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Retail Finance round-up - 10 June 2016

Retail Finance round-up - 10 June 2016

  • United Kingdom
  • Financial institutions - Retail finance

10-06-2016

Unfair terms remain a hot topic for many in the sector so of particular interest this week is the removal by the FCA of further material from its unfair contract terms website.  The materials that have been removed are all undertakings. The FCA advises firms not to rely on the content of these undertakings as they may no longer reflect its views on unfair contract terms.

The judgment in the case of Alexander (representative of the “Property 118 Action Group”) v West Bromwich Mortgage Company was handed down on Wednesday this week.

The consultation on the Call for Input: Review of the Retained Provisions of the Consumer Credit Act has now closed. We covered the scope of the review and our thoughts on it in our recent Retail Finance seminar.

With just two weeks to go before the Referendum, Brexit is top of the agenda. To understand the key issues affecting the vote, see our Making Sense of Brexit guide.

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Court of Appeal hands down decision in Alexander v West Bromwich Mortgage Company Ltd

The much anticipated judgment in the case of Alexander (representative of the “Property 118 Action Group”) v West Bromwich Mortgage Company was handed down on Wednesday this week. Overturning the decision of the Commercial Court, the Court of Appeal held that the terms of the mortgage conditions and the offer document were inconsistent on both the lender’s ability to vary the interest rate and its ability to require early repayment. That inconsistency meant that the terms of the mortgage conditions were not incorporated and could not be relied upon by the lender. Read our detailed briefing on this case.

If you would like to discuss any issues raised by this development, please contact Chris Busby.

FCA publishes Policy Development Update – Issue 34

On 3 June 2016, the FCA published Issue 34 of its Policy Development Update.

The Policy Development Update includes, amongst other things, the following:

Confirmation of the publications issued since the last update. Examples include PS16/15 whereby the FCA set out the feedback on CP15/33, relating to consumer credit proposals in response to the CMA’s recommendations on high cost, short term credit, FS16/3 setting out the feedback from the FCA’s Call for Input on competition in the mortgage sector and GC16/5 setting out proposed guidance by the FCA on wind-down planning.

Forthcoming publications, including the Policy Statement to CP14/13 ‘Strengthening accountability in banking: a new regulatory framework for individuals’, and the Policy Statement to CP15/32 ‘Smarter Consumer Communications: Removing certain ineffective requirements in our Handbook’.  The publication dates for these Policy Statements are yet to be confirmed.

If you would like to discuss any issues raised by this development, please contact Jo Owens.

FCA publishes response to the CMA’s provisional decision on remedies from its retail banking market investigation

The FCA has announced that on conclusion of the Competition and Market Authority’s (CMA) investigation on competition in retail banking, and confirmation by the CMA of the final remedies, the FCA will publish its official response.

The FCA welcomed the CMA’s efforts to increase competition in retail banking and confirmed its support of the CMA’s provisional decision to make recommendations to the FCA to take forward a range of remedies.

If you would like to discuss any issues raised by this development, please contact Jo Owens.

FCA removes further unfair contract terms materials from website

On 2 June 2016, the FCA updated its unfair contract terms library webpage.

The FCA explains that, in May 2016, it became aware of material on its website that it considers no longer reflects its view on unfair contract terms. As a result, these materials have been removed from the website.

The materials that have been removed are all undertakings. They are included on the webpage in the list of documents removed from the website (see items 12 to 18). The FCA advises firms not to rely on the content of these undertakings as they may no longer reflect its views on unfair contract terms.

In January 2016, the FCA confirmed that it has no current intention to publish guidance on unfair contract terms.  However, the FCA did outline key messages for firms on unfair terms in May 2016.

If you would like to discuss any issues raised by this development, please contact Geraint Thomas.

PRA publishes its Regulatory Digest for May 2016

On 1 June 2016, the PRA published its Regulatory Digest for May 2016. The Regulatory Digest summarises the key regulatory news and publications for May 2016, including (among other things):

  • The speech by the Deputy Governor of the PRA, Andrew Bailey, on culture in financial services. In his speech, Mr Bailey re-emphasises that culture still is, and will remain, of the utmost importance to financial regulators.
  • The news that the Bank of England and Financial Services Bill was given Royal Assent on 4 May 2016. 

If you would like to discuss any issues raised by this development, please contact Jo Owens.

EBA decision on specification of benchmark rates under MCD 

Following the European Banking Association’s (EBA) final report confirming its decision to specify the formula for the benchmark rate under Annex II to the Mortgage Credit Directive (MCD), the EBA has published the formula on the Official Journal of the EU. This will come into force on 24 June 2016, 20 days after its publication.

