FEATURES | NEWS BRIEFLEGAL NEWS | YOUR CCTA MEMBER NEWS | MEMBER ONLYINDUSTRY STATS

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1 April 2014 heralded the beginning of the new order for the consumer credit market. The FCA will impact on every firm whether large or small. What is going to matter, is how that impact is absorbed. Change is a constant in life, and the important thing is accommodating it well. Our collective attitude needs to be positive and forward thinking, to future proof business.

CCTA will be collaborating fully with the new regulator, to provide guidance and best practice for our members. We will advise the FCA of solutions, where we see unintended consequences that create a poor outcome to consumers or firms. We will enhance our communications, to ensure that members are fully aware of changes to CONC rules and principles, through a comprehensive package of training and services.

We recognise that the cost of compliance will increase and, dependent on the product, in most cases this will be passed onto the consumer. We will seek to reduce these costs by providing regulatory information and signposting risks, to ensure that you are always aware of change, and ‘industry relevant’ news.

Make CCTA one of your first ports of call, for peace of mind.Greg StevensChief Executive, CCTA

THE CONSUMER CREDIT MAGAZINE FROM CCTA APR:JUN 2014 V69 NO.2

in this issue

NOTE: With such a diverse membership contributing, the views expressed in this magazine are not necessarily the views of CCTA.

CONTACTSGreg Stevens, Chief Executive greg.stevens@ccta.co.uk

Graham Haxton-Bernard, Head of Legal, Compliance and Regulatory Policy graham.haxton-bernard@ccta.co.uk

Anne Threapleton, Head of Marketing and Communications anne.threapleton@ccta.co.uk

Debbi Gower, Head of Finance, Complaints and Conciliation debbi@ccta.co.uk

Phillip Harding, Membership Services Manager phillip.harding@ccta.co.uk

Consumer Credit Trade AssociationA company limited by guarantee and registered in England. Registered Number 00034278.

VAT Number 232 4655 76. Registered Office Address: Suite 4, The Wave,

1 View Croft Road, Shipley, West Yorkshire, BD177DU.

T: +44 (0)1274 714959 F: +44 (0)845 2571199 www.ccta.co.uk

REGULARS:News Brief 10

Legal News 18

Your CCTA 22

Member News 24

Member Only 29

Stats 39

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some as proposing a blanket ban on part payment being taken, CONC has amended the previous wording to provide for limited circumstances in which part payments may be collected by lenders. For example, one off payments of lesser amounts will be acceptable if the consumer has specifically instructed a part payment should be taken. The effect of the new rules is to ban the use of CPA for the collection of part payments under HCSTC agreements. Lenders should therefore ensure that they only seek to recover the full balance due on a particular date using CPA.

There was significant discussion at the time of the consultation about the new risk warning required for high cost short term credit advertisements (financial promotions). In response to feedback from lenders, trade associations and other industry participants this has now been reduced to:

‘Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.co.uk’

Lenders should note that the new wording must be featured in all advertisements for HCSTC, including all electronic advertising from 1 April 2014. While the inclusion of a link to the Money Advice Service (MAS)’s website as part of the warning adds what may be seen as unnecessary length, the FCA have stated that it is open to firms to include the MAS logo instead, subject to obtaining the appropriate permissions.

On a general point, lenders whose offering includes HCSTC products should be aware that the FCA’s position remains unchanged from the Draft Rules in relation to some of the strict conduct requirements for HCSTC lending. In particular, the number of times a loan can be refinanced will be limited to two, with borrowers having to be provided with an information sheet in a prescribed form, and directed to sources of free debt advice before a loan is refinanced.

While many of the conduct rules for HCSTC do not come into force until later this year, lenders are well advised to get their houses in order at the earliest opportunity to ease the transition and minimise their regulatory risk.

OTHER CHANGES AFFECTING ALL CONSUMER CREDIT PROVIDERS

There have been a number of changes, tweaks and refinements made to the conduct rules in CONC since the consultation on the Draft Rules. In a number of areas the FCA has included additional guidance to improve understanding, and revised the drafting of particular rules in order to bring them closer to equivalent provisions under the OFT’s current guidance. In addition, in a number of areas the FCA has downgraded the status of certain provisions within the Draft Rules from rules to guidance.

Some of the notable changes from rules to guidance include that:

• pre-contractual information and explanations should take into account any preferences expressed, or information provided by the customer where the firm

would in principle agree to lend on such terms

• the pre-contractual explanation should enable the customer to make a reasonable assessment of whether they can afford the credit, and to understand the key associated risks

• in deciding on the level and extent of explanations, firms should consider, to the extent appropriate to do so, relevant factors, including those specified

• the extent and scope of the assessment of creditworthiness or affordability should be dependent on and proportionate to relevant factors, which may include one or more of those specified

• firms should take adequate steps, insofar as it is reasonable and practicable to do so, to ensure that information relevant to the creditworthiness or affordability assessment is complete and correct.

Practically, while the change in these provisions means that the requirements in this area are less prescriptive in CONC than in the Draft Rules, the guidance in these provisions is likely to offer one of the most straightforward routes to compliance. Generally lenders should ensure that they take account of the guidance in CONC in their business practices to the fullest extent possible.

In relation to advertising, the new rule that references to speed and ease of availability of credit within advertising will be considered to be triggers for the purposes of the inclusion of the representative APR has been clarified by the FCA. A number of respondents to the consultation raised concerns that the Draft Rules mean that all statements about speed or ease of service are to be treated as an ‘incentive’, triggering the requirement for a representative APR to be included. The FCA have added supplementary guidance at CONC 3.5.8G to make it clear that whether or not a reference to speed or ease constitutes an ‘incentive’ to apply for credit or to enter into a credit agreement will depend on the circumstances, including whether it is likely to persuade or influence a customer to take those steps or is merely a factual statement about the product or service.

NEXT STEPS & TRANSITIONAL ARRANGEMENTS

All consumer credit firms are expected to comply with the FCA’s high level Principles for Business, the relevant systems and controls rules, and general status disclosure rules and CONC (save for the sections where specific transitional periods have been put in place) from 1 April. All credit advertising (financial promotions) will also now be expected to adhere to the requirements of the existing regime.

Most of the rules in CONC came into effect from 1 April 2014, although there is a six month transitional period within which firms can choose to demonstrate compliance with CONC or with a corresponding rule (in specified CCA provisions, regulations or OFT guidance) which is substantially the same in purpose and effect to the corresponding CONC rule. In areas where the FCA is introducing new rules, there will be no corresponding CONC rule and the transitional period is not applicable. The exception to this is the new rules applying to HCSTC which come into force on 1 July 2014. Notwithstanding the above, the FCA has made its position clear: non-compliance is not an option for firms at any time. The FCA has outlined its intention to enforce rule breaches from 1 April 2014 where appropriate.

The regulator’s salutary warning in its initial October 2013 consultation paper, which read: “Our message to any company that harms their customers, the clock is ticking”, certainly seems to be coming to fruition. The FCA has indicated its intention to take a robust approach to enforcement in the sector and, in the wake of political and media scrutiny of the high cost credit sector and the OFT’s review into the payday loan sector, credit will be very much in their sights. Accordingly lenders are strongly encouraged to invest time and resource now, in bringing their business practices and standards up to the highest level of compliance, in preparation for life under the FCA.

CONKERS OR CONC...ERS

| FEATURE

The final form of CONC contains a number of important changes compared to the previous draft version (the Draft Rules), which the FCA put out for consultation in October last year (in CP13/10). Some of the most significant areas of change and clarification are in relation to high cost short term credit (HCSTC). In particular, the FCA has clarified the permissible operation of continuous payment authority (CPA) to collect repayments, and revised the wording of the risk warning required in advertising and other financial promotions. The FCA has also clarified how certain provisions are transposed from the OFT guidance into CONC, and downgraded a number of provisions from rules to guidance.

This article explores some of the key changes between the Draft Rules and CONC, with a focus on the new rules in relation to HCSTC.

THE RULES IN RELATION TO HCSTC: WHAT HAS CHANGED?One of the key areas of debate in relation to the Draft Rules was the definition of HCSTC. Despite suggestions during the consultation, that the definition should be widened to incorporate other forms of credit generally considered to be expensive for consumers (such as log book lending), or narrowed to focus on single instalment payday loans, the FCA has retained its previous definition of HCSTC contained within the Draft Rules. However, credit providers with a social purpose, such as community development finance institutions, have now been excluded.

Lenders should note that the definition is not as clear cut as it might first appear. Essentially, a HCSTC agreement is a consumer credit agreement (excluding bill of sale loan agreements, overdrafts and home credit loan agreements) which is not secured by a mortgage, charge or pledge, where the APR is 100% or higher and either:

• advertising indicates that the credit is short term (or provided for up to 12 months)

• the credit is due to be repaid or substantially repaid within a maximum of 12 months of the date on which the credit is advanced.

The FCA is yet to provide clarity on the meaning of ‘substantially repaid’. It is recommended that lenders seek urgent legal advice where they are uncertain as to whether their offering falls within the scope of the definition.

Another contentious point in the consultation on the Draft Rules was the restrictions on the use of CPA in relation to HCSTC. In particular, no distinction was drawn between the treatment of single repayment HCSTC products and their instalment counterparts.

Furthermore, many respondents to the consultation were concerned that the ‘two strikes and you are out’ approach would preclude any further ‘one off’ payment attempts being made on a debtor’s card, even where specifically agreed, and could also prejudice consumers in certain circumstances, for example, where a loan is refinanced.

The FCA has clarified its position that its intention was not to prevent customers from making one off payments, CONC to take account of this. It has also amended the rules to allow the consumer to reset the CPA when the agreement is refinanced, subject to there being a dialogue between the consumer and the lender and certain factors in relation to the operation of the CPA being clearly communicated to the consumer.

In relation to instalment loans, while the FCA has shed further light on its approach to CPA use, it has been somewhat conservative. In essence, where there have been two failed attempts to collect repayment of a particular instalment using a CPA, the lender may not make any further CPA attempts to collect any sums due under the agreement until the firm has:

• engaged in a dialogue with the borrower

• notified them of the failure of the payment requests

• recovered payment of the relevant instalment (along with any other arrears) by another mean

• reminded the borrower of the amount and due date of the next instalment.

The FCA’s use of the word ‘dialogue’ is key, as the implication is that a degree of interactivity between the lender and borrower is required.

The FCA stance on part payments has been clarified. While the Draft Rules were read by

ON 28 FEBRUARY THE FINANCIAL CONDUCT AUTHORITY (FCA) PUBLISHED ITS LONG AWAITED CONSUMER CREDIT SOURCEBOOK

(CONC), BEFORE IT OFFICIALLY ASSUMED RESPONSIBILITY FOR REGULATING THE SECTOR FROM THE OFFICE OF FAIR TRADING (OFT).

CONC SETS OUT THE MAIN BODY OF THE RULES AND GUIDANCE FOR THE FCA’S SUPERVISION OF CONSUMER CREDIT.

FCA ‘TWEAKS’ NEW CONSUMER

CREDIT RULES

THE FCA HAS INDICATED ITS

INTENTION TO TAKE A ROBUST APPROACH

TO ENFORCEMENT IN THE SECTOR AND, IN THE WAKE OF

POLITICAL AND MEDIA SCRUTINY OF THE HIGH COST CREDIT

SECTOR AND THE OFT’S REVIEW INTO THE PAYDAY

LOAN SECTOR, CREDIT WILL BE VERY MUCH

IN THEIR SIGHTS.

Jeanette HarwoodPartner, Walker Morris LLP

4 5

Geoff RaeSenior Consultant, Huntswood

Peter MaguireDirector Strategy, Operations & Training, Arum

TAKING THE WHEEL

6

The motor finance industry is booming, however, lessons from the past highlight that where there’s a boom, a bust may not be too far behind. It is important for the motor finance sector to position itself to take advantage of the current climate, whilst mitigating and avoiding the ‘bust’, by ensuring the level of growth is not only sustainable but also compliant.

We have learnt that growth brings with it both opportunities and risk. Against this backdrop, some companies are being too risk averse while others are too opportunistic. The key for the sector is to find the balance, doing the right thing commercially and compliantly.

If an organisation is too risk averse it will result in an operational scenario of low sales and low profits. Whilst at the other end of the scale, if it is too opportunistic the outcome will be high sales coupled with a high level of bad debt.

It is all about lending sensibly, lending commercially and lending ethically. In order to meet the three objectives of:

• driving up sales• evidencing to the regulator that you are

treating customers fairly• mitigating unreasonable risk.

There are three key operational strategies that, if embraced and embedded correctly, will put motor finance lenders ahead of the game.

• lend commercially - achieving the right ‘accept’ and ‘reject’ levels

• lend sensibly - use of insightful data and analytics to make the right decisions

• lend ethically - listen to your customers and evidence how you treat customers fairly.

Creating a balance between the customer ‘accept’ and ‘reject’ rate will result in maximised sales while still taking account of risk. Businesses need to continually control three operational pistons on a portfolio basis to achieve this:

• service charge (interest)• bad debt• product margins.

For example, if a company was to accept 100% of its credit applications, it would have extremely high sales, but it would also have high bad debt and fall foul of treating customers fairly. Conversely, if a company accepts 10% of credit applications it would have low sales, low bad debt and, strange as it may seem, would not be treating customers fairly. The fixed operational costs would also prove problematic. Some of the motor finance industry don’t have this balance right yet. The question is are you one of them, and are you missing out on an opportunity to lend more, or indeed are you being hit with high bad debt?

Knowing who to accept, and on what terms, and who to reject is down to knowing your customer. Use of insightful data and analytics enables you to lend sensibly. By using analytics, scoring and iterative models you can get your ‘accept’ population high, while controlling the bad debt and demonstrating good conduct to the regulator. Set accept/reject application score cut offs, and link accept/reject application scores to bad debt.

As part of its continuing operational excellence and growth, The Car Finance Company has been working with Arum on a programme of Emotional Quotient (EQ) training for its customer facing staff. They have recognised the regulatory need, coupled with the competitive advantage, of listening to their customers and demonstrating real TCF. EQ training is the human communication behind the rules and regulations of the regulatory compliance framework, embedding a practical and continuous implementation of ‘treating customers fairly principles’ into an organisation and its people.

With the motor finance industry predicted to grow by another 10% this year and the FCA officially taking the regulatory driving wheel, the industry will need to continually evolve in an increasingly competitive sector. Finding the balance between being commercial, being compliant and being ethical and fair, will be the key and will ultimately differentiate the success stories from the failures.

Gone are the days where the regulator spent the majority of its time looking back and putting right the wrongs of the past. Instead, the new conduct regulator, the Financial Conduct Authority (FCA), looks forward and tries to identify the conduct issues which may arise in the future. The regulator does this, in part, through its Business Model and Strategy Analysis (BMSA). The FCA assesses firms’ business models and reviews the strategy which will be implemented to deliver that model. To aid this, the FCA’s intention is to ‘chase the money’. If the market hasn’t already done so, it will soon recognise that ‘chasing the money’ is one of the FCA’s mantras. This strategy is a fundamental part of BMSA and helps the FCA to look into the future with some accuracy.

