March 2017 Credit Management magazine

LEGAL MATTERS
FAIRNESS V COLLECTION -THE FCA
CREDIT MANAGER'S DILEMMA
In this article, David Wood, a partner at DWF LLP's finance litigation team and an expert on
consumer credit regulation examines some hot topics for credit managers operating in this sector.
DD 0161 603 5226 E david.wood@dwf.law W www.dwf.law
David Wood
ARREARS handling in the FCAregulated
sector involves a different
mindset from collections in other
sectors. The key considerations are
the requirements to treat customers fairly
and to communicate in a way which is clear,
fair and not misleading. With a customer in
arrears there is a requirement for forbearance
and due consideration, with the emphasis
on rehabilitation rather than collection. The
fair treatment of vulnerable customers is
also a clear priority, with the definition of
vulnerability wide enough to cover many
whose vulnerability is clearly a result of their
financial circumstances.
For firms that are not lenders but who are
authorised for consumer credit debt collection
the obligations extend even to exempt
agreements.
Firms that have one foot in the regulated
sector, but also deal with unregulated
businesses, have additