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The Credit Services Association (CSA)
Blog: FCA Mission 2017/18: Setting the tone for consumer credit firms’ culture
Charley Taggart is a CSA Board Director and General Counsel at Cabot Credit Management.
The Financial Conduct Authority (FCA) has published its Mission and Business Plan for 2017/18 following consultation with a wide range of stakeholders. The ‘headline’ for the national media was a ‘considerable focus’ on personal debt beyond just specific areas such as payday lending, which has already been capped (see BBC news article here).
Both the FCA’s Chief Executive Andrew Bailey and the Bank of England have raised concerns over big increases in ‘high cost’ consumer borrowing and personal debt in the last year and, with the uncertainty of Brexit, concerns over consumers’ financial future and the sustainability of our financial markets are in the spotlight.
Ultimately, the FCA’s mission is to: ‘serve the public interest, and to add public value through [its] contribution to society’ and a key objective is ensuring consumer protection. This is not a new concept for the regulator but is a reminder to us all that putting the consumers’ interests first is no longer a ‘nice to have’.
So what does this mean for the debt collection and purchase sector?
We welcome greater transparency from the consumer credit regulator on how it sets its priorities and makes/enforces its regulatory decisions and the fact that the FCA is committed to involving and engaging with regulated firms more.
Debt collection agencies may not always have had the greatest reputation amongst consumers but our commercial goal has also always been about contributing to society by resolving outstanding issues for the mutual benefit of all those involved and the wider economy. Clearly, it is not commercially or socially beneficial to do this in a way that has a detrimental impact on customers.
When it comes to high risk lending, it is important that we work to streamline the customer journey and create a code on data sharing in order to open lines of communication so that we can share experiences of customers who end up in financial difficulty with lenders and provide insight into what went wrong. We also need lenders to share customer insight with us.
July has been a busy month for regulatory publications requiring our attention, the FCA has published several consultation papers, in addition to setting out its agenda and priorities for consumer credit.
The long awaited Consultation Paper on a new rule for staff incentives, remuneration and performance management in consumer credit was published on 4 July 2017 (CP17/20) and provides examples of good and poor practice the FCA has observed. CSA members should use these examples to assess whether their own performance management and remuneration frameworks meet the regulatory expectations.
The equally long awaited Consultation Paper on extending the Senior Managers and Certification Regime to all FCA firms was published on 26 July 2017 (CP17/25). All CSA members who are regulated by the FCA will be impacted by this regime and will need to ensure their Senior Managers and HR departments are aware of the coming changes.
They also published a Consultation Paper on assessing creditworthiness in consumer credit (CP17/27). This useful consultation will be of particular interest to consumer credit lenders but should be taken into account throughout the debt collection and purchase sector when considering proportionate and appropriate ways to ensure repayment plans are affordable and sustainable for consumers.
Any CSA members who would like to provide their thoughts or feedback on any of the Consultation Papers can provide their response to the Compliance and Regulatory Affairs team by contacting Daniel Spenceley on firstname.lastname@example.org or Claire Aynsley on email@example.com.
The FCA’s focus and priorities in consumer credit continue to centre around high cost lending, referring in particular to unarranged overdrafts, rent-to-own, home collected credit and catalogue credit sectors. The FCA has stated they will be developing tailored solutions for the issues they have identified in these sectors and will consult on these in Spring 2018.
They have also set out their intentions to develop their understanding and motor finance products and to assess whether they cause harm to consumers. Areas of key focus for the FCA in the motor finance sector are:
- Affordable lending
- Management of conflicts of interest arising from commission arrangements
- Clear and transparent information provided to consumers
- Risk of asset devaluation
Creating a regulatory culture
In the past, embedding a regulatory culture throughout a business may have meant in some businesses, a ‘tick box’ approach, but it now means ensuring that our values are aligned with that of the regulator and it is useful to have greater clarity on what the FCA is trying to achieve and for what purpose.
In order to address concerns over high risk borrowing during uncertain financial times, we need to focus on sustainability.
As the BBC article mentioned above highlights, consumer credit lending is still less than 10% of all lending by UK banks to household borrowers but the potential consumer and commercial harm of debts such as unarranged overdrafts if we are hit by a big economic downturn is enough to make it a priority for the FCA.
When we put consumers and their interests first, the solutions we develop actually make more commercial sense.
The CSA’s UK Credit & Collections Conference in September 2017 will include a focus on collections culture in the light of the FCA’s new mission.