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Retail finance round-up - 28 January 2016

Retail finance round-up - 28 January 2016
  • United Kingdom
  • Financial services - Retail finance


The headline from this week is the appointment of Andrew Bailey as the new Chief Executive of the Financial Conduct Authority for a five year term to start in July 2016. Andrew will move over from the Prudential Regulation Authority, where he is currently Chief Executive Officer.

The FCA has published its regulation round-up for January this week which highlights the new Online Dispute Resolution (ODR) platform and reminds firms that from 15 February 2016, the European Commission will make an ODR platform available on its website.  This platform will allow consumers to submit complaints about a product or service purchased online.  From 15 February 2016, all businesses that sell or provide goods or services online to consumers must provide a link on their website to the Commission’s ODR platform.

There are also a number of recent case decisions which are of interest, one on unfair relationships and another on the scope of ‘credit’ under the Consumer Credit Act. 

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Legislation and case law

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Andrew Bailey appointed as new Chief Executive of the FCA

On 26 January 2016, HM Treasury announced the appointment of Andrew Bailey as the new permanent Chief Executive of the FCA.

Andrew is currently the Deputy Governor for Prudential Regulation at the Bank of England and Chief Executive Officer of the Prudential Regulation Authority. He is expected to take up the role in July 2016 and is being appointed for a five year term.  Tracey McDermott will remain in post until Andrew starts.

HM Treasury have also appointed four new non-executive FCA Board Members, Bradley Fried, Baroness Hogg, Ruth Kelly and Tom Wright.  These appointments will take effect from 1 April 2016.

FCA publishes regulation round-up for January 2016 highlighting the new Online Dispute Resolution platform

The FCA has published its regulation round-up for January 2016. 

The round-up features the new Online Dispute Resolution (ODR) platform as a hot topic.  The FCA reminds firms that from 15 February 2016, the European Commission will make an ODR platform available on its website, which will allow consumers who have a complaint about a product or service purchased online to submit the complaint using the platform.  Complaints submitted to the platform will be dealt with by approved ADR providers, such as the Financial Ombudsman Service.  From 15 February 2016, all businesses that sell or provide goods or services online to consumers must provide a link on their website to the Commission’s ODR platform.

Also of interest is the information provided on the EU Benchmarks regulation, which will introduce a common framework and consistent approach to providing benchmarks.  The Regulation will regulate the running, contribution to and use of benchmarks in financial instruments traded on trading venues, mortgage contracts and consumer credit contracts, or used to measure the performance of investment funds.

FCA publishes proposed guidance on voluntary redress schemes under Competition Act 1998

The FCA has published its proposed guidance on how it will exercise its powers to approve and enforce redress schemes under section 49C of the Competition Act 1998. Following amendments made by the Consumer Rights Act 2015, the FCA has new powers pursuant to the Competition Act 1998, allowing them to approve a redress scheme in relation to anti-competitive behaviour.

The guidance is aimed at firms looking to provide compensation under such a scheme, but also those who set up or advise on redress schemes under the Competition Act 1998. Comments and views are sought by email no later than the 15 February 2016.

SRA publishes consumer credit toolkit

On 19 January 2016, the Solicitors Regulation Authority (SRA) published a consumer credit toolkit to help firms ensure the services they deliver are compliant with the new regulatory regime.

The new regulatory regime comes into force on the 1 April 2016 and allows the SRA to carry out some consumer credit regulation for firms if their work is an integral part of the legal services being provided. It is possible that firms will still need to apply to the FCA and so firms should check whether they still need to apply for dual regulation.

It is envisaged that the toolkit will help firms work out what the regulatory requirements mean for them through guidance, case studies and questions and answers.

FCA and PRA publish consultation paper on the management expenses levy limit for FSCS for 2016/17

The FCA and PRA have published a consultation paper (CP16/3) on the management expenses levy limit (MELL) for the Financial Services Compensation Scheme (FSCS) for 2016/17.

The MELL ensures that FSCS has suitable funding to ensure that it is capable of exercising the functions conferred on it by Part 15 of the Financial Services and Markets Act 2000 (FSMA).  The MELL is consulted on annually.  Chapter 2 sets out the proposed MELL for 2016/17.

Chapter 3 contains the PRA and FCA’s analysis of the costs and benefits of the proposed rules as required under FSMA, and a statement regarding the PRA’s and the FCA’s respective competition objectives.

The consultation is relevant to all financial services firms.  Feedback is requested by 15 February 2016.  Following the consultation, the PRA and FCA will consider any feedback and issue two respective policy statements or an equivalent Handbook Notice on the final MELL so that the amended PRA and FCA rules can be in place for the start of the FSCS’s financial year on 1 April 2016.