The MCD specifies the information that mortgage creditors should provide to consumers, including personalised information, in order to enable the consumer to compare and reflect on the characteristics of credit products. The MCD requires mortgage creditors to provide this pre-contractual information to the consumer in the form of the European Standardised Information Sheet (ESIS).  The MCD also provides that the creditor should calculate illustrations of the annual percentage rate of charge (APRC) and of a maximum instalment amount in certain circumstances ‘based on the highest value of any external reference rate used in calculating the borrowing rate where applicable or the highest value of a benchmark rate specified by a competent authority or EBA where the creditor does not use an external reference rate’.

Whilst the EBA is not a rate-setting authority, and as such has not previously specified a benchmark rate that can be used by creditors, in order to give effect to the required rate under the MCD, the EBA developed a formula with which mortgage creditors are to calculate the rate. By producing a formula instead of a single rate, the EBA seeks to ensure that its rate is representative of national circumstances. As input, the formula uses an underlying rate that is specific to each Member State, either the European Central Bank (ECB) rate for Eurozone countries or the Member State’s central bank rate for non-Eurozone countries.

If you would like to discuss any issues raised by this development, please contact Geraint Thomas.

Treasury Committee letters to the FCA on risks and opportunities of P2P

On 1 June 2016, Andrew Tyrie MP, Chairman of the Treasury Committee, wrote to the Chief Executive of the FCA, Tracey McDermott, and the Deputy Governor of the Bank of England for Prudential Regulation, Andrew Bailey, seeking action on assessing whether consumers would benefit from further regulation of the peer-to-peer (P2P) lending market.

The letters highlight the need for the FCA to pay due attention to the risks by the growth of P2P lending and related markets as well as the need for the FCA to clarify its policy on the issue.

When commenting on the correspondence, Mr Tyrie highlighted the following:

  • The Government policy that allows P2P investments to form part of an ISA allowance represents a form of official support for investments which may carry a higher risk.
  • P2P loans are estimated to have totalled £4.4bn in the final quarter of 2015.
  • The need for consideration to be given to whether investors could benefit from stronger consumer protection.
  • The risk that poorly informed investors may be left with a false sense of security about the balance of risks versus returns.
  • The fact that regulation may not be the answer, instead an increase in competition may offer benefits to the consumer.

Mr Tyrie emphasised that it is crucial that the regulator finds the right balance between these risks and opportunities.

If you would like to discuss any issues raised by this development, please contact Jo Owens.

European Commission announces proposal for a Regulation on cooperation between national authorities responsible for the enforcement of consumer protection laws

The European Commission has published a proposal for a Regulation of the European Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws (Regulation).

It is proposed that the Regulation will replace the existing Regulation on consumer protection cooperation 2006/2004  (CPC Regulation) to respond to challenges of the digital economy and the development of cross-border retail trade in the EU.  The proposal for a modernised Regulation is part of the European Commission’s 2016 Work Programme.

The European Commission explains that while the existing CPC Regulation has strengthened the enforcement of consumer laws across the EU, a high level of non-compliance with the key Union consumer rules persists in the main consumer markets.  The CPC Regulation does not provide strong and equal enforcement of these laws across the Union.  The European Commission estimates that, based on a representative sample of five online sectors (including consumer credit) 37% of EU ecommerce did not respect Union consumer law in 2014.

It is hoped that the Regulation will address the identified shortcomings of the CPC Regulation.  The general objective of the proposal is to develop modern, efficient and effective consumer protection cooperation mechanisms that will reduce the consumer detriment caused by cross-border and widespread infringements to Union consumer law.  This includes in particular reducing situations where important cross-border and widespread infringements are not detected or sufficiently addressed through the CPC Regulation and ensuring that consumer protection authorities reach similar outcomes regarding the same malpractices.

If you would like to discuss any issues raised by this development, please contact Geraint Thomas.

Money Advice Trust guidance on vulnerability

On 6 June 2016, the Money Advice Trust (MAT) published its guidance, ‘Vulnerability: a guide for advice agencies – 12 steps for treating clients in vulnerable situations fairly’. The guidance builds upon the MAT’s 12-step guidance for creditors on vulnerability and aims to assist advice agencies in providing better support to their advisers in this area.

The need for advice agencies to improve the advice provided to vulnerable clients was highlighted by a recent survey carried out by the Money and Mental Health Policy Institute. The survey looked at the experiences of nearly one thousand clients and found that:

  • 40% of the clients had not been asked if they consented to the adviser recording details in relation to their mental health problems.
  • 41% of the clients stated that advisers did not ask questions about the effects of their mental problems on their financial situation.
  • 35% of the clients did not feel that their mental health problem had been taken into account, despite notifying the advice organisation of it.

The guide, which was written by vulnerability experts Chris Fitch and Colin Trend and funded by the MAT, received the support of a number of organisations including, StepChange Debt Charity, the Money Advice Service, Advice UK and the Financial Ombudsman Service.

If you would like to discuss any issues raised by this development, please contact Jo Owens or Noreen Husain.

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