations’ – looks at how the charity’s clients’ problem debt affected their access to housing and the security, quality and affordability of their homes, at a time when they were trying to stabilise their finances and/or repay their debts. See the press release.

On 15 November 2018, UK Finance announced that, from that date, consumers would be able to compare clearer and more consistent information about the additional services current account providers offer all customers, including those in potentially vulnerable circumstances, following a voluntary commitment made by the industry.

On 30 November 2018, UK Finance announced that the banking industry has agreed to a series of voluntary proposals to deliver stronger, fairer outcomes for more SME customers, following the recent publication of an independent review report recommending new routes for SMEs to challenge banks without going to court. On 3 December 2018, the Economic Secretary to the Treasury wrote to the co-chair of the All-Party Parliamentary Group on Fair Business Banking, setting out the government’s approach to SME dispute resolution in more detail.

A new National Economic Crime Centre was launched on 5 November 2018. On the same day, the House of Commons Foreign Affairs Select Committee launched an inquiry into the future of UK sanctions, to explore and evaluate different options for the UK’s approach to sanctions policy after leaving the EU.

The Financial Action Task Force published its mutual evaluation report of the UK’s anti-money laundering and counter-terrorist financing measures. It concludes that the UK has a well-developed and robust regime, but that it needs to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions. See the press release.

Over in Europe, the Council of the EU adopted conclusions on an action plan to better tackle money laundering and terrorist financing, and the European Commission launched a review of the Distance Marketing of Financial Services Directive.

On 6 December 2018, the Bank of England (BoE) Deputy Governor for Markets and Banking gave a speech setting out the BoE’s work with the UK payments industry to adopt the global standard for payments messaging, and other initiatives in this area including the creation of a Standards Advisory Panel which will be jointly run by the BoE and Pay.UK.

The Payment Systems Regulator (PSR) responded to LINK’s third ATM ‘footprint report’, which shows that in September 2018 a number of protected ATMs were withdrawn from service.

The PSR is consulting until 4 January 2019 on general directions for the implementation of ‘Confirmation of Payee’, the new name check safeguard to protect people from authorised push payment scams.

Latest data from the Bank for International Settlements shows, among other things, that paper-based payments like cheques and cash still play important roles in society. An interim report published by the independent Access to Cash Review (‘Is Britain ready to go cashless?’) shows that despite the increasing use of cards and electronic payments, approximately eight million (17%) of people say cash is an economic necessity.

The European Payments Council published its 2018 Payment Threats and Fraud Trends Report, providing an overview of the most important threats in the payments landscape. It also recently published an interview on the key findings of the Capgemini/BNP Paribas World Payments Report 2018.

And finally, on 12 November 2018 and following a public consultation, the Financial Stability Board published its Cyber Lexicon, a set of core terms related to cyber security and cyber resilience in the financial sector.

Looking ahead to 2019

  • January 2019: FCA policy statement on general standards and communication rules for the payment services and e-money sectors.
  • 22 February 2019: Ban on sale of extended warranties at point of purchase comes into force.
  • Early 2019: FCA consultation on guidance for firms on the identification and treatment of vulnerable consumers; government feasibility study to help design a pilot for a no-interest loans scheme.
  • March 2019: FCA policy statement on regulatory fees and levies: policy proposals for 2019/20.
  • 1 April 2019: Rent-to-own price cap expected to come into force.
  • April 2019: FCA regulated fees and levies: rates proposals 2019/20; Banking Standards Board report on the industry’s culture.
  • June 2019: FCA credit information market study due to be launched; final rules on overdrafts and on buy now pay later offers.
  • Summer 2019: Consultation feedback and final rules on FCA and PRA proposals for new reporting requirements for mortgage lenders and home finance administrators.
  • End of Q2 2019: Discussion paper on the roles and responsibility of industry and consumers in tackling fraud.
  • 9 December 2019: SM&CR extended to all firms authorised under the Financial Services and Markets Act 2000.