FCA consults on changes to client money rules for firms operating crowdfunding platforms

The FCA has published a consultation paper (CP16/4) on changes to client money rules for firms operating crowdfunding platforms. The FCA proposes rules to simplify client money requirements for firms that operate electronic systems relating to peer-to-peer (P2P) lending platforms.

The FCA proposes to allow firms that hold money in relation to both P2P and business to business (B2B) agreements to be able to elect to hold all lenders’ monies under CASS 7 if they wish to do so. Firms may then segregate P2P and B2B monies from the firms’ money together with breaching the CASS rules and without necessarily needing to distinguish between P2P and B2B agreement monies.  

In addition, the FCA proposes to extend its existing restriction against firms taking full ownership of lender monies under title transfer so that it covers the scope of the election. The FCA believes it is likely to reduce the burden of compliance for some firms with CASS.

The proposed changes are in the Client Assets Sourcebook (Amendment) Instrument 2016 contained in Appendix 1 of the consultation paper.  The closing date for responses is 11 February 2016.

County Court finds no unfair relationship in relation to secured fixed term loan agreements - Swift Advances PLC v Okokenu

The Defendant in this case was a 70 year old man who resided in a retirement community.  He entered into two successive fixed term loan agreements with Swift Advances PLC (the Claimant), both of which were secured by a second charge on his home and were regulated by the Consumer Credit Act 1974 (CCA).

At the time of entering into the loan agreement the Defendant told the Claimant that he worked as a driving instructor and would continue to do so past retirement age.  In fact, the defendant had no such job. The Defendant fell into arrears and the Claimant commenced possession proceedings.  The Defendant argued that bearing in mind his age and the term of the loan (which would take him to 85 years old), he was never likely to be able to sustain the loan over its full term and so the Defendant alleged that there was an unfair relationship pursuant to Section 140A CCA.

The County Court gave judgment in favour of the Claimant and held that:

  • The Claimant had proved the relationship was fair under section 140A.
  • The court is required to look at the whole transaction from the point of view of both the debtor and creditor before determining whether the relationship is unfair - Plevin v Paragon Personal Finance Ltd.
  • The mendacity of the Defendant was a relevant consideration for the purposes of section 140A CCA.
  • The Claimant’s practice and experience in dealing with elderly borrowers was relevant in judging whether or not it had acted unfairly.
  • The Claimant’s actions were not to be judged by guidance or standards of behaviour that came into force after the loans had been agreed. The Claimant was operating in accordance with the then existing guidance and so there was no reason for criticising the Claimant.

The scope of ‘credit’ under the Consumer Credit Act 1974 - Burrell and others v Helical (Bramshott Place) Limited

This case concerned whether a fee payable by a tenant for assigning the lease involved the provision of “credit” for the purposes of the Consumer Credit Act 1974 (CCA).

Helical (Bramshott Place) Ltd (the ‘Landlord’) developed a retirement village.  It granted long leases to retired persons who wished to live at the development.  There were four married couples who had paid premiums for the leases (and two of those couples had later assigned their leases to others).  Proceedings were issued by those tenants (collectively, the ‘Tenants’), claiming terms in the leases were unfair under the Unfair Terms in Consumer Contracts Regulations 1999.

Further proceedings were later issued by the Tenants alleging that the fee payable to assign the leases to third parties by the Tenants (the Transfer Fee) involved the provision of “credit” within section 9(1) of the CCA.  If this was right, then:

  • The Landlord did not have a consumer credit licence from the Office of Fair Trading at the time of entering into the Leases, meaning they would be unenforceable under section 40 of the CCA.
  • The leases would be regulated consumer credit agreements (as defined by section 8(1) of the CCA) and, because they did not comply with the form and content requirements of the Consumer Credit (Agreements) Regulations 1983, they were unenforceable without the Court’s permission.

The Landlord argued that no “credit” was provided and the claims under the CCA should be dismissed.

There was no obligation on the Tenants to pay the Transfer Fee.  There was no deferment of the purchase price (that is, the premium payable under each of the Leases).  There was no obligation to assign the lease on any of the Tenants, and no deferment of the requirements on the buyer to pay the Transfer Fee. 

The High Court ruled that because there was no deferment of the premium of any other amount payable under the leases, there was no “credit.”  The Court therefore granted summary judgment in the Landlord’s favour and dismissed the claims under the CCA.

Bank of England and Financial Services Bill 2015-16: Third reading in the House of Lords

On 20 January 2016, the House of Lords held the third reading of the Bank of England and Financial Services Bill 2015-16.

The Bill will make reforms to the governance of the Bank of England (BoE) and general financial services reforms.  Among other things, it will end the status of the PRA as a subsidiary of the BoE and establish a Prudential Regulation Committee (PRC) in the BoE to exercise the functions of the PRA.  The Bill will also make amendments to the senior managers and certification regime.

The first reading of the Bill in the House of Commons was on 19 January 2016.  The date for the second reading is Monday 1 February 2016. 

ASA ruling on Caversham Finance Ltd t/a BrightHouse 

The Advertising Standards Agency (“ASA”) has investigated complaints surrounding the television advertisements of BrightHouse (a rent-to-own retailer) which gives customers the opportunity to purchase various household products, repaying in weekly payments over a period of – on average – 156 weeks.

The complaints against BrightHouse focused on:

  • The legibility of on-screen text.
  • Whether the advertisements were misleading as they did not make clear that consumers were required to have or purchase insurance to cover fire, theft, and accidental damage.
  • Whether the advertisements made it clear whether or not the weekly payments were inclusive of the cost of a non-optional service package.

The ASA concluded that, as complainants had said they were unable to read the text as it was too narrow, the superimposed text was not presented clearly and contained information (such as the representative example) that would be material to a consumers decision, and as such the advertisement was misleading. Additionally, the advertisement did not include information on the requirement for suitable insurance, and a failure to include this requirement was misleading. Lastly, BrightHouse’s failure to state that the weekly costs involved in taking an agreement with BrightHouse were inclusive of the non-optional service change was also misleading, as this was seen as material information.

Consequently, the television advertisements were not to be broadcast again in their current form and BrightHouse was informed of the need to material information is made clear.

Financial Services Survey published for December 2015

The CBI and PwC have published a Financial Services Survey for December 2015.  The survey of 100 financial services firms reported that the overall level of business has remained “above normal”. The survey made key findings within the following sub-sectors: banking, building societies, life insurance, general insurance, insurance brokers and investment management.

In the banking sector, the survey has found that banks have reported no change in optimism and a slight decline in business volumes and this is expected to remain the same for the next three months. It has been suggested that this is due to challenges faced by banks within the current operating environment where interest rates remain low and growth is difficult. The capital expenditure on IT has increased substantially and will continue to do so whilst banks introduce new products and services to retain their customers.

Optimism among building societies has remained stable, there has been an unexpected increase in business volumes as a result of strengthening business with private individuals and firms. The overall profitability in this sector is continuing to rise and is predicted to do so again in the following quarter.

Mortgage Credit Directive changes to CML Handbook

As a result of the introduction of the Mortgage Credit Directive (2014/17/EC), the Council for Mortgage Lenders (“CML”) has announced it will be amending its lenders’ handbook on 1 February 2016.  The CML Lenders handbook contains instructions for conveyancers acting on behalf of lenders in residential conveyancing transactions, and now accommodates the requirement for prospective borrowers to have a ‘reflection period’ of at least 7 days. The FCA were consulted on the amendment.

The reflection period is introduced through the Directive to allow borrowers to review their mortgage offer, make comparisons and assess the implications of taking the offer. Throughout the reflection period, lenders are permitted to communicate with the borrower, and the borrower can accept the offer, reject it, or allow the time to lapse.

The introduction of the reflection period will apply from any new agreement entered into after 21 March 2016. It is expected that the UK standard will be 10 days, or aligned with the existing offer expiry date (which can be up to 6 months).

FCA and PRA publish new bank start-up unit guide

On 20 January the PRA and FCA published a guide to its New Bank Start-up Unit; a joint initiative giving information and support to newly authorised banks and those thinking of becoming a new bank in the UK.

The Unit will draw staff from the PRA and the FCA, and will provide new banks with the information and materials they need to navigate the process to become a new bank, as well as focused supervisory resource during the early years of authorisation.

New banks will benefit from:

  • Access to the New Bank Start-up Unit helpline.
  • Access to supervisors at both the PRA and the FCA via the helpline.
  • Regular capital and liquidity reviews, if appropriate.
  • Monthly regulatory update emails.
  • Invitations to seminars targeted at new and prospective banks and separately banks’ senior management and NEDs.
  • Invitations to events, alongside other firms, on key regulatory conduct topics.

The PRA has also published a webpage setting out the five key stages to becoming an authorised bank.

CML estimated gross mortgage lending up 8% in 2015

The Council of Mortgage Lenders estimates that gross mortgage lending reached £19.9 billion in December 2015. This is 3% lower than November, but 23% higher than December 2014.  The estimated total for the year comes in at £220.3 billion, an 8% increase on 2014’s £203.3 billion.