CHASING THE MONEY: CAVEATS

The FCA looks at which areas of a business produce the major profits. In the FCA’s view, high profits may be an indicator of increased conduct risk. There are two important aspects which balance the regulator’s focus on profits, sustainable profits built on good outcomes, and consideration of net risk.

ARE PROFITS ALWAYS WRONG?

Profit is not a dirty word at the regulator. A firm which is producing profit is building up reserves. That is good news for consumers. If anything goes wrong with the firm, these profit reserves actually provide greater protection for consumers as a consequence. In this instance, profit helps to support the FCA’s consumer protection statutory objectives.

WHERE WILL THE FCA LOOK?

The areas of a business which the regulator will focus on, when chasing the money include:

• divisions/products/services with high margins

• areas of rapid growth

• high risk products (especially if sold beyond a target market)

• vulnerable customers

• a strategy for cross selling niche products, especially if sold into unintended markets.

There is a useful rule of thumb to follow on risk, products and profits. In general, the further a firm gets from its main line of business, the greater the conduct risk. For example, a car salesperson’s main activity is selling cars. Arranging loan finance is only a secondary activity. A tertiary activity, even further from the core, may be selling professional indemnity insurance. With each step away from the core line of business, the conduct risk is likely to rise.

WHICH RISK IS WRONG?

Increased conduct risk is bad news for the customer. However, it is not the gross risk, but the net risk, which matters to the regulator. Here is an example from my FCA past:

I visited a firm which sold equity release products. Risk alert. It did so only over the phone. Double risk alert. The gross conduct risk in this arrangement is extremely high. However, the company’s net risk was much more acceptable because it mitigated these conduct risks through a robust system of governance, quality assurance and staff training.

As you can see from this, it is the net risk which matters at the end of the day, not the apparent or gross risk.

HOW TO PROCEED: THINK OF YOUR CUSTOMER

In chasing the money, the FCA is identifying increased conduct risk and assessing how well firms have themselves identified and managed those risks.

Prior to a product or service launch, the FCA will make a judgement about whether that product or service is likely to produce a good outcome for customers. The regulator will ask: “Who is championing the customer’s interests when the new product or service is designed?” If no one is, the FCA will assess the customer outcome and may influence firms to pull the product or service. In extreme cases the FCA has new powers to ban the product.

Likewise, the regulator will look for evidence to see how the product or service has landed with the customer. Post sale, the FCA will want firms to determine whether the product or service reached its target market. Where sales have gone beyond the target market, there are questions to be asked. The regulator will want to know if the disclosure was such that the customer clearly understood the product and its risks, and that the product or service is performing as the customer expected.

Remember, nothing stands still in the conduct risk space. The FCA will continue to review whether a product or service is being sold into new markets to the right customers and whether these products are appropriate.

Is ‘chasing the money’ a passing phrase? No. It’s here to stay. Firms know where and how they make their money. The regulator will use this information as one of many tools to

keep looking forward to prevent risks from crystallising into customer detriment. In

this way, the FCA can ensure that firms are putting the customer at the

heart of their businesses.

CULTURE: HUMAN DOINGS OR HUMAN BEINGS?

Our organisational development team has spotted a pattern which fundamentally affects an organisation’s culture and, ultimately, its ability to change. It happens to each of us as we enter new places of work and yet it is fundamental to the culture of firms.

When a new person joins an organisation there is a golden few weeks where they see the inner workings of the company for the first time. This person does not know how things work in the new environment. They will ask questions, challenge why things are done a certain way and may even suggest some new approaches.

Thereafter, the pressure to ‘hit the ground running’ comes into play. This results in the new person’s curiosity dwindling, and in their accepting the status quo and starting to ‘do what everyone else does’.

Losing that curiosity enables mediocrity, and results in mistakes, miscommunication and customer dis-satisfaction. It stops innovation and change. Why do we allow this to happen?

We are human beings, not human doings, and yet we are rewarded for being busy and ‘doing’. Taking time out to think about and wonder ‘why?’ is a luxury, or is misunderstood as a waste of time.

We believe it is a necessity to reflect on what we are doing, is it serving us? Could we be doing something better?

CULTURE EVENT

Huntswood organisational development team is inviting a small group of pioneering senior leaders to a ‘culture’ event. We are looking for people who are interested in culture and want to take time to look at it in a unique way. Let’s hit the ‘pause button’ and think about what we are doing and why we are doing it.

If you are interested in the event please contact Fiona Smith on +44 (0)118 971 8145

THE MOTOR FINANCE INDUSTRY

CONTROLLING THE BOOM COMMERCIALLY AND

COMPLIANTLY

WE INVITESENIOR LEADERS WHO

ARE INSPIRED TO MAKE A DIFFERENCE TO CULTURE IN

FINANCIAL SERVICES FIRMS TO A SELECT EVENT. READ ON

TO FIND OUT MORE...

7

| FEATURE| FEATURE

Fiona SmithPrincipal Organisational Development Consultant

CHASING THE MONEYFCA:

IS PROFITA DIRTYWORD?

AN INVITATION…

David WaltersExecutive Director, Financial and Professional Risks

A SOFT PLACE TO LAND

8

A BRIEF GLANCE AT THE BUSINESS PAGES IN ANY NEWSPAPER WILL REVEAL EVIDENCE OF ALLEGED WRONGDOING AT ALL LEVELS OF CORPORATE LIFE IN THE UK. DESPITE A LONG PROCESS OF INCREASED CORPORATE GOVERNANCE AND REGULATION, THE EVIDENCE SEEMS TO SUGGEST THAT CLAIMS OF SUCH WRONGDOING ARE NOT DIMINISHING.IT WOULD THEREFORE SEEM LOGICAL THAT DIRECTORS’ & OFFICERS’ LIABILITY INSURANCE (D&O), THE COVER THAT PAYS LEGAL COSTS AND DAMAGES WHEN SUCH SITUATIONS ARISE, WOULD BE INCREASING IN PRICE, WHILE TERMS BECOME MORE RESTRICTED. THANKFULLY THIS IS NOT THE CASE.WHEN IT COMES TO INSURANCE, THE AIM FOR ANY BUSINESS IS ALWAYS GOING TO BE SECURING THE WIDEST POSSIBLE COVER AT THE BEST POSSIBLE PREMIUM, AND UNDERSTANDING A BIT ABOUT THE BACKDROP TO D&O AS WELL AS THE CLOSE RELATIONSHIP BETWEEN GOVERNANCE, REGULATION AND INSURANCE CAN HELP BUSINESSES DO JUST THAT.

9

| FEATURE

THE THREE PILLARS OF CORPORATE GOVERNANCE

GOVERNANCE

Good governance is the first of these three pillars of protection. Ever since the collapse of the Maxwell empire in 1991, corporate governance in the UK has been a high priority in company boardrooms. The initial response was the Cadbury Report published in December 1992 which sought to mitigate the risk of corporate failure. It focused on public companies, but subsequent corporate governance modelling has also looked at the behaviour of private companies. Indeed, the pace of governance reform continues to increase. The Financial Reporting Council has issued a fresh consultation on changes to the UK Corporate Governance Code and is expected to publish its report this summer.

Whilst corporate governance has traditionally been viewed as a concern restricted to public entities, this should now be challenged, as the reach of regulatory authorities continues to extend.

REGULATIONRegulatory change is happening in parallel, and its tone in the UK is increasingly reminiscent of that in the United States. Agencies such as the Serious Fraud Office (SFO) are actively seeking to prosecute wrongdoers and there is also now a requirement for directors to self report issues to an agency, when they become aware that their company has transgressed. The self report process is difficult and needs to be managed closely by the board of directors and their legal advisors. But the benefits of self reporting are prospective financial relief and potentially a deferred prosecution agreement in the case of the SFO. This is a new development.

As the credit industry is aware, it now falls under the aegis of the Financial Conduct Authority (FCA) and this increase in regulatory activity ought to encourage the boards of companies to consider their own governance framework and regulatory compliance.

As mentioned above, a private company must not presume that the burden of regulatory weight will fall only on their quoted peers. There have been several instances of regulators investigating the affairs of private institutions, and they are therefore at risk of incurring exactly the same costs as a public entity.

Having addressed compliance and governance it is appropriate to look at the third defence against allegations of wrongdoing, D&O insurance.

INSURANCE

The primary focus of a D&O policy is to protect the personal assets of individual directors or officers where they have been accused of breach of duty, breach of trust, negligence or any other matter, because of their status as a director or officer. The usual trigger for the D&O claim, is an allegation that a director has committed a wrongful act in a management or executive capacity. This would also include approved persons under FCA regulation.

A D&O policy is usually purchased by a company on behalf of its board, and where the company

itself is permitted to indemnify its directors, the insurance will reimburse it. However, the main benefit of the cover is that where a director is facing an allegation of wrongdoing, he or she may rely on the insurance to fund defence costs from the outset.

Any D&O claim is likely to involve several board members at once and it is extremely unlikely that the interests of all the board will be aligned. For that reason it is essential that when considering this form of corporate protection, a company ensures that its insurer and broker are capable of managing complex claims while processing conflict screens and confidentiality.

A further benefit of D&O insurance is that it will respond when a regulatory authority seeks to investigate the affairs of a company. This may not yet have targeted specific individuals as having transgressed but the authority may wish to interview board members to establish a chronology and obtain a clear view. Where an individual is so required to participate, D&O insurance will pay for their preparation at inquiry, and should the matter develop into a full claim against that individual, their defence costs.

Matters such as extradition costs are now routinely paid for by D&O insurers, as are damages when a court finds against an individual.

The breadth of cover now provided by D&O insurers means they are paying more losses than before. Consequently, it would appear logical that in those circumstances underwriters would restrict cover and increase pricing. But nothing could be further from the truth. In fact, the D&O insurance marketplace is so buoyant in the UK, that for certain business sectors there are in excess of 50 carriers competing for a company’s business. However, for financial institutions this number reduces considerably, and for certain sectors capacity remains small.

With so many D&O products on offer it is essential for a company to partner with a carrier that can demonstrate an understanding of their risk sector, their financial strength and their potential claims management record. Furthermore, to achieve the most competitive premium rate a company must seek to differentiate itself from the norm. The key underwriting criteria that insurers rely on are:

• financial strength• profitability• shareholding• jurisdiction• regulation• governance• press coverage

It is therefore prudent for any applicant for a D&O policy to work with a broker who can represent their interests in the market to the best effect. This will result in the company achieving the widest cover at the most competitive pricing. The ideal relationship for an insured to establish with their insurance underwriter, is to treat them as a stakeholder in their business. Indeed, in the event of a major loss this is precisely what the insurer will become as they assume the financial

burden of defending a claim, or funding an appearance before a regulatory body.

It is also worth seeking a meeting with your D&O carriers to establish rapport early in the relationship. Again, in the event of a claim this will reap benefits.

D&O insurance operates on a worldwide basis, which is essential when you consider that regulatory authorities are increasingly operating on a supranational basis. Consideration to claims handling is also crucial at the outset of the contract, as this will assist at the point of crisis.

Having the support of a specialist D&O broker shouldn’t be underestimated. It is vital that an insured company understands how the policy is structured from inception and its duty of disclosure. The policy will also have claims reporting requirements and these must be fully understood. If a client fails to notify a matter in a timely fashion, and the insurer’s position is prejudiced, they may deny cover. As the point of notification may arise at an incredibly stressful point for directors, and they may be in conflict with their company, a seamless notification is absolutely essential. All of which a broker will assist and advise you on.

Whilst a D&O policy is very broad, necessarily so, given the battery of potential liabilities it addresses, it does also contain some exclusions. Typically these will include:

• fraud/dishonesty – it is not possible to insure fraud or dishonesty as this is against public policy. However, it is essential that the D&O policy defends any individual accused of such behaviour until they are proven (at final appeal) to have acted fraudulently

• professional services – a D&O policy will cover the governance risk of running a company, not the position of advice to third parties. This is more properly the subject matter for professional indemnity insurance

• bodily injury/property damage – a D&O policy is not designed to provide cover for material damage. It is however expected to cover financial loss for directors consequent upon an incident involving material damage. This, a regulatory investigation, could be covered but not the actual damage

• prior claims - it is important that a client appreciates a D&O policy operates on a ‘claims made’ basis. A claim may only be made if a policy is in force. As mentioned above, timely claim notification is essential and the prior notice exclusion reinforces this principle. Claims that should have been notified or are known about before the policy is bound will be excluded.

SUMMARYIn conclusion, the twin pillars of governance and regulation have forced the third leg of defence, D&O cover, to the fore and it represents an effective remedy for defence costs and damages. However, it is essential to understand both the contract itself and the underwriter’s appetite for risk, to ensure it works when most needed.

Sticking plaster approach…

A racing startREVIEW INTO DEBT COLLECTION PRACTICES OF PAYDAY LENDERS STARTS ON DAY ONE OF FCA REGULATION

Payday lenders and other High Cost Short Term Lenders (HCSTL) will be the subject of an in depth thematic review into the way they collect debts and manage borrowers in arrears and forbearance.

The review will look at how HCSTL treat their customers when they are in difficulty, and will also take a close look at the culture of each firm to see whether the focus is truly on the customer, as it should be, or simply oriented towards profit. Beyond this review, as part of its regulation of the high cost short term lending sector, from 1 April 2014 the FCA will also:

• pay a visit to the biggest payday lenders in the UK to analyse their business models and culture

• assess the financial promotions of payday and other HCSTL and move quickly to ban any that are misleading and/or downplay the risks of taking out a high cost short term loan

• take on a number of investigations from the outgoing consumer credit regulator, the OFT, and consider whether they should begin their own for the worst performing firms

• consult on a cap on the total cost of credit for all HCSTL in the summer of 2014, to be implemented in early 2015

• continue to engage with the industry to encourage them to create a real time data sharing system

• maintain regular and ongoing discussions with both consumer and trade organisations to ensure regulation continues to protect consumers in a balanced way.

FCA RULES ARE NO APRIL’S FOOL, SAYS ALPHERA

ALPHERA Financial Services are urging motor dealers to focus on both ‘hard’ and ‘soft’ measures, when it comes to adherence to the new FCA regime. There is concern that some unprepared dealers will take a sticking plaster approach to the switch from the OFT to the FCA, without a true understanding of the spirit, as well as the letter of, the law.

Martin Parr, FCA Readiness Manager at Alphera, said: “The industry is changing. FCA regulation is designed to ensure that the consumer is put at the heart of a business. Compliance with this principles based regulation is not always black and white. Therefore a customer centric approach, which puts the customer at the heart of decision making process, will be viewed far more favourably under the FCA than one that is focused purely on profit. It is important, therefore, that dealers do everything within their power to create systems and processes which lend themselves to providing evidence of a cultural alignment with the fair treatment of customers. This means ensuring that the customer and the risks to a customer are considered within all areas of the business, with the standards set by the senior management. This must focus on ensuring that they understand how to work with the customer to determine the best product for their requirements and provide the customer with the product most suitable for their needs. Ultimately, inaction and lack of communication are the biggest potential dangers to businesses affected by the regime change.” concludes Parr.

FCA SHINES SPOTLIGHT ON EMERGING RISKS

The Financial Conduct Authority (FCA) has set out its view of the key risks across financial markets for the forthcoming financial year in its 2014/15 Risk Outlook. The document shows which conduct and prudential issues the FCA will be focussing its attention on in the year ahead. The pace of technological change, house price growth and retirement products were among the most significant risks highlighted by the regulator. Firms should consider how these issues might affect their business and what steps need to be put in place to mitigate them.

The Risk Outlook highlights seven area of focus:

• rapid technological changes can create specific risks including over reliance on third parties

• poor culture and controls could continue to undermine confidence in institutional and retail markets

• large numbers of existing customers (back books) have an incentive to act against their best interests, particularly where consumers don’t often switch between products or accounts

• retirement income products, with hidden charges or fees that make it difficult to compare options across the market

• rapid growth of consumer credit, in particular, the growth of costly products or products with complex features could mean that consumers find it harder to select the right product, or to effectively manage their use of credit

• overly complex terms and conditions make it harder for consumers to compare products, or fully understand the features of the products they buy

• house price growth could encourage firms to lend to riskier borrowers, whilst consumers could find that they’re unable to manage higher payments if interest rates rise.

Take the customer to heart FCA PUBLISHES REPORT INTO MORTGAGE LENDERS’ ARREARS MANAGEMENT AND FORBEARANCE

In a review of lenders’ approaches to mortgage arrears management, the Financial Conduct Authority (FCA) found firms had improved practices, placing greater emphasis on the need to treat customers fairly.

In the context of an extended period of historically low interest rates, the regulator has asked lenders to take action to identify customers susceptible to arrears if interest rates rise, and have appropriate strategies to treat them fairly. The FCA’s report calls on firms to build on the progress made by:

• better supporting and empowering front line staff to help them make appropriate decisions

• providing greater flexibility in their practices to support more tailored outcomes in the best interests of borrowers.

The review of mortgage arrears management forms part the FCA’s wider strategy for improving standards in the mortgage market and reflects the FCA’s new forward looking, judgement based approach to supervising firms.

At the end of April, the Mortgage Market Review (MMR) comes into force, it aims to ensure a sustainable mortgage market that works for consumers. Ensuring borrowers can meet the repayments of the mortgage they want, both now and in the future, taking into account the likelihood of interest rate changes.

The Financial Conduct Authority (FCA) has confirmed the final rules that will govern the £200bn a year consumer credit market, which includes approximately 50,000 firms.

Martin Wheatley, the FCA’s Chief Executive, said: “Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line. Our supervision of firms will be hands on and we will closely monitor how providers treat their customers, in particular those operating in higher risk sectors such as credit cards, debt management and payday. We will respond quickly to any issues that are identified and there will be swift penalties for any firm or individual found not to be putting consumers’ interests first, including possible enforcement action and consumer redress.”

The biggest changes come for payday lenders and debt management companies, including:

• limiting the number of loan roll overs to two

• restricting (to two) the number of times a firm can seek repayment using a continuous payment authority (CPA)

• a requirement to provide information to customers on how to get free debt advice

• requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money.

The Financial Conduct Authority (FCA) is proposing a shake up of the £1bn general insurance add on market including banning pre-ticked boxes, forcing firms to publish claims ratios and breaking the point of sale advantage for guaranteed asset protection (GAP) insurance, usually offered alongside car sales.

The FCA analysed detailed evidence about firms and consumers in the travel, gadget, GAP, home emergency, and personal accident add on insurance markets.

They also reviewed product literature, sales, pricing, profitability, and claims. Findings included a lack of competition and information at point of sale:

• 25% of consumers who bought insurance as an ‘add on’ were not aware that they could buy the product separately elsewhere

• 58% of add on buyers did not make comparisons with other policies in the market, compared to 22% of buyers of ‘stand alone’ products

• depending on how information about the ‘add on’ purchase was presented to consumers, they could be up to four times less likely to shop around than they would for ‘stand alone’ purchases

• 38% of add on buyers said they had not planned to buy add on insurance before the day of purchase

• 69% of add on purchasers could not accurately remember how much they paid for the product three to four months later, and 19% could not even remember buying it.

The FCA found that the proportion of the retail price that is paid out to settle claims, the claims ratio, is lower than average across these markets and very low in some, indicating that many consumers may be paying for products that are poor value.

The eagle has landedFCA TAKES OVER REGULATION OF CONSUMER CREDIT FIRMS

The Financial Conduct Authority (FCA) formally took responsibility for regulating the £200 billion consumer credit market. Businesses which offer some form of credit to the UK consumer will now be subject to the FCA’s consumer protection rules and Principles for Business.

The FCA’s regulatory regime will now extend to:

• the £6,000 that, on average, 26.4m UK households each owe in consumer credit debt

• £200bn lent in consumer credit in 2013 and £158bn currently owed in consumer credit debt

• over 30 million current accounts with overdraft facilities, upon which £8bn is owed

• a £150bn credit card market with over 2.3bn credit card purchases each year

• over 500 payday loan firms

• 50,000 businesses that will now be regulated by the FCA (in addition to the 27,000 already regulated by the FCA).

Their consumer credit agenda for 2014/15 will include action in four sectors that pose significant issues for consumers:

• credit cards (the FCA will conduct a market study)

• overdrafts (the FCA plans to publish research and work with the new Competition and Markets Authority)

• debt management (the FCA will closely supervise compliance with the new rules)

• logbook loans (where the FCA will be assessing how well firms meet the conditions for authorisation).

With the big boys£75 TRILLION UK PAYMENT SYSTEMS INDUSTRY TO HAVE NEW REGULATOR. FCA WILL OPEN THE MARKET TO NEW ENTRANTS TO IMPROVE COMPETITION

Introduced by April 2015, with three objectives:

• promoting competition

• promoting innovation

• ensuring that payment systems operate in the interests of their users.

Every year payment systems process over 7 billion transactions, worth over £75 trillion. The FCA’s ‘call for inputs’ will help shape the focus of the new regulator’s work.

Martin Wheatley, FCA Chief Executive, said: “This sector is critical to the economy so it must reflect the needs of people and firms and enjoy their confidence. We need to know if the sector is as open as it should be to new entrants into the market, and are consumers getting the best possible deal?”

The largest payment systems are owned and managed by the big banks, but concerns have been raised that the sector lacks transparency and innovation. It needs to be easier for challenger banks to access these systems and compete with the bigger players.

overstepping the lineFCA confirms tough new rules for £200bn consumer credit market

Add on insurance shake upFCA says general insurance add on industry must make changes

Risky business

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NEWS | FCA NEWS | FCA

Albemarle & Bond appoints administrators Pawnbroking business Albemarle & Bond has appointed administrators after its lending banks were unable to support a management turnaround plan. The company filed a notice of intention on 25 March, to appoint insolvency practitioners from PwC as joint administrators to Albemarle as soon as is practically possible. It was revealed there would be no realistic prospect of any value being attributed to ordinary shares.

source: Insolvency Today

Give us the money…

Santander UK fined £12.4m for widespread investment advice failingsSantander UK Plc has been fined £12,377,800 by the Financial Conduct Authority (FCA) after the regulator uncovered serious failings in the way it offered financial advice from its bank. In particular, there was a significant risk of Santander UK giving unsuitable advice to its customers, its approach to considering investors’ risk appetites was inadequate, and for some people it failed to regularly check that investments continued to meet their needs, despite promising to do so. The failings took place despite repeated communications and warnings about suitability of advice to the industry by the Financial Services Authority (FSA), the FCA’s predecessor, and were uncovered by both a mystery shopping exercise and wealth management thematic review by the regulator.

When the FSA first put its concerns to Santander UK in late 2012, the firm immediately decided to stop giving financial advice in branches to prevent further problems occurring. Santander UK agreed to settle at an early stage of the investigation so its fine was reduced by 30%. Were it not for this discount it would have been fined £17,682,730. In agreement with the FCA, Santander will now contact all affected customers and, for any sales that were sub-standard, redress will be paid where due.

OFT UPDATE ON SME BANKING MARKET STUDY

On March 11 the OFT published an update on the market study into banking services for small and medium sized enterprises (SMEs), including an announcement that the Competition and Markets Authority (CMA) will complete the study as part of a wider examination of competition in retail banking. The Financial Conduct Authority (FCA) has been working closely with the OFT on the SME Banking market study, and will continue to do so with the CMA. The OFT notes that some actions have been taken, or are currently planned, to respond to competition concerns in retail banking, including changes to the authorisation regime for new banks, the new Current Account Switching Service and proposals to increase the availability of credit information to help newer or smaller providers of finance to compete. The emerging analysis, which is ongoing, suggests that, despite these and other positive developments, there may be competition concerns that:

• the provision of business current accounts (BCAs) and business loans remains concentrated among a small number of major banks

• barriers to entry and expansion may be contributing to newer or smaller providers finding it difficult to enter and expand their business across the core business banking products

• SMEs find it hard to differentiate between providers. There are low levels of shopping around and switching, and low awareness of alternative sources of finance.

A concern is that these factors, in combination, may reduce the incentive for providers to compete on price, invest in service delivery and quality or innovate, which may mean that SMEs do not get the best deal from their banking provider.

Not what it said on the tin…PAYDAY LOAN ADVERTS REPORTED TO ADVERTISING STANDARDS AUTHORITY (ASA) BY CITIZENS ADVICE

Complaints about payday loan adverts from Wonga, Pounds to Pocket and Peachy.co.uk are being reported to the Advertising Standards Authority (ASA) by Citizens Advice. In total seven payday loan adverts, from six different payday lenders and credit brokers, were flagged with the regulator for concerns about irresponsible or misleading practices.

Failure to declare the cost of loan and trivialising borrowing by implying loans can be used for shopping sprees and birthday celebrations, were some of the complaints raised by the national charity. Thirteen potential breaches of advertising codes were identified across the adverts, spanning a range of platforms including TV commercials, text messages, email, flyers and even a sandwich wrapper.

The Financial Conduct Authority (FCA) has announced plans to look into how firms can reduce the risk of traders manipulating key benchmarks as a central part of its Business Plan for 2014/15. The forward looking thematic review will assess whether firms have learnt lessons from LIBOR and other recent controversies, and ask if adequate controls on traders behaviour and activity are now in place to prevent future manipulation of benchmarks. Speaking at the City UK Conference, FCA Chief Executive Martin Wheatley said: “Following widespread attempted manipulation of LIBOR, firms should ensure that traders are not able to act in this way in the future. We are determined that firms need to take the matter of manipulation of any benchmark seriously and will be working with firms to seek out any issues that may remain.”

The Business Plan also confirmed that a series of new thematic reviews into the conduct of wholesale banking and investment management firms would be undertaken.

FLEXIMIZE LAUNCHES ‘FLEXIBLE’ FIXED TERM LOAN FOR SMES

Analysis of industry data by Fleximize, a new finance company, reveals that around £787 million of business loan applications were rejected during the third quarter of 2013. Around 22% of applications from small businesses were rejected, and the corresponding figure for medium sized enterprises was around 9%.

Fleximize launched in January this year offering revenue based financing to small and medium sized businesses. They have recently added a new product to their offering. Flexiloan has no penalty for early repayment, and after three successful payments clients can take principal repayment holidays and pay only interest for up to two months.

Max Chmyshuk, Founder and Managing Partner at Fleximize said: “The launch of our Flexiloan builds on philosophy to capitalise on the weaknesses of many mainstream lenders in terms of their inflexible terms and conditions, and the limitations of their risk profiling which means they reject some applications that are actually low risk. Many financially robust SMEs are still finding it difficult to secure funding. A number of banks either pulled away from this market or kept their SME loan portfolios stable. As the UK economy recovers, the demand for credit will inevitably grow, and where banks leave a void, innovative finance companies see an opportunity. We predict that in the next five years the market will see more competitive and innovative solutions in the SME space.”

The carrot or the stick? THE FCA PUBLISHES LATEST REVIEW OF SALES INCENTIVES AT RETAIL FINANCIAL SERVICES FIRMS

All the major retail banks have either replaced or made substantial changes to financial incentive schemes, which played such a major role in the mis-selling scandals of recent years.

The FCA review found that around one in ten firms with sales teams had higher risk incentive schemes and appeared not to be managing the risk properly. The FCA finalised its guidance on financial incentives in January 2013.

Martin Wheatley, Chief Executive of the FCA, said: “Eighteen months ago we gave the industry a wake up call and it recognised that a poor incentive culture had helped push bad sales practice, which led to mis-selling. We’ve seen some good progress but it is going to take time to see whether the changes firms have made to incentive schemes and their controls stick, and whether good beginnings are part of genuine cultural change.”

The FCA has also made it clear firms should not simply replace bonus schemes with other performance management measures, which can put pressure on sales staff and are just as capable of causing poor sales practice.

Mighty oaks from little acorns…TWO THIRDS OF SMALL FIRMS EXPECT TO GROW THIS YEAR

Two thirds of small businesses expect to grow in the next twelve months, according to the Federation of Small Businesses’ (FSB) Small Business Index survey released in March. The survey of almost 3,000 small firms found that 11% have taken on more staff in the previous quarter and 15% plan to in the next.

FSB boss John Allan said: “Once again we see confidence on the up, and small firms leading the way in job creation. There is no doubt small businesses are pushing us further towards economic prosperity and it’s so important to retain this momentum. Confidence amongst small businesses rose to 35.7, the highest on record. The research also found that 25% expect to see an increase in export activity in the coming quarter. I believe small firms can do more too, for instance helping long term unemployed youngsters back to work and as the economy continues to improve, boosting wages for the low paid. With more businesses planning to invest, this can only be good news for the economy.”

Source: Real Business

Surfing the crowd THE FINANCIAL CONDUCT AUTHORITY PLACES CONSUMER PROTECTION AT THE HEART OF CROWDFUNDING

People looking to lend money or invest through crowdfunding will be better protected under new rules confirmed by the Financial Conduct Authority (FCA). By boosting consumer protection, the rules will help ensure that consumers have access to fair, clear information that is not misleading, when using loan based, or securities based crowdfunding platforms.

The crowdfunding market is small but growing rapidly. Securities based crowdfunding, which the FCA already regulates, allows people to buy shares or debt securities in a company. Last year £28m was raised for growing businesses, an increase of around 600% compared to 2012.

Loan based crowdfunding (mainly peer-to-peer lending), which will be regulated by the FCA, saw £480m lent by consumers to individuals and businesses in 2013, a rise of around 150% on the previous year. The new rules will provide the same level of protection to investors whether they engage with firms online, or offline as a result of the direct marketing or telephone selling.

