In April 2014 the regulation of consumer credit transferred from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). The FCA has a different approach to regulation. It:
- Has wider enforcement powers
- Expects businesses to have a more rigorous risk and compliance framework
- Expects businesses to embed Treating Customers Fairly in their culture
As consumer brands such as retailers, motor manufacturers and telcos take a much more active role in the provision of financial services to their customers, their boards must understand the risks and conduct obligations and importantly be able to evidence good customer outcomes.
In the UK, we haven’t seen a big consumer brand fall foul of the regulator as yet. By comparison the Australian Securities and Investments Commission (ASIC) has just fined car finance provider BMW Australia Finance Ltd (BMW Finance). BMW Finance has paid penalties totalling $391,000 and had a condition placed on its Australian credit licence to appoint a compliance consultant after ASIC found it breached important consumer protection provisions relating to responsible lending and the repossession of motor vehicles.
Specifically ASIC found that between November 2014 and May 2015, BMW Finance failed to:
- Make reasonable inquiries about, and take reasonable steps to verify, consumers’ stated living expenses, income and cash at bank when there was an unexplained discrepancy in the figures provided, and made insufficient inquiries about consumers’ capacity or plans to repay substantial balloon repayments due at the conclusion of the loan term
- Assess credit contracts it entered into with consumers as unsuitable, and entered into unsuitable credit contracts, when documentation provided by consumers showed there was insufficient income available after expenses to service monthly loan repayments
- Deliver on its obligations to provide customers with statutory information setting out their rights and the options available to them after a finance company repossesses a mortgaged vehicle or the consumer voluntarily returns that vehicle
ASIC Deputy Chair Peter Kell said: ‘The outcome with BMW Finance shows failing to comply with important consumer protection provisions can result in significant penalties. ASIC will continue to monitor compliance with these provisions to reduce the risk of borrowers being placed into unsuitable loans, and to ensure that borrowers are informed of their rights and options available to them when facing financial hardship‘.
With the imminent implementation of the Senior Managers Regime, boards and senior executives of UK consumer brands which offer financial services should take another look to ensure they are both compliant and delivering good customer outcomes.
Please read our BRG white paper for more information: The Behavioural Regulators’ Agenda.