Gross mortgage lending for Q4 2015 was an estimated £62.3 billion - a 1% increase on Q3 and a 23% increase on Q4 of 2014.

Commenting on market conditions, CML economist Mohammad Jamei confirms that lending was slightly higher than anticipated in the year but that there is still uncertainty surrounding the impact of tax changes on the buy-to-let sector.

Monthly contactless spending reaches £1bn

The UK Cards Association has published its card expenditure statistics for November 2015. Its statistics in relation to contactless spending show that:

  • Spending on contactless has hit a record £1bn in a single month for the first time in November.
  • By contrast, contactless spending amounted to £287 million in January.
  • This represented an increase of 10% from October, with the number of purchases going up 6% to 1.174 billion from the same month (with rises partly attributed to Black Friday and Cyber Monday).

Richard Koch, Head of Policy at The UK Cards Association, said:

“Spending on contactless cards has increased almost fourfold since the beginning of 2015 and for £1 billion to be spent via contactless in a month is a major milestone.”

CMA publishes notice of intention in respect of its retail banking market investigation

The  Competition and Markets Authority (CMA) has published a notice of intention in respect of its retail banking market investigation.  It plans to undertake a second iteration of the personal current account (PCA) pricing analysis using transactions data.

In its provisional findings it undertook an analysis of PCA pricing and calculated:

  • The net cost per month of each account using prices at a particular date.
  • The net cost per month for that account if the account holder switched to another PCA.

The output was used to calculate an estimate of the potential savings from switching and estimate average prices across banks.

After consulting on its provisional findings, the CMA intends to undertake a second iteration of the analysis in order to refine and update the analysis.  It will use anonymous transactions data that it collected from its information request in December 2015 (Account Benefits) and January 2016 (Northern Ireland PCA).

FCA publishes new webpage on deadline for card security product holders to claim compensation

The FCA has published a new webpage reminding those who bought certain card security products of the deadline to claim compensation.  Anyone who received an AI Scheme Limited compensation claim pack in the post in August or September last year who wishes to claim compensation must return their completed form by 18 March 2016.

The scheme was voluntarily set up by Affinion International Limited and eleven card issuers to provide redress to those who bought the products, which included insurance to cover fraudulent use if the card was lost or stolen.  This was in certain respects unnecessary because the customer’s bank or card issuer was typically responsible for any transactions after the cards were reported as lost or stolen and, before reporting the matter, customers were only liable for unauthorised transactions in limited circumstances.

Forms received after the deadline will not be considered so it is important that people who wish to seek compensation do so without delay.  The FCA recommends that completed claim forms are posted well before the deadline.

FCA updates webpage on monthly PPI refunds and compensation

The FCA has updated its webpage on monthly PPI refunds and compensation.

In November 2015, a total of £393.8m was paid to customers who complained about the way they were sold PPI.  This takes the amount paid out since January 2011 to £22.2 billion.

FCA questioned by Treasury Select Committee

On 20 January 2016, the FCA’s Chairman John Griffith-Jones and acting Chief Executive Tracey McDermott appeared before the Treasury Select Committee to answer questions over the regulator’s decision to stop a thematic review into banking culture.

Tracey McDermott defended the FCA’s decision by stating that while there is “further to go” in reforming culture she felt that a thematic review “was not the right way to achieve that.”  Meanwhile, Mr Griffith-Jones rejected allegations that the regulator’s independence has been undermined by political interference.

FOS publishes issue 131 of Ombudsman News

The Financial Ombudsman Service (FOS) has published issue 131 of Ombudsman News.  In this issue, FOS focuses on its complaint statistics for the third quarter of the 2015/16 financial year.  In October, November and December of last year:

  • FOS handled 127,965 enquiries from consumers, taking on 79,338 new cases – with 12,774 complaints passed to an Ombudsman as the final stage of its complaints handling process.
  • PPI remained the most complained about financial product, with 43,982 new cases in the third quarter.  Packaged bank accounts were the second most complained about product, with 10,450 new cases – slightly up from the last quarter.
  • The proportion of complaints it upheld in favour of consumers was 54% - ranging from 18% for complaints about packaged bank accounts and to 67% for complaints about PPI.

Also of interest in the issue, is the case studies of complaints involving relationship breakdowns.  FOS explains that it regularly hears from people whose relationship troubles have led to problems with their finances.  Any difficulties will be coming at an already stressful time.  The role of FOS is to decide whether a business has treated their customer fairly given the circumstances.

FOS recognises that while a business is unlikely to have directly caused the relationship breakdown, the actions of the business may have caused the customer further upset.  FOS will consider whether the business has recognised the emotional and practical impact of their mistake.