Flexiblefriend

Financial Conduct Authority to investigate how firms deal with risk benchmark manipulation

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NEWS | FCA NEWS | SMEs

Midata scheme stalls?

Ban on profiling

The government’s ‘Midata’ scheme, designed to give consumers greater access to personal data held on them by businesses, has stalled because firms are wary of revealing they hold inaccurate or incomplete customer data, according to one expert.

The initiative, established by the government in 2011 and backed by major brands, is intended to allow consumers to be able to access their data in an easily accessible format.

But Sean Tomlinson, Head of Consulting and Propositions at IT consultancy Steria, believes some businesses have been reluctant to sign up due to fear of ‘exposing the poor quality data’ they hold about customers. He commented: “When you see obvious inaccuracies in the data that you are provided you start to lose trust in the integrity of those organisations and their ability to use that data on your behalf, businesses can derive more benefit from proactively disclosing customers’ data. If you only ever treat it like a compliance project it can only ever be a cost to you.”

His remarks follow a recent parliamentary debate in which Labour MP Stella Creasy said, the voluntary regime had struggled to have any impact, because companies have little incentive to release commercial data that could convince a customer to go elsewhere.

EUROPEAN PARLIAMENT VOTE TO APPROVE DRAFT DATA PROTECTION REGULATION

MEPs have voted to adopt the European Parliament’s First Reading on the draft Data Protection Regulation. This in effect approves the report of the Parliament’s Civil Liberties, Justice and Home Affairs Committee (LIBE) published in October 2013, a report which has been criticised by industry representatives in the UK as being unhelpful, by going beyond the European Commission’s already far reaching proposal. The LIBE report includes a ban on profiling.

MEPs were keen to reach agreement before the European Parliament elections in May 2014.The Council of Ministers must now adopt the proposed Regulation using the ‘ordinary legislative procedure’ for it to become law. The Council, which represents national governments, is said to favour a risk based approach and does not want to be rushed into adopting a poor quality piece of legislation.

Double edged swordCIFAS the UK’s Fraud Prevention Service, has released Fraudscape a 52 page report that analyses the frauds recorded by over 300 organisations during 2013. While overall fraud levels decreased in 2013 by 11% compared with 2012, analysis in Fraudscape reveals numerous startling fraud trends. While a reduction in fraud might seem to be good news, Fraudscape reveals numerous reasons why the fraud landscape in the UK was more challenging:

• the 11% reduction came after two years of steep increases in fraud levels and the unprecedented near 250,000 frauds recorded in 2012. This means that the 2013 figure remained largely in line with the patterns witnessed since 2009 and in excess of the levels recorded before the beginning of the recession

• with over 221,000 frauds recorded in 2013, that is over 600 frauds every day. This provides a frightening indication of what true UK fraud levels really are

• frauds where criminals misuse the personal data of victims, still accounted for over 60% of all fraud in the UK in 2013

• there were notable changes in the products targeted by fraudsters in 2013

• plastic cards +24%

• mortgage fraud +26%

• loan fraud +55%

• fraud against bank accounts decreased by 14%.

CONSUMER PANEL SAYS CONSUMER RIGHTS BILL WON’T WORK FOR CONSUMERS

The Financial Services Consumer Panel has called for amendments to be made to the Consumer Rights Bill in the following three areas:

• exemption from the ‘fairness’ test - the exemption should apply only to a transparent price, agreed by the consumer at the point of entering the contract, and not to variable future fees or charges which are unknown at the time the contract is signed

• the definition of ‘average’ consumer - the phrase ‘taking into account social, cultural and linguistic factors’ should be added to the definition in the Bill, to account for groups of consumers with different characteristics. This would also bring the definition in line with European Courts of Justice jurisprudence

• the right to cancel for mortgage prisoners - the right to cancel may not protect consumers who cannot secure an alternative mortgage product. This set of circumstances should be added to the indicative list of unfair contract terms.

The Bill, which had its second reading in January, aims to update consumer law and clarify and simplify rights on goods and services for consumers and businesses.

Figures from a new analysis by GMB of official data for GDP and average earnings since the start of the recession show:

• 13.8% fall in real value of average earnings during the recession caused by a drop in the UK GDP per head with 2013 still 5.7% below 2007

• GDP per capita in 2013 at £23,894 was 5.7% below the 2007 figure of £25,326. This fall in GDP per head is the root cause of the 13.8% drop in the real value of average earnings of all employees in employment between April 2008 and November 2013 in the UK.

According to the Annual Survey of Hours and Earnings (ASHE), in April 2008 the mean gross annual earnings for all employees in employment in the UK was £26,137. The ASHE figure for the mean gross annual earnings for all employees in employment in the UK for April 2013 was £27,174. This is an increase of £1,037 or just 4%. Between April 2008 and November 2013 inflation has been 17.8%. This means the drop in real value of earnings between April 2008 and November 2013 has been 13.8% for the UK.

INSTITUTE OF CUSTOMER SERVICE CALLS FOR ORGANISATIONS TO FOCUS ON CUSTOMER SERVICE

The Institute for Customer Service (ICS) is strongly urging organisations to invest in customer service to rebuild trust in UK business, both at home and internationally, to maximise the opportunity for growth as the economy recovers. Without this focus there is a real risk that growth will stall and that UK business’ excellent reputation in international markets will follow the same path. The ‘Can Customer Service Create Trust Report’, reveals the extent that customer service impacts trust.

January’s UK Customer Satisfaction Index (UKCSI) included questions to measure how much customers trust UK organisations to allow a direct comparison between trust and satisfaction. Anecdotal evidence suggests trust in an organisation is based on a combination of information customers receive from media coverage, recommendations and feedback from acquaintances or friends, alongside their own experience. The UKCSI confirms that customer service is central to the issue of trust and is a tangible strategy to rebuild or maintain trust.

Jo Causon CEO if ICS commented: “There is a fundamental shift underway which is altering traditional business relationships, moving from monologue to dialogue, customers collaborating with businesses to develop the best product or service together. Organisations that are already engaging in this way are the best placed to capitalise on the UK economy’s recent growth. Most important in this new environment is that UK organisations are easy to do business with, especially on the global stage. For this to happen the approach must be adopted and driven from the boardroom, then understood and put into practice across the organisation.”

The future looks brightTHE OFFICE FOR NATIONAL STATISTICS - RETAIL SALES JANUARY 2014

Year on year estimates of the quantity bought in the retail industry showed strong growth for the second consecutive month in January 2014, increasing by 4.3%, with store price inflation growth, as measured slowing to 0.2% (the lowest since September 2009). The amount spent in January 2014 increased by 4.4% compared with January 2013.

There was notable growth in non-food stores (8.0%), where stores selling household goods increased by 9.8%, and other goods stores increased by 14.8%. The underlying trend in the data as suggested by a three month on three month movement increased by 1.1% confirming growth in the retail industry. Compared with January 2013 the amount spent online increased by 8.9% but fell by 3.3% compared with December 2013.

Squeaky wheelOMBUDSMAN PUBLISHES LATEST COMPLAINTS DATA ON INDIVIDUAL FINANCIAL BUSINESSES

The Financial Ombudsman Service has published the data relating to individual financial businesses, including the high street banks and biggest insurers. The figures show:

• the ombudsman took on a record 575,836 new cases in total in 2013, this was an increase of over a 38% on the previous year

• in the second half of the year, 76% were regarding payment protection insurance (PPI)

• five financial services groups accounted for nearly 68% new PPI cases

• for complaints about financial products other than PPI, the total number of cases referred to the ombudsman was 8% lower than the first half of the 2013. This involved banking complaints reducing by 11% and insurance cases by 7%

• the average uphold rate (where the ombudsman found in the consumer’s favour) over the six month period was 51%, ranging from 2% to 94% across the individual businesses.

Tony Boorman, Chief Ombudsman, said: “The extraordinary volumes of financial complaints we saw in 2013 now looks as if they’re starting to level off at last, and that has to be welcome news for everyone.”

Facts behind the figures13.8% real term drop in earnings since 2008

A question of trust

Gettingit right

14 15

NEWS | EXTRAs NEWS | EXTRAs

Ying and Yang

Zombies!

NEARLY 30% OF CONSUMERS HAVE CLEARED THEIR DEBTS IN THE LAST 12 MONTHS

Following delivery of the 2014 Budget, the latest figures from Equifax, suggest that consumers are managing their debts despite the cost of living increasing. Research reveals that nearly 30% of people have no debt on store cards, credit cards, payday loans or other credit agreements payable over 12 months or less. In addition, over 40% of consumers have the same amount of debt that they did 12 months ago, with over two thirds saying that their disposable income has either increased or stayed the same compared to last year.

Neil Munroe, External Affairs Director for Equifax believes these figures demonstrate consumers successfully managing their finances and trying to pay off their debts even though they continue to face quite difficult economic circumstances. With 46% of respondents saying that they put savings away each month from their disposable income there’s a real sense of prudent financial management amongst UK consumers.”

One area of concern that the figures have highlighted, is the fact that nearly half of consumers would stop paying into their pension if their financial situation changed and they needed to make savings. Life insurance cover would also be stopped by over 40% of respondents to the Equifax research, and nearly half would stop paying their home building insurance.

Pressure is mounting on Martin Wheatley head of the Financial Conduct Authority (FCA), in the wake of the regulator’s handling of a leak of an insurance industry investigation. Billions of pounds were wiped from the value of the insurance sector, after a newspaper report of an inquiry into ‘zombie’ insurance funds. Some 30 million people hold such legacy policies, dating back decades.

At issue is not just the fact that highly sensitive market information was leaked, but the length of time it took the FCA to clarify the reports of the inquiry. It was a full six hours from the start of trading before the regulator moved to clear up the confusion, saying it did not intend to review the 30 million policies individually, nor remove exit fees.

British Chancellor George Osborne, demanded to know why the FCA took so long to issue a statement, and why it had selectively disclosed such market sensitive information. The leak, and subsequent market reaction, had, the Chancellor said, been “damaging both to the FCA as an institution and to the UK’s reputation for regulatory stability and competence”.

UNSECURED LENDING OUTSTANDING BALANCES AT HIGHEST LEVEL FOR YEARS

Outstanding balances from unsecured lending in the UK reached its highest level in over 2 years, in January 2014. New statistics revealed a sharp increase in the amount of money people owe to unsecured loans such as credit cards, bank account overdrafts, personal and payday loans. For the past 3 years outstanding balances have fallen in the January, compared to the previous December. However, this year saw a significant rise taking the total balance to over £160 billion for the first time since January 2012, figures from the latest Debt Statistics show.

Michelle Highman, Chief Executive of The Money Charity, comments: “The recent rise in outstanding balances on unsecured loans could be attributed to the mounting financial pressures consumers are currently facing, high indebtedness, rising food and transport costs and slow income growth. We know that escalating debt and living costs constrain consumer spending and often force people to prioritise their debt. This usually means focusing on arrears where the consequences of not paying them can be incredibly serious, such as mortgages, child maintenance payments, TV licence. Consumers may be finding that once they have paid their priority debts and covered basic living costs they don’t have the additional funds to pay their unsecured loans. And as a result continue to incur high monthly interest.

Paying through the noseBritish consumers are still relying heavily on various forms of unsecured credit to buy non-essential items, reveals a new report from VoucherCodes.co.uk. The report highlights that shoppers are more likely to turn to credit cards and overdrafts than to their savings.

90% worry about how much money they have, with the majority blaming the soaring cost of essential bills such as utilities and groceries for the lack of monetary wiggle room. As a result, only 44% of UK adults are able to pay for their non-essential purchases such as meals out, new clothes and gadgets with cash. 31% are turning to unsecured credit such as credit cards, and 45 % of UK adults are unable to pay off their monthly credit card bills. With the nation’s unsecured debt reaching £139 billion it is clearly still a big issue with consumers. Women are better at managing their credit however, with two thirds of females managing to pay off their monthly credit card bills, compared to only half of men who manage to pay off the monthly credit card debt. The report also highlighted that 1 in 10 adults spontaneously buy non-essential items but do not think about the financial consequences and 20% assume that one day they will earn enough to pay it off.

Commenting on the Office for National Statistics (ONS) figures published 25 March which reveal that inflation fell to a new four year low in February, Jafar Hassan, personal finance expert at uSwitch.com, says: “The inflation figures may look impressive, but are a stark contrast to the challenges facing those still struggling to make ends meet. Despite the government’s optimism, an overwhelming number of us are yet to see any signs of economic recovery in our back pocket. Household bills, especially rent, childcare and energy, have continued to soar, while the average pay rise across the UK is expected to be just 1% this year. To make ends meet, people are being forced to cut back on basic essentials such as heating, food and healthcare. The challenge facing households to meet rising bills and living costs is by no means over. It’s our hope that the improving economy is reflected in people’s pay rises this year.”

The FCA has published research into low income consumers, identifying three distinct borrower groups. The research findings will help the FCA to understand the drivers that push people into untenable financial situations and will also be used in its work with firms to ensure they are treating customers fairly. The FCA’s focus is on the following key groups:

• survival borrowers - due to very tight finances, often feel they have ‘no option’ but to borrow due to lack of income. Catalogue credit and home credit are very popular forms of credit with this group due to ease of access and low weekly payments

• lifestyle borrowers - use catalogue and home credit, but for different reasons. These borrowers generally have sufficient income for day to day expenses but use credit for larger purchases or one off events, and feel in control when minimum payments are being met

• reluctant borrowers - tend to limit their use of credit, focus on paying back existing debts, often from more mainstream sources such as bank loans and credit cards.

The FCA’s research also highlights why debt becomes unmanageable for some people, including how unmanageable debt triggers both financial detriment and impacts on health and wellbeing. Research by the government’s Money Advice Service (MAS) revealed that 9 million Britons are considered in serious debt and facing serious problems with debt and just 1.5 million have sought debt advice, often leaving it late in the day which limits their options. Worse, 1.8 million people do not even acknowledge they are in debt.

New Council of Mortgage Lenders (CML) data on the profile of UK lending in January 2014, including first time buyer, home mover, remortgagor and buy-to-let lending, shows:

• the total number of home owner loans for house purchase in January 2014 was down 16% compared to December 2013 but up 30% on January 2013

• the usual seasonal dip saw the number of first time buyers and home movers fall in January compared to December 2013, but both increased substantially in comparison to a year previous in January 2013

• remortgage lending in January was up 10% in volume compared to December and also up 16% compared to January 2013

• buy-to-let lending for house purchase increased 11% in January in volume compared to December 2013. Buy-to-let remortgage lending also increased 6% compared to December.

The Bank of England reported earlier this month that UK gross mortgage lending was £16.1 billion in January, which due to the expected seasonal dip was down slightly by 4% compared to December 2013 but up 39% compared to January 2013.

Online paymentRecent research carried out by UKash, a leading online payment provider highlights that 81% of shoppers who have been refused credit feel there is still a negative stigma attached to their situation. The research also discovered:

• 43% of people who have been refused credit felt embarrassed

• 40% who felt frustrated by the impact of being rejected

• 27% of online shoppers felt like an outcast from society

• 33% of online shoppers were unaware that you can buy goods online without a bank account or credit card

• 53% complained that online retailers don’t provide enough payment alternatives for shoppers who are refused credit

• 66% of respondents feel that banks and credit companies aren’t doing enough to protect their customers from falling into debt. This view was shared by 92% people aged 65 and and 68% of 18 to 24 year olds.

Miranda McLean, Marketing Director at Ukash, said: “These results reveal just how big an impact credit refusal can have on a person’s self esteem, lifestyle and financial freedom online. Equally, the need for retailers to offer alternative payment methods to online shoppers who don’t have a bank account or a credit card is clear.”

Tangible evidenceInflation down - but consumers need to see signs of recovery

Loans to first time buyers up 38% in January

Digging deeperThe UK’s relationship with credit – 9 million in serious debt

16 17

NEWS | EXTRAs NEWS | EXTRAs

Successful enforcement of a judgment usually depends on the debtor’s financial position and how quickly a creditor can act. As far back as the 1960’s Lord Denning ruled ‘the general principle when there is no insolvency is that the person who gets in first gets the fruits of his diligence’.

In contrast, the ‘pari passu’ principle underpinning the Insolvency Act requires unsecured creditors to be treated equally so they all receive the same dividend. This is known as the ‘statutory scheme’. The commencement of insolvency procedures (this includes both bankruptcy and attempts to seek an Individual Voluntary Arrangement) can therefore prejudice a creditor who wishes to or has even started to enforce a judgment.

In the recent case of Dewji v Banwaitt [2013] EWHC, Mr Banwaitt obtained Interim Charging Orders over properties owned by Mr Dewji before Mr Dewji himself obtained an Interim Order (without giving notice to Mr Banwaitt) under Section 252 of the Insolvency Act. An Interim Order is the usual first step taken by an individual who wants to reach an IVA with his creditors. At the hearing to decide whether or not to make the Interim Charging Orders final, Mr Dewji relied on the usual argument that the moratorium provided by Section 252 precluded further enforcement and thus Mr Banwaitt should be deprived of his security.

At first instance the Master rejected Mr Dewji’s argument and awarded the Final Charging Orders. Mr Dewji appealed to the High Court where Mr Justice Andrews emphasised that Section 252 does not actually prohibit further enforcement, but merely obliges a creditor to obtain the court’s permission to continue. Whether to award permission required an examination of the IVA proposals. Mr Dewji’s proposal wanted to treat certain creditors differently and exclude those properties against which the Interim Charging Orders had been obtained. Accordingly the court ruled that Mr Dewji could not have the protection of the statutory scheme when his own proposal did not conform to the policy underlying it.

The Judge also noted that in contrast with other creditors, Mr Banwaitt ‘alone has chosen to expend costs in pursuing its recovery from Mr Dewji’ and that his opposition to the IVA proposal would in all likelihood lead to its rejection. As a result the High Court upheld the Final Charging Orders and confirmed the Master was entitled to accept Mr Banwaitt’s description of the IVA proposal as ‘nothing more than a cynical attempt to derail the execution of the judgment’.

This welcome decision highlights that creditors should not assume that enforcement activity is automatically thwarted by a Section 252 Interim Order.

THE CASEThe borrower, Mrs Plevin, received an unsolicited leaflet from an independent finance broker, LL Processing UK Ltd (LLP), offering her the opportunity to consolidate her debts. Mrs Plevin contacted the company, who conducted a ‘demands and needs assessment’ over the telephone, before passing a proposal to Paragon who then approved the deal. The proposal was for Mrs Plevin to take out a £34,000 loan repayable over 10 years, with an additional loan amount of £5,780 to pay for a five year PPI policy. The PPI premium was split, so that Paragon received commission of £2,280. Norwich Union, now known as Aviva, underwrote the policy and received £1,630, while LLP was paid £1,870.

Paragon ran a ‘speak with’ (a telephone call to the customer to ensure there was no risk of money laundering and for confirmation that Mrs Plevin wanted to take up the loan and PPI), following which the deal went ahead. Mrs Plevin brought a case against both Paragon and LLP in relation to the PPI premium, alleging that the commission was an undisclosed profit, and that LLP had failed to carry out a suitable assessment of her needs. Mrs Plevin was successful and awarded £3,000 from the Financial Services Compensation Scheme.

Following proceedings issued by the borrower, the court at first held that, due to the absence of agency between the lender and broker, the lender could not be held responsible for failures by the broker. However, on appeal, the court ruled that section 140A(1)(c) of the Consumer Credit Act 1974 can be interpreted broadly so as to capture all conduct that is beneficial to the lender, even if there is no agency between the lender and the party whose act has unfairly prejudiced the borrower. The case has now gone to the Supreme Court, which will determine whether the Court of Appeal’s decision will be reversed.

THE REPERCUSSIONSThis ruling obviously has the possibility to pose significant and unquantifiable problems for lenders. What is of particular concern is that lenders may find themselves penalised for the misconduct of a broker, or other third party, that they had no knowledge of and, despite potentially their best efforts, such as retainer terms, no control over. Following the case of Plevin v Paragon Personal Finance, there is the risk that, despite complying fully with the requirements of the new Financial Conduct Authority Consumer Credit Sourcebook concerning controls and any other necessary ‘reasonable steps’, a lender could still be liable for the misconduct of the broker.

A High Court decision to permit complainants, who had previously accepted an award from the Financial Ombudsman Service (FOS), to then bring a subsequent court claim for damages over and above the Ombudsman’s award was recently overturned in the Court of Appeal.

FOS is only able to award a maximum of £150,000 compensation to a consumer. Therefore, the High Court’s earlier decision provided complainants with a loophole whereby they could get around the FOS cap on damages. It also provided complainants with an opportunity to use their FOS award to fund subsequent court proceedings.

The Court of Appeal’s judgment was finally handed down on 14 February 2014. The judgment declared that complainants, who accept an award in their favour from FOS, are prevented from issuing proceedings in court to claim additional compensation. This is on the basis that the substance of the complaint to FOS is the same as the cause of action which the complainant seeks to advance in the court proceedings. The common law principles underpinning the Court of Appeal’s decision were that of res judicata and merger i.e. that a complainant who has obtained a decision from one court or tribunal may not bring a claim before another court or tribunal for the same complaint, even if the first court or tribunal awarded him less than he was entitled.

IMPLICATIONSAs a result of this Court of Appeal judgment, financial institutions can finally be confident that if a consumer accepts an award of compensation from FOS, that award is binding on both the advisor and the complainant and is final.

As a complainant is no longer permitted to seek further redress through the courts in relation to the same complaint, it is likely that any such claim would be struck out. Furthermore, there would almost certainly be negative cost consequences for the claimant of such ill advised litigation.

Complainants must now choose between a course of action which could provide greater recompense but also greater scrutiny and cost (i.e. court proceedings), against a procedure where the damages award is limited but the cost implications are minimal (i.e. FOS).

A consumer may still pursue a complaint through FOS in the first instance and go on to issue court proceedings if they refuse to accept the Ombudsman’s decision. However this course of action may not be advisable on the basis that in many circumstances, the court is likely reach the same conclusion as FOS and a complainant could find themselves penalised for litigating unnecessarily.

Jeremy BouchierRestons Solicitors

Tim Anson Legal Advisor

Asset & Consumer Finance

Kyle IrelandSolicitor

Dispute Resolution Group

The High Court has confirmed attempts to obtain an Individual Voluntary Arrangement (IVA) will not automatically block legitimate enforcement of a judgment

Plevin v Paragon Personal Finance: Possible repercussions for lenders using a broker network

Getting in first?

A headache for lenders?

NEWS

18 19

LEGAL | NEWS

Clark -v- In Focus Asset Management

Relief for financial institutions

11

WHAT ARE THE SIX CONSUMER OUTCOMES?The six consumer outcomes were initially outlined in the July 2006 publication TCF, towards fair outcomes for consumers, published by the precursor to the FCA, the Financial Services Authority (FSA). These are:

Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups, and are targeted accordingly.

Outcome 3: Consumers are provided with clear information, and are kept appropriately informed before, during and after the point of sale.

Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.

Outcome 6: Consumers do not face unreasonable post sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

TCF IS NOT JUST ENSURING CUSTOMER SATISFACTIONA satisfied customer could still be treated unfairly by a company and not necessarily know it. Nor does it expect firms to offer identical services, or stipulate that the FCA has the final say on which products consumers should want or be sold. The FCA acknowledges that consumers have to take responsibility for the decisions they make,

and is therefore committed to adopting a risk based and proportionate approach in its level of protection for consumers.

USING MANAGEMENT INFORMATIONBusinesses are expected to monitor their performance with regards TCF by using appropriate Management Information (MI). These are measures, both qualitative and quantitative, that test a company’s success at delivering the six consumer outcomes. The FCA expects this MI to be ‘forward looking’, enabling companies to act both on current issues and identify new risks. In this regard, the FSA’s 2007 paper Treating Customers Fairly: guide to management information, remains relevant .

FOSTERING A TCF CULTUREThe FCA expects companies to foster and maintain a culture within their business based on a foundation of fair treatment of customers. While it appreciates that companies need to be sustainable and profitable, the FCA will not allow them to compromise the fair treatment of customers to achieve this financial success. As such, the organisation strongly urges companies to consider the six key drivers it believes will have a significant influence on a company’s behaviour:

Driver 1: Leadership

Driver 2: Strategy

Driver 3: Decision making

Driver 4: Controls

Driver 5: Recruitment, training and competence

Driver 6: Reward

Joanne DavisPartner

Asset and Consumer Finance

An issue that has been raised by a number of concerned businesses of late is that of the Treating Customers Fairly (TCF) principles, and their enforcement under the Financial Conduct Authority (FCA).

‘Securing an appropriate degree of protection for consumers’ is one of the FCA’s three operational objectives set out in its July 2013 guidance paper, and Principle 6 of its Principles for Businesses (PRIN) expressly states that firms ‘must pay due regard to the interests of consumers and treat them fairly’. Considering these, it would appear to be reasonably clear that the FCA intends to keep the six retail outcomes for consumers stated in the TCF at the heart of regulation. If this is the case, it is crucial that firms understand their TCF obligations and review their business practices now to ensure retail outcomes are met.

TCF: understanding your obligations

20

LEGAL | NEWS

B U R E A U A B U R E A U B

Electoral Roll – YesCCJ’s - 1

Active accounts – 4Total balances - £12,603

B U R E A U C

Electoral Roll – NoCCJ’s - 0

Active accounts – 4Total balances - £12,603

Electoral Roll – YesCCJ’s - 0

Active accounts – 5Total balances - £17,894

With DecisionMetrics’ approach to multi-bureau, using raw bureau data, lenders get a more complete view of an applicant’s credit profile. This enables a more accurate assessment of risk, indebtedness and affordability. Working with raw data also provides true bureau independence.

Multi-bureau

For more information email marketing@decisionmetrics.co.uk visit www.decisionmetrics.co.uk or call DecisionMetrics on 0113 826 6888

Should you rely on a single bureau?

10074-Callcredit-DecisionsMetrics-Press ads MULTI_AW(P).indd 1 20/02/2014 13:48

CCTA Credit AgreementsTo order online, visit: www.ccta.co.uk/content/credit-agreements.aspx. Following the change of regulator from the Office of Fair Trading to the Financial Conduct Authority on 1 April, all relevant CCTA credit agreements have been amended to comply with the new rules.

Our website has been updated accordingly, and all orders taken will automatically receive the correct version. If you have any queries regarding the changes please contact the office on +44 (0) 1274 714959.

Huntswood/CCTA Your view of the FCA - resultsIn February this year, in association with retail conduct experts Huntswood, we asked CCTA members to take part in a survey concerning their view of the Financial Conduct Authority (FCA).

The enthusiasm brought to the process, is a perfect indication to our new regulator, of an open and engaged industry, with a keen eye on the future.

We would like to thank all those who took the time to complete the survey, and to extend our congratulations to Huntswood, partners in the venture, for an excellent publication.

Full details can be viewed from the dynamic banner on the home page of our website: www.ccta.co.uk

CCTA Training 2014Keeping you in the picture, our 2014 training offer will begin a little later this year. The change of regulator on the 1 April, has necessitated not only new content, but a fresh approach. We are reviewing our courses to ensure the information is entirely up to date, and relevant to running a business under the new ‘rule based’ authority.

We will introduce a series of days which will aim to provide a comprehensive guide to consumer credit and related Financial Conduct Authority (FCA) source books. We will continue to run the following popular courses:

Consumer Credit Law & PracticeIrresponsible Lending GuidanceComplaint HandlingThe Law Relating to Motor Finance

We appreciate that the late start to the training year may impact on member diaries, but are ever conscious of the moving credit landscape, and determined to ensure that you can rely on our training to be of the highest standard.

New members...

...more new members

The Click Advisor Ltd Macclesfield

Corporate Credit Leasing Ltd Stockport

Fire Finance Ltd London

Hudson Bay Finance Company Ltd Wirral

Introjuice Ltd Cardiff

Short Term Finance Ltd Birmingham

Loans 2 Day Ltd Gateshead

Portfolio Recovery Associates U.K. Ltd Kilmarnock

Cherry Godfrey Finance Ltd Guernsey

Hampshire Trust Plc Fareham

Hardman Healey Ltd Hesketh Bank

BFT (GB) Ltd Swansea

Advancis Ltd Cheadle, Hulme

Hegston Ltd London

George Banco Ltd Beckington

Leadtree Global Ltd Blashford

Ealing Trading Company (Finance) Ltd Watford

Stonemere Finance Ltd Sale

Bellfin Finance Worcestershire

Credit4 Ltd London

Click4Profit Ltd Bournemouth

MPP Money Ltd London

Grameen Scotland Foundation Glasgow

R&J Auto Finance St Helens

Parker Brown Ltd London

SubMe Ltd Elstead

Borderway Finance Ltd Carlisle

Walker and Co Securities Ltd Cheadle

A W Pounds Ltd London

CCTA Briefing Seminars begin…By popular demand, immediately after the 1 April D-Day, we issued the first two dates of, what we plan to be, an extensive 2014 series of Briefing Seminars.

LEEDS Friday 11 April – DWF OfficeLONDON Tuesday 15 April – DWF Office

These and future similar events will be interactive, and aim to provide answers to member questions. There will be input from experts in compliance and previous FSA practitioners. We will be covering a range of topics including:

• the shape of consumer credit lending going forward • FCA CONC Rules • the importance of FCA Principles - what you need to do• getting ready for authorisation - action plan• best practice

Delegates will receive a copy of all presentation slides. New dates will be distributed through member mail shots, and our website will be updated as soon as we have further information.

