Five years on…

Jason Wassell reflects on five years of FCA regulation of our sector, and the recent impact of complaints and Claims Management Companies.

We have just recently passed the 5th anniversary of the FCA regulating the HCSTC industry, and during this time it is fair to say that the sector has been on a journey. In fact, it is a journey that started in the years before the transfer to the FCA.

This five-year anniversary coincides with the date that Claims Management Companies (CMCs) come under FCA regulation. All this sparks some questions about the currently regulatory structure, and whether it is working for the wider industry.

For HCSTC, that regulatory journey began with authorisation. For many of our larger lenders, there were close discussions about what their future business might look like and for some these questions became tangible through the authorisation process.

Detriment reviews were carried out. It is sometimes forgotten that hundreds of thousands of customers have already had their borrowing reviewed. This led to the repayment of millions where lending went wrong.

We all hoped that this would draw a line under the past.

Based upon this, firms made good on their commitment to introduce change throughout their business. They invested millions to improve processes and develop new products.

Over the last few years, we seemed to see the focus move to other areas of High Cost Credit. For many firms their engagement with the FCA dropped down another level. There was even a discussion of the it being ‘business as normal’. Though of course the new ‘normal’ was now very different.

The prominent areas of complaint – in particular the misuse of continuous payment authority or the practice of rollovers – fell away. However, it was soon to be replaced by the idea of the affordability complaint.

That trickle has become a flood, made worse by the work of CMCs. We have talked already about some of behaviours we have seen, from threats that verge on exploitation to some questionable use of customer data. These tactics have meant that a handful of CMCs have had a huge impact on our sector and unfortunately, we can now see the results in the exiting of firms from the market.

We find ourselves under pressure from the Financial Ombudsman Service (FOS), and yet we find no relief from the FCA. There seems to be a willingness by the regulator to allow the FOS to deal with these issues. Whilst it is something they would deny, it is clear that the FOS are developing the detail of what affordability means.

When you make 40,000 decisions you are bound to make choices on issues like levels of expenditure, buffer amounts or even what they consider to be a red flag in the borrowing process. There is a duty on lenders to review what the FOS decides, and how this shapes policy.

For the CFA this raises questions about the role of the FOS and whether this really is the organisation that should be handling this type of ‘mass claim’. It introduces massive uncertainty as the FOS looks back at lending over the last decade.

The FCA also needs to take real action against CMCs, that are not abiding by the new regulatory requirements, from this week. Without action, the issue of affordability complaints will continue to be exploited, and will move to other areas of consumer credit.

Wider afield and five years on, and firms still seem to be dealing with great uncertainty.