22 23

Financial Conduct Authority, The View - A Trilogy

The Financial Olympics conference of 2012 saw the start of the ‘best practice’ trail as we encouraged delegates to get their businesses fit for the journey ahead. 2013 saw the Year of the Climb - we ascended from base camp along the steep path of implementation, providing signposts, sherpas and a view of the summit, at our extended two day event.

On 1 April 2014, the Financial Conduct Authority (FCA) became the new industry regulator. We want to see row upon row of flags, firmly planted at the summit. The journey will not end at the top of the mountain. The view will be worth the climb, but the air will be thin. Our third and final conference in this series will deal with acclimatisation. We aim to tackle the potential problems a rule based regime may bring, adding to the survival tool kit and ‘demystifying’ FCA goggles, for a clear look at the future, offering not only a complete overview of the industry’s current standing, but a platform for delegates to gather information and contacts, with a view to the growth of their business.

Annual Two Day Conference & Gala Dinner - In Search of Excellence, Volume 3

CCTA 2014 Beyond the Summit

Wednesday 22 October Thursday 23 October Nottingham Belfry Hotel

- High Level FCA Review - Main Conference & Gala Dinner - NG8 6PY www.qhotels.co.uk

CPD points are available for conference delegates. Solicitors Regulation Authority (SRA)

CPDPoints

DON’T FORGET YOUR

delegate bookings open May 2014 sponsorship opportunities to request details email: events@ccta.co.uk for more information visit www.ccta.co.uk

YOUR CCTA

La Banque Postale’s Cassiopae La Banque Postale, the French Post Office’s banking subsidiary, has implemented Cassiopae lending and leasing software to support the bank’s real estate finance business. The bank’s services include retail banking, insurance, and asset management. In 2012, La Banque Postale made the strategic decision to enter the real estate finance market.

Eric François, Managing Director commented: “We identified a number of opportunities around being able to provide a real estate leasing solution for medium companies. To enter the market, we needed proven, flexible leasing software that could grow with us in this market and others we might envision. Cassiopae gave us the platform we were looking for and enabled us to successfully launch a real estate leasing activity.”

La Banque Postale’s Cassiopae implementation is a hosted solution. The initial project took about 3 months, going live in November 2012. The implementation expanded in 2013 to accommodate more complex deals and automated accounting interfaces. 2014 will bring SEPA transfer among other project milestones.

24 25

Richard Sunman Joins Nostrum Group

Richard Sunman has joined Nostrum Group as its new Head of Commercial with responsibility for new business and existing customer relationships Richard joins from TSYS International, one of the world’s largest 3rd party card processing providers where he spent

10 years in a number of customer facing roles, latterly creating the Client Support function.

Richard Carter, Chief Executive of Nostrum said “Richard has outstanding credentials and we are delighted to have him on board. His pan-European experience and understanding of managing complex IT engagements will be invaluable to the growth of Nostrum Group and our mission to make lending cheaper, faster and safer.”

CCTA member Arum launched a new website in February. Arum is a boutique Collections & Recoveries consultancy and has been a CCTA member for over four years, regularly getting involved with CCTA Conferences and events.

Maxxia Appoints Virtual Lease ServicesOn 10th FEBRUARY 2014, Maxxia, provider of enterprise wide financing solutions, selected Virtual Lease Services Limited (VLS) to support its lease administration and contract management requirements. Under the agreement, VLS will provide Maxxia with access to its market leading software platform LeaseSoft. It will also provide a range of portfolio management services, including ‘bill and collect’, as well as end to end asset management solutions.

Gareth Shaw, CFO at Maxxia, commented: “We are delighted to be working with VLS. It stood out heads and shoulders amongst its competitors as the provider we could best rely on to meet our expectations and more.”

Callcredit Information Group Acquired by GTCR from VitruvianCallcredit Information Group Ltd, an innovative provider of consumer data solutions, software and analytics, is pleased to announce a transaction whereby GTCR, a leading Chicago based private equity firm, has partnered with management to acquire the company. GTCR and Callcredit’s management team, led by CEO John McAndrew, are investing behind the company’s strong growth trajectory, innovative product offering, and service oriented culture. GTCR is acquiring an ownership position from Vitruvian Partners, a middle market private equity firm focused on the UK and Northern Europe, which has owned Callcredit since 2009.

John McAndrew, Chief Executive of Callcredit, said: “I am extremely pleased that Callcredit is partnering with GTCR. They understand technology and added value growth. They are very clear in wanting us to continue to succeed by helping our customers thrive in this challenging environment of increasing regulation, rapid technological change, and heightened competition.”

LexisNexis® Acquires TracesmartOn 1 April, LexisNexis® Risk Solutions announced it is expanding its identity management and fraud prevention solutions for the banking, insurance and public sectors with the acquisition of United Kingdom based Tracesmart®. Founded in 1999, Tracesmart is a provider of consumer data and identity, risk and trace solutions serving UK clients.

“LexisNexis and Tracesmart share a vision for product innovation and development, supported by strong people, powerful data and cutting edge technology, said Mike Trezise, Managing Director, Tracesmart. “I’m delighted that we have been able to conclude this agreement, it’s a significant and fitting outcome for Tracesmart and its workforce. The management team and staff can now look forward to drive the business to the next level and beyond, under the umbrella of a global organisation.”

Think Finance Choses Equifax In March this year, Think Finance announced its partnership with leading consumer indebtedness and fraud expert, Equifax. Think Finance’s UK consumer lending product, Sunny, is a loan product introduced in August 2013 that bridges the gap between payday and mainstream financing for non-traditional borrowers. As part of a multi bureau strategy for this launch, Think Finance identified that Equifax data delivered significant performance enhancements in the assessment of an individual’s capacity to afford and manage additional short term credit. As such, the insights Equifax provides are integral to the company’s best practice approach to responsible lending.

“Equifax took the time to fully understand our business and the unique nature of the Sunny Loans product” explains Jason Bumgarner of Think Finance. “Their knowledge of the short term lending sector combined with the power of Equifax data delivers real value to Think Finance.”

Pancredit boughtOn 20th March Equiniti Group announced the acquisition of Pancredit Systems Ltd (Pancredit)Equiniti is a trusted partner to some of the best known brands and public sector organisations in the UK and a recognised leader in core markets including pensions, share registration and employee benefits. The Pancredit acquisition will strengthen Equiniti’s proposition and bring a wealth of experience and software expertise within loans and credit decisioning solutions. Pancredit will continue to develop software to meet the needs of their clients, with Equiniti’s full support, including building an outsourced loan administration product offering for those clients that would benefit from this expertise.

MEMBER NEWS

27Anchor Computer Systems, 1 Chestnut Court, Parc Menai, Bangor, Gwynedd LL57 4FH Tel. 01248 672940 www.anchor.co.uk

Our experience and knowledge of theinstalment credit market means that ourSentinel system is capable of handling amultitude of different loan agreementtypes as standard.

This flexibility is at its core assisting you todrive your lending business forwardthrough the changes required by the FCA.

The adaptability means that it provides anend-to-end solution with web servicesenabling applications from customers, leadgenerators, brokers and affiliates and aback office function taking your customerfrom their initial application andunderwriting through payment collectionsand arrears management to settlement.

It is already the system of choice for over200 companies. Why not call us to see whythese companies chose Sentinel.

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Can your Loan Management Systemtake your customers on a journeyPayday Loan • Instalment LoanGuarantor Loan • Secured Loan

Restons HR.pdf 25/3/14 15:54:23

FEATURE

Doing the right thing by your customers is a hot topic in the credit industry and a key driver for the new regulator. The Money Charity would like to help you get ahead of the game.

Questions your business will continually need to ask of itself are:

• what does good customer service look like in our sector?

• where do we as a company sit in that spectrum of customer service?

The regulator and consumer groups have stated positions, but they are of necessity generic to the whole collections industry and open to interpretation. Even with the best of intentions on the part of those developing collections strategies, writing customer communications and training call handling agents may well involve unintended consequences when viewed from a consumer standpoint.

The Money Charity Customer Journey Evaluation takes a look at collections operations and gives a view as to how the various elements will impact customers.

Generally speaking most collectors and customers want the same thing – the debt paid off as soon as is realistically possible with minimal interaction between customer and collector. Good communication and establishing trust are key to the transfer of information, which in turn leads to realistic and sustainable repayment programmes. Additionally, the customer is more likely to contact the lender if they encounter further problems as they believe that they will be given a fair hearing, rather than simply stop paying again.

The Money Charity has many years’ experience of providing a bridge between the credit industry and consumers. They help to ensure that the right messages are communicated and understood. With the Customer Journey Evaluation, they take a look at those elements of your business that you choose to show them. This usually comprises of site visits and remote recorded call listening. They then provide your Senior Management Team with a written report for internal use that sets out:

• what they think is done well within your organisation

• where they think different messaging would produce a better response from your customers

• where they believe that the message you are trying to communicate is not the one your customers are actually hearing

• a friendly, external perspective on the processes and flows throughout your collections operations.

Previous recipients of their CJE reports have found them to be insightful and practical, so much so that they have them back to repeat the process once they have implemented some of the changes!

Bridging the gapA Customer Journey Evaluation

a hot topic in the credit industry and a key driver for the new regulator

FCA introducing new regulation

Real-time, not night-time!

In a recent survey conducted on behalf of Channel 5 for their ‘Can’t Pay’ debt debate aired on the 17 March 2014, 36% of respondents blamed banks and credit card firms for the ballooning personal debt problems facing hard pressed borrowers. But in a surprise to many observers of the results, the You Gov pole placed ‘individuals’ in a tightly fought first place with a narrow advantage of 38%, suggesting that a significant proportion of the British public are convinced that we all need to take more responsibility for our own decisions when it comes to borrowing responsibly.

In an even more surprising turn of events, payday lenders were placed as the LEAST to blame for Britain’s debt problems with only 5% of respondents naming them. This will not come as a surprise to many people within the payday lending industry who have long argued that payday loans represent a tiny fraction of the debt burden, and the real damage to personal lives is being done by irresponsible mortgage, personal loan and credit card lending.

If we were to believe the media hype we may be forgiven for concluding that Payday lenders are running amok throughout Britain’s impoverished communities and preying on the vulnerable, but this survey of a sample 1826 adults conducted by the highly respected You Gov would appear to firmly dispel that opinion.

The results of the survey were aired during an hour long live TV programme on debt called The Big Can’t Pay Debt Debate Live. The audience heard from a lady named as Debbie who had turned to a ‘friend’ when she needed some short term financial help. Everyone listened intently as her story unfolded and she revealed how a £500 loan from a person she considered to be a friend, turned into a nightmare. Whilst trying to repay the loan she missed some payments and the debt ballooned.

Over a further undefined period of time she and her husband paid the ‘friend’ who actually turned out to be a loan shark, £88,000. It was also revealed that according to the loan shark she still owed them a further £40,000. Debbie described how she had been unable to heat her house or feed her children whilst every penny earned by her and her husband went straight to paying the loan shark, and tragically she even contemplated suicide, due to the stress and threats she and her family were receiving.

I would like to congratulate the producers of this program for highlighting the plight of some of the most hard-pressed members of society and also for cutting through the warped political agenda to get at the truth behind the rhetoric.

We are all painfully aware of the TV documentaries that show the relative ease with which individuals can take out multiple payday loans. Such individuals are often barely able to service one loan, let alone five or more, yet they seem able to pass the credit assessments imposed by most of the major lenders in this sector. The industry could do without negative publicity and the tarnished reputational damage that it brings, but whilst such practices continue the press is duty bound to report them. It is therefore up to the industry to work together to act. We must be hopeful that the Financial Conduct Authority (FCA) regulation will mean the widespread implementation of more rigorous real time vetting of applications.

The FCA has said that it will work with the industry to encourage the adoption of real time data sharing, Parliament’s Business, Innovation and Skills Committee has called for the FCA to make real time data compulsory if the industry does not move to real time data sharing by July 2014. There can be little doubt about the advantages of a real time electronic check on an individual over traditional ‘historic’ checks. It is self evident that such a check is infinitely preferable to one based on data that is hours, days, weeks or months old. With historic credit checks, fraud and multiple loans will remain an ever present hazard but, with real time sharing such risks are virtually eliminated.

With real time products such as LendingMetrics DAS, the lender can have electronic access to an applicants’ loan application in milliseconds. The result, in a massively better affordability assessment and risk calculation. The real time data market is evolving, this is of course welcome news to those who would like the sector to turn over a new leaf and move forward to a stronger ethical position. There is however a slight fly in the ointment.

Alongside genuine real time products, there will be those based on periodic data ‘batches’. In other words, the data will be bundled and supplied to the central database once a day or several times a day at best, such products will not prevent multiple applications.The industry must get this right if it is to get ahead of the curve when it comes to proper checks being made on applicants. If we do not take real time data seriously enough, the regulator will look at the option of more statutory restrictions and even a statutory database.

To those lenders eager to use rigorous referencing tools and currently weighing the pros and cons of the various options available, I suggest you ask one question of each of your shortlist of providers. Whether the tool they propose is genuinely real time or not. And have in mind the Oxford English Dictionary definition of real time: ‘A system in which input data is processed within milliseconds so that it is available virtually immediately’.

David Wylie Chief Executive

David Wylie Chief Executive

The Big Debate

Banks and credit card firms blamed for Britain’s personal

debt problems

set to become the gold standard for short term high cost lenders for personal debt problems, by 36% of survey respondents

‘Real time’ credit checks Banks and credit cards blamed

29

MEMBER ONLY

26

As we move swiftly into the second quarter of 2014, Welcom

Software have experienced a surge in enquiries coming from the equity based

crowdfunding sector with a distinct rise in requests from peer-to-peer (P2P) consumer

lenders for our Financier solution.

This growth appears to be in relation to the management of loan facilities that incorporate flexible

financial products albeit with a wider requirement for the ability to both manage and offer finance along

with affiliate partner networks and investor registration and reconciliation management.

Some of this surge in interest has been led by a general pick up in the overall economy although legislative changes planned for April in relation to the accessibility of crowdfunding appear to be driving relevant start ups, with institutional investors as well as private

investment driving the market. An increased level of competition in this sector is creating a demand for both content rich websites and/or integration into established in-house built sites. Back office software now needs to dovetail perfectly with existing operational practices, ensuring clients can concentrate on growth strategies rather than spending large amounts of time and resource on expensive integration exercises, this brings down the cost of lending. As back and front of house operations move closer together the need for a greater understanding of the wider operational systems within any given company also continues to grow.

New software projects must manage the operations for commercial and private consumer clients and investors. Operations often include, loan processing, financial product set up, underwriting based on agreed business rules, credit checks with integration to CRA’s like callcredit who are already established in the P2P space, payments, arrears and collections management, and importantly reconciliation for investor funds.

Welcom Software sees significant interest in their peer to peer loan management software solution

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An upswing in fortunesThe market opportunity in lending to SME businesses

A forecast last year from the Ernst & Young ITEM Club predicted growth in lending to Small and Medium Sized Enterprises (SMEs) of 8.5% in 2014. This comes against a backdrop of the big banks, which provide the majority of lending to the sector, being caught between two stools. On the one hand they are still trying to build their capital positions and on the other they are being exhorted to increase lending through political pressure and encouragement, with initiatives such as the Finance for Lending Scheme.

There is no doubt that banks will continue to provide most funding to the sector, and indeed lending has increased in the second half of 2013. However, a recent report on one major UK bank highlighted, amongst other things:

• slow and complex lending processes• excessive risk aversion• lending to only one in four enquiries.

These issues are being addressed but the opportunity to lend moderate amounts to the smaller end of the market through alternative sources and products has never been greater, particularly given the negative sentiment that grew around banks during the recession.

In 2013 there were 4.9 million SME businesses in the UK of which 95% employed 9 or fewer staff. Though there has been significant growth in the number of unregistered and zero employee businesses, driven in part by redundant workers setting up on their own, even a modest proportion of this group still represents a significant potential borrowing demand.

38% of SMEs in the 0-9 employee category (micro businesses) reported some form of borrowing requirements in Q4 2013 with 30% making use of one or more core bank products (overdraft, credit card or fixed term loan) and 16% using other common forms of borrowing (such as leasing, personal lending or invoice finance). The proportion of micro businesses expecting to apply for funding in the short term is 8%.

Alternative and niche lending is growing in the UK, illustrating the opportunity for non-bank lending options include:

• peer to peer lending was increasingly prominent in 2013. Though its funding structure is unusual, the basics of good risk assessment are still vital

• merchant funding for traders on e-commerce sites illustrates the opportunity in identifying niches with unmet demand. With this come interesting challenges but also valuable sources of data which can be used in lending decisions

• merchant cash advances, an idea imported from the US, and not strictly a credit product, are being offered by increasing numbers of providers, but still need effective risk assessment to ensure fund providers operate responsibly.

Alternative lending still only forms a tiny fraction of in excess of £40 billion of lending to SMEs, but growth is easier from a small base. It is unlikely that small and alternative lenders will compete on price with the banks. The lower volumes inherent in SME lending inevitably mean higher costs of doing business and lending has to be priced accordingly. But there is the opportunity to compete on service and product, or to target niches and their specific requirements. For example, a prompt lending decision may be equally as important to some businesses as pricing.

Small consumer lenders with limited automation of decision making will already have the basic processes in place since the risk in lending to a small business is often tightly coupled with the credit risk of the business owners. As a result, existing processes will form a key part of the lending decision, supplemented by the use of commercial credit data and financial documentation provided by the borrower.

Small lenders, who themselves are closely involved with the running of their own business, will be well placed to understand the needs of a small enterprise and to assess its prospects. Where relevant, local presence will also be a selling point against banks geared to operate on a national scale. These factors may be exploited in meeting one of the other challenges that lenders will face, that of marketing and making potential borrowers aware of the alternatives they offer. Equally investors with experience in managing small businesses may consider entering the lending market as their skills can be complemented by acquiring best practices from the credit industry.

Opportunities are clearly available to lenders in this market. Though economic uncertainty remains, the UK looks to be on the path to growth, with almost half of SMEs expecting to expand this year. Now is the time to look at how lending to support this can be developed and be well placed to benefit from any sustained upswing in the UK’s fortunes.

Marek JudkowskiPrincipal Business Consultant

reported some form of borrowing requirements in Q4 2013 with 30% making use of one or more core bank products

38% of SMEs in the 0-9 employee category

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Raising the risksA bright new future?

The Money Advice Service has introduced three year funding agreements for debt advice for the period 1 Oct 2014 to 30 Sept 2017, and invited its existing lead debt advice partners to demonstrate how they can deliver debt advice to meet their expanded objectives in the period up to September 2017. Caroline Siarkiewicz, Head of the Money Advice Service debt advice programme, explains:

“These plans will be assessed early in 2014, and all being well we will continue to work with our existing partners. We’re looking to start the new agreements on 1 Oct 2014. Meanwhile, we’re extending the grant agreements with our existing partners by 6 months, ie to cover the period up to 30 Sept 2014.”

MONEY ADVICE SERVICE BUSINESS PLAN 2014/15In its new Business Plan for 2014/15, the Money Advice Service announces £3.6m new money to fund free debt advice in England and Wales in the year ahead. The extra funding will enable the Service’s debt advice delivery partners to provide free, face to face advice to more people. Last year, the Service found that only 17% of the approximately 9m indebted people in the UK were seeking advice. The Service says the additional money will help to narrow this advice gap.

The New Money:

• The new money takes the Service’s budget for debt advice in 2014/15 to £38.1m. In 2014/15, payday loan firms will contribute towards the debt advice budget, as they become authorised by the FCA

• Consumer credit firms will not contribute towards the Money Advice Service’s money and advice costs in 2014/15, but the FCA envisages that they may do from 2015/16

• The Service will set new debt advice KPIs from October 2014 which align with the new three year arrangements, and will publish these updated KPIs in July 2014, along with our first quarter performance results.

The Service is aiming for 78,750 actions to be taken as a result of debt advice sessions delivered between April and Sept 2014.

Back in the September 2013 issue, I touched on the challenges the short term lending industry was likely to experience, and predicted significant consolidation and a transitional phase leading up to and following implementation of the new regulatory environment.

We are already seeing the market impact, with the FCA recently claiming an exit from the market of a quarter of the 200 or so payday lenders under its regime.

The impact on the sector is still to be felt, and could be more significant than this prediction, as the transition continues. Whilst there were little surprises from the final rules published in March, the FCA’s decision to impose the maximum of two rollovers and restrict use of the Continuous Payment Authority (CPA) in the event of two failed attempts, leaves very little room for manoeuvre for pure payday lenders, and raises the risks significantly for this type of business and those lenders exposed solely to this sector.

What is of interest though, are the conditions under which CPA collections can be ‘reset’, and given that instalment based lending will not be restricted by rollovers, and with the option for part payments under CPA for repayment plans, it is clear to see the direction in which the industry is likely to move. Retain CPA, provide no additional costs to the customer, or collect by direct debit and have the flexibility to apply charges.

The irony is that longer term instalment based lending will suit collections by direct debit and the impact upon customers with insufficient funds is of course bank charges. We see lenders now adopting a dual collection approach using both CPA and direct debit methods, as they look to mitigate risks and minimise costs for their customers.

Longer term instalment based lending will require more capital, which will not be readily available in a market still facing uncertainty. One hopes that the two key reports from Competition Commission on the industry, and also the decision on the total cost of credit by the FCA are delivered without delay. Uncertainly benefits no one, including consumers.

On a more positive note, regulation and higher standards will attract new lenders as well as test existing players who are fundamentally reviewing their business models. The future looks bright.

David Patel Managing Director

Caroline SiarkiewiczHead of the Money Advice Service debt advice programme

Money Advice

ServiceIntroduces three year

debt advice funding agreements

maximum of two rollovers and restricted use of CPA extend grant agreements with their existing partners by 6 months

Little room for manoeuvre Money Advice Service

35

Craig Murray Managing Director, Caledonian Finance

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In one basketNo room for complacency as new regime heralds tough approach to consumer credit

Much has been written over the past twelve months on the Financial Conduct Authority (FCA), which has recently finalised the rules that will apply to the consumer credit market under their regulation.

The FCA has promised a tough approach to consumer credit with stronger powers to clamp down on poor practice, hands on supervision, and close monitoring of how providers treat their customers, in particular those operating in higher risk sectors. The onus will be on credit providers to ensure that they treat customers fairly at all times. This will mark the beginning of a very different regime, with greater enforcement of standards.

Firms will need to complete a more detailed application process for FCA authorisation, the equivalent of the OFT’s licensing system. All companies will have to demonstrate that they meet the FCA’s minimum standards to become authorised, its ‘threshold conditions’, which are modified depending on whether the firm poses a higher or lower risk to consumers.

For firms that are pondering what to do after the interim permission stage and perhaps whether to seek authorisation, for start up businesses that are worried about the cost or complexity of implementing the necessary processes and systems, or for others that need help with managing an aspect of their portfolio of credit agreements, there is an alternative.

Oyster Bay Systems and Caledonian Consumer Finance have agreed to jointly provide a comprehensive portfolio management solution designed to meet the needs of companies considering the imminent implications of FCA regulation.

The partnership brings together expertise, knowledge and experience, giving peace of mind and reassurance. Outsourcing portfolio management is an important alternative for maximising operational efficiencies and reducing regulatory headaches, allowing firms to focus on their key business objectives and core competencies. One of the main fears about outsourcing may be the loss of control over business processes. Other concerns might be dependence on a third-party organisation, worries about company confidentiality and data security and the distraction of having to manage the relationship with the service provider. Any portfolio management provider should be only too happy to address these legitimate concerns and give reassurance.

Going forward the FCA will clearly present a different challenge for firms operating under its control, with principle based regulation and a clear statement of intent for change with FCA stressing, ‘they should feel the difference under our regime from day one’. It is therefore absolutely essential that firms are prepared for the inevitable changes ahead and that they have a clear and robust strategy for survival.

companies will have to demonstrate that they meet the FCA’s minimum standards to become authorised

Firms will need to complete a more detailed application process

Technology as a transformer of core processes

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Whether you are a new start up looking for the industry standard or whether you need a solution to help you increase the scale of your operation, Laps-IT can help.

AndAnd when it comes to security, we simply do not compromise. Laps-IT is officially recognised by the PCI council as an approved software platform (search for us at www.pcisecuritystandards.org and look for approved companies) and in this world of ever increasing regulatory scrutiny, maybe you should search to see if your current software provider is officially approved, you may be surprised at the results, wecertainly were!

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The FCA has introduced new regulations in a bid to clean up and improve confidence in the debt management sector. The rules encourage upfront, honest guidance and responsible management of customer fees.

Some of the most significant reforms will be the Approved Persons regime, the Prudential Requirements policy, and the restriction placed on debt management firms taking customer payments as fees in the first six months. These stringent new regulations should be sounding alarm bells for the more unscrupulous businesses in the debt management industry.

It ought to be the case that the new guidelines will be treated not as a trap, but as an opportunity to showcase experience and expertise within organisations. For instance, the Approved Persons regime evidences the credibility of those in key positions of responsibility. This distances the sector from the spam scammers that provoke consumer scepticism of the financial services sector. It is this protection from misconceptions of the industry that will benefit legitimate debt advisors.

The Prudential Requirements insurance policy against the worst case scenario will further improve customer confidence by keeping a percentage of the relevant debts under management aside as a safeguard should a debt management company fail.

The prospect of the drawing of fees restricted will require self assessment from all debt management providers, so reluctance from some is understandable. However, it could be argued that rather than being a harsh stipulation, the Prudential Requirements might still be insufficient protection from those rogue operators that have closed and are currently under investigation.

On a more positive note, it is encouraging to see the FCA signposting to the free advice sector. Developing partnerships where we can identify those who are genuinely struggling to pay creditors, and handhold them across to a free advice service, is a sustainable and diligent long term solution. As we enter a new phase for debt management services, it is important to keep the intended model for the industry in mind, to provide short term solutions for those that had fallen on hard times.

The FCA compliance requirements will hopefully encourage firms to remember the sector’s origins and find suitable solutions for the 21st century customer, bringing about a higher standard of professional service to those that need it.

Michla Ahmed of collections software solutions specialist Sopra Banking Software is convinced Debt Collecting Agencies (DCAs) could improve their performance by updating core systems.

The British Debt Collecting Agency (DCA) industry is weathering a triple storm, rising demand, market consolidation, and toughening regulation. To cope, agencies need to work much smarter at knowing and managing debtors, as well as communicating with them. The problem, as we found out with sector research carried out in 2012, is that for many this is a target they struggle to meet. Better technology will help DCAs meet compliance targets, however, recording of phone calls and the use of speech analytics, for instance, can make a big difference to the task. As one Head of Compliance told us: “speech analytics has been a Godsend we use it as a compliance tool.” His example was date of birth; if the system doesn’t ‘hear’ it mentioned at the start of a call, it later helps his team flag it up as missing a data security check to ensure it will get captured, saving time and needless chasing. A head of compliance confirms the importance of technology for regulatory reporting: “If we look at the FCA and how it’s set up, they are looking for ‘fair outcomes’. It is about being able to evidence the DPA (Data Protection Act), fair outcome and expenditure form. Any system that can provide the material evidence to show this will be big for the industry.”

There’s mounting evidence that technology helps make activity more targeted, but is that all the industry needs right now? Maybe not. As one agency partner puts it, “We also need visibility, it’s a basic building block, as it feeds back into your contact strategy. Being able to identify where each customer is, means you can then also apply the best contact method.”

A technology approach is starting to emerge, Debt Relationship Management (DRM). The application of proven Customer Relationship Management (CRM) disciplines to debt collection, combined with analytics technology to help test new contact and risk mitigation strategies.

A great example of DRM in practice is our work with one of the leading UK DCAs, dlc. The firm is one of the largest privately owned debt collection agencies in the country. David Morton, senior operations manager at the company, has gone on record: ‘DRM is playing a key role, in customer service levels, instigating helpful reminders, rather than communications that make them feel ‘hounded,’ something that is resulting in a better service for all parties, and the kind of transformation you can get using technology as a transformer, not just a supporter, of core business processes’.

For centuries money has been leant to buy goods and services. The quill pen and the open ledger were relatively recently replaced by the Excel spread sheet. The encouragement of credit for everything has forced lenders to invest in systems initially to manage payment and collections. Now that every transaction is more interconnected by the web, having an end to end process for loans and assets being originated, financed, managed and accounted for often on a single sophisticated platform is the norm.

With a £200 billion UK credit industry we have evolved into a highly regulated environment. Consumer Credit Act Two has replaced CCA One. FCA has replaced the FSA as ever greater consumer protection is introduced by political leaders to prevent high street retailers, online Etailers and point of sale dealers supposedly ‘ripping off’ the less financially aware buyer.

At the same time the banks, who were the bastions of training past generations of financial sales people, have given up their leadership role. The arrival in the words of the regulators of more ‘high risk’ lenders such as payday loan providers and online portals has heightened the sense by government of needing greater control, as one bad headline has followed another.

We now have a highly regulated lending environment where government is trying to prevent PPI and other scandals of the past appearing in the future. The analogy with other areas of financial services such as retail banking and insurance, moving to tick box script driven compliance, is part of a move away from any human interaction and towards a prescribed systems decision making process.

Having an open but secure platform with a highly configurable rules engine, intuitive workflow and instant dashboard level reporting is one of the few ways that consumer lenders can adapt to change, stay in control and remain efficient enough to make money. In this constantly changing landscape, the ability to configure new products, adapt to new regulations, and integrate with sophisticated credit agency data and scoring offers are the minimum requirements for proper CRM data mining and risk profiling. Integrated telephony and document production are further key requirements for maintaining collection strategies.

In an increasingly competitive economy for the consumer wallet and a ‘comply or die’ environment, trustworthy and flexible systems are a cornerstone to current and future success.

Michla AhmedHead of Business Solutions

Johnnie Halliday Director

Adrian CrymbleOperations Director

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New analysis from Experian, the global information services company has revealed a 0.9% uplift in used car sales with 6,806,198 used cars changing hands in 2013 compared to 2012. Not since 2008 have used car sales been so high when annual sales were recorded at 7,208,100.

Car models aged nine years or older had a good year in 2013 with annual sales rising by over 6% making it the most popular age category for used cars.

Sales of more recent models aged three to six years and six to nine years both dropped by 4.4%.

And the UK’s favourite used car is:

• for the second year running the Ford Focus kept its crown as the best selling used car in the UK with a 3.67% increase. It was closely followed by the Ford Fiesta and the Vauxhall Corsa both selling over three million models

• looking at the different segments, the biggest growth in used car sales came from larger models with the ever-popular MPV and 4X4 categories both on the rise. The most popular selling MPV was the Vauxhall Zafira with just under 100,000 units sold in 2013

• alternative fuel models have been seeing double digit growth since records began and 2013 did not break this trend. Sales of hybrid cars were up by 31. 8% while electric cars experienced a 20.2% uplift in sales. The Toyota Prius was still the star model of the hybrid segment, dominating 40% of sales in that category and the Nissan Leaf was the best-selling electric model in 2013.

Keith Ambrose, Managing Director of Experian Automotive commented: “The 2013 figures reveal that car buyers are increasingly turning to older used car models. However, the older a car is, the longer its history will be and it’s imperative that car buyers safeguard themselves by getting a full history check.”

Used car sales hit five year high in 2013

TOTAL MARKET JANUARY YEAR TO DATECATEGORY NEW USED TOTAL NEW USED TOTAL

PASSENGER CAR 2014 215552 216845 432397 215552 216845 432397 2013 183567 196699 380266 183567 196699 380266 % Change 17.42 10.24 13.71 17.42 10.24 13.71 LIGHT COMMERCIAL VEHICLE 2014 12718 10137 22855 12718 10137 22855 2013 8797 9023 17820 8797 9023 17820 % Change 44.57 12.35 28.25 44.57 12.35 28.25 HEAVY COMMERCIAL VEHICLE +3500 2014 2613 1358 3971 2613 1358 3971 2013 1907 1369 3276 1907 1369 3276 % Change 37.02 0.80- 21.21 37.02 0.80- 21.21 COACH 2014 187 349 536 187 349 536 2013 164 353 517 164 353 517 % Change 14.02 1.13- 3.68 14.02 1.13- 3.68 MOTORCYCLE 2014 2726 1983 4709 2726 1983 4709 2013 2260 1699 3959 2260 1699 3959 % Change 20.62 16.72 18.94 20.62 16.72 18.94 MOTOR CARAVAN 2014 193 106 299 193 106 299 2013 155 64 219 155 64 219 % Change 24.52 65.63 36.53 24.52 65.63 36.53 TOURING CARAVAN 2014 1282 425 1707 1282 425 1707 2013 1364 373 1737 1364 373 1737 % Change 6.01- 13.94 1.73- 6.01- 13.94 1.73-STATIC CARAVAN 2014 103 18 121 103 18 121 2013 80 13 93 80 13 93 % Change 28.75 38.46 30.11 28.75 38.46 30.11

STATS

HPI Receipts SummaryJanuary 2014

STATS

39

40

The Money Charity Stats March 2014

On a daily basis, purchases using plastic cards were worth £1.469 billion during December.Total credit card debt in January 2014 was £57.1bn.

A new car in the £13,000 - £18,000 price bracket travelling 10,000 miles per year costs £16.23 per day to run.

The UK population grew by 1,123 people a day between 2001 and 2011.

Total net lending to individuals by UK Banks and Building Societies rose by £2.1 billion in January 2014. Net secured lending rose by £1.4 billion in the month; net consumer credit lending rose by £0.7 billion.

UK Banks and Building Societies wrote off £3.61 billion of loans to individuals over the four quarters to Q4 2013. In Q4 2013 itself they wrote off £971 million (of which £560 million was credit card debt) amounting to a daily write off of £10.6 million.

Outstanding secured (mortgage) lending stood at £1.278 trillion at the end of January 2014. This is up from £1.267 trillion at the end of January 2013.

According to the Council of Mortgage Lenders (CML), 28,900 properties were taken into possession in 2013 (this is down from 33,900 in 2012 and represents 0.26% of all outstanding mortgages). This equates to 79 properties being repossessed every day, or one property being repossessed every 18 minutes 11 seconds.

The number of unemployed people in the three months between October to December 2013 was 2.34 million (7.2%). This is down by 125,000 from the previous three months, and down by 161,000 from a year earlier.

30.5 million plastic card purchase transactions were made every day in December 2013 with a total value of £1.469 billion.

Based on January 2014 trends, the UK’s total interest repayments on personal debt over a 12 month period would have been £59.3 billion. This is equivalent to £162 million per day. This means that UK households would have paid an average of £2,245 in annual interest repayments.

The average amount owed per UK adult (including mortgages) was £28,675 in January. This is up from a revised £28,599 in December and was around 115% of average earnings.

Outstanding personal debt stood at £1.439 trillion at the end of January 2014. This is up from £1.424 trillion at the end of January 2013.

Based on annual figures to the end of September 2013, Citizens Advice Bureaux in England and Wales are dealing with 7,015 debt problems every working day.

The UK economy grew by 0.7% in the fourth quarter of 2013, according to latest estimates from the Office of National Statistics.

Public Sector Net Borrowing (excluding financial interventions) was £4,718 million in January 2014, meaning that the government repaid an average of £157 million per day during the month (equivalent to £1,820 per second).

Outstanding unsecured (consumer credit) lending stood at £160.8 billion at the end of January 2014. This is up from £156.7 billion at the end of January 2013.

Average household debt in the UK (excluding mortgages) was £6,087 in January. This is up from a revised £5,990 in December.

Plastic card spending in January amounted to £46.5 billion spread over 954 million transactions, which compares to respective figures of £45.6 billion and 947 million in December. This represented a high degree of spend post-Christmas given the absence of any impact of ‘calendar day’ effects on the month. Factors driving this spending include promotions on offer in the January sales coupled with the continuing strength in online spending. An improving economic backdrop and rising consumer confidence are also likely drivers of the increase.

The growth rate in plastic card spending continued to accelerate during the month, increasing by 6.8% - with debit and credit both registering relative strong growth after rising by 7.9% and 4.4% respectively. A growing proportion of this growth has been driven by the increasing prevalence of online shopping. Spending in the service sector has also been growing strongly in recent months and increased by 9.9% in January. Growth in plastic card spending within retail sales has also been strengthening, though at a slower pace – growth in January stood at 3.8%. Furthermore, the uptick in overall plastic card spending coincided with the pick-up in the economy in the second half of 2013.

The average transaction value (ATV) on all plastic cards decreased between December and January, falling by 29p to £48.39 - ATV for debit cards decreased by 29p to £44.13 while the ATV for credit cards decreased by 24p to £62.48. Average transaction values for plastic cards fluctuated during the course of 2013, though values in January

2014 were slightly below those recorded a year earlier. Within the sectors, the ATV in retail sales was relatively unchanged during the month at £34.31, in contrast to the ATV for services which decreased by £1.09 to £80.09.

During January spending within the retail sector increased by £0.6 billion to £22.8 billion, with the number of transactions rising more significantly after increasing by 9 million. A majority of this increase was within mixed business, which recorded increased spending of £0.3 billion, with the number of transactions up by 10 million. Given that high street department stores make up a majority of this sub-sector, the increase in transactional activity was a likely reflection of the January sales. It is likely a significant proportion of this traffic will have taken place via the online channel, with discerning customers taking advantage of ‘click and collect’ and other similar services.

Spending within services increased £0.2 billion during the month to £23.7 billion, with the number of transactions unchanged on December. Spending on other services continued to be a strong contributor to this growth after increasing by £1.2

billion to a record £8.1 billion – driven by strong spending on government services. This increase was offset by a decrease of £1.1 billion within financial services - which is usually inflated in the month of January owing to self-assessment tax payments. However as the month ended on a Friday, the processing of self-assessment tax payments drifted into February. Spending on vehicles also increased, rising by £0.3 billion to £3.1 billion. Looking further back, the resurgence in the car industry has been evident in plastic card spending, with growth in spending picking up pace during the course of 2013 – the annual rate of growth was 8.7% in January 2014.

The plastic card share of total retail sales (including automotive fuels)1 decreased to 68.2% in January 2014 with a split of 46.6% by debit and 21.6% by credit. The decrease can be attributed to the difference in the reporting period for plastic card data reported to The UK Cards Association and ONS Retail Sales – with the latter including the last three days of December 2013. Within the food & drink and automotive fuels sub-sectors, plastic card spending in January accounted for 61.6% and 86.2% of all spending respectively.

At a glance key figuresfor January 2014

Total spending(£ billions)

2014 2013

45.8 41.1

32.2 28.5

13.7

All plastic cards

Debit cards

Credit cards 12.6

Annual growthrates for spending

2014 2013

45.8 41.1

32.2 28.5

13.7 12.6

Number ofpurchases (Millions)

2014 2013

45.8 41.1

32.2 28.5

13.7 12.6

Key points:New mortgage lending and approvals for buying new homes are around 50% higher than a year ago.

Borrowing demand from businesses is improving, with manufacturers, wholesale & retail sectors having expanded their borrowing from a year ago.

At the end of February:

Personal deposits were growing by 3.7% annually.

Unsecured borrowing had increased by 0.4% over the year. Within this, card borrowing growth of 3.6% outweighed a contraction of 2.5% in personal loans and overdrafts.

Mortgage stocks had risen by 0.2% over the year.

Gross mortgage borrowing of £11.5bn was 47% higher than in the same month last year and at the highest level since August 2008.

Higher capital repayment (in part reflecting homeowners switching lenders) contributed, to monthly contractions in net borrowing through much of 2013, but since the turn of the year, the overall mortgage stock has started to rise as greater demand feeds through.

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HIGH STREET BANKING STATISTICS [BBA] – FEBRUARY 2014

CARD EXPENDITURE STATISTICS – JANUARY 2014

1 CES 3-month moving average spend of £22.4 billion expressed as a percentage of a similar 3-month moving average for ONS Retail Sales - All retailing including automotive fuel (J5A3) which amounted to £32.9 billion.

annual growth rates mortgage borrowing

-8%

-4%

0%

4%

8%

12%

Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Feb 13 Jun 13 Oct 13 Feb 14

mortgage borrowing unsecured borrowing

personal deposits borrowing by non-financial companies

-1

4

9

14

Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 Feb 14

£ bn

gross borrowing

value of approvals(shifted forward 1 month)

net borrowing

annual growth rates mortgage borrowing

-8%

-4%

0%

4%

8%

12%

Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Feb 13 Jun 13 Oct 13 Feb 14

mortgage borrowing unsecured borrowing

personal deposits borrowing by non-financial companies

-1

4

9

14

Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 Feb 14

£ bn

gross borrowing

value of approvals(shifted forward 1 month)

net borrowing

News that the UK has become the world’s leading online e-commerce exporter (research performed by OC&C Strategy Consultants and Google) further underlines the transition from consumer footfall on the country’s high streets to the virtual. Whilst the debate about how empty town centres can be re-invigorated will continue for years to come, we believe that the shift online will contribute to the transformation of financial services delivery in the UK.

The revolution has already commenced with certain high ticket retailers such as Apple providing fully integrated finance options on their websites, allowing customers to secure sales aid credit all in a matter of seconds, alongside the goods purchase.

Increasingly we see more online retailers providing finance to complement the goods purchased and predict that not only will finance be offered for lower sized transactions, perhaps down to sub £100 purchases, but also that finance will be used to drive the sale, as it is in the automotive sector with most adverts leading with a monthly payment rather than the vehicle cost.

Equally importantly though as consumers’ attitudes to online shopping mature and they become more accustomed to the immediacy of the experience, so too will they expect the same from their bank or finance provider for products such as unsecured loans. Being able to get a credit decision on-line but still requiring wet signatures on loans documents before funds can be transferred (often by 3 day direct credit) points to poor investment in technology, a broken customer experience and a lack of vision.

Technology to support this transition needs to be slick with fully automated enhanced underwriting and enhanced identity validation, culminating in e-signed loan documents as well as interaction with the retailers’ front and back office systems. Scalability and availability requirements cannot be ignored either, with the acknowledged concentration of online transactions on certain dates contributing to peaks in demand, the absolute scale of which may be difficult to predict.

This shift in consumer demand presents an opportunity for established and new lenders alike.

GROWTH PROMPTS NEW LONDON OFFICENostrum Group is pleased to announce that it is opening a new office in The Gridiron Building at Kings Cross, considered by some to be the new creative commercial centre for London. Nostrum are expected to occupy the building in May and have commenced a recruitment programme as part of its overall growth strategy.

Commenting on the opening of the new London office, Richard Carter, Chief Executive said, “This is a very exciting time for the business and the decision to open an additional office in London will help us service our growing base of London based customers and gain access to a larger pool of quality resources. We have increasing traction with our strategy to make lending cheaper, faster and safer and look forward to welcoming new staff who share our ambition.”

NOSTRUM GROUP ANNOUNCES 83% INCREASE IN REVENUE TO OVER £7M

Nostrum Group has declared 2013 revenues in excess of £7m and EBITDA over £1m reflecting the increased traction the company’s strategy to make lending cheaper, faster and safer is having with new market entrants and established players.

Commenting on the results, Neil Warman, Nostrum’s Chief Financial Officer said “2013 has been a significant year for the business and this is reflected it its financial performance. This has been achieved without the need to take external equity investment or debt.” Nostrum was ranked 36 in Deloittes’ 2013 Fast 50 and recently showcased its Virtual Collector product at FinovateEurope. Technology – making lending

cheaper, faster and safer.With our innovative, secure and compliant loan management software and outsourcing services, offering everything from underwriting and customer servicing to collections, we help our customers achieve operational and customer service excellence. To fi nd out more, speak to one of our experts on 0844 8118 039 or visit www.nostrumgroup.com @NostrumGroup TheNostrumGroup

MEMBER ONLY

THE DEBATE ABOUT HOW EMPTY TOWN CENTRES CAN BE RE-INVIGORATED WILL CONTINUE FOR YEARS TO COME, WE BELIEVE THAT THE SHIFT ONLINE WILL CONTRIBUTE TO THE TRANSFORMATION OF FINANCIAL SERVICES DELIVERY

Letting go...She signed, he signed,

e-signed…

Richard CarterCEO

the shift online will contribute to the transformation of financial services delivery in the UK

As the debate on how town centres can be re-invigorated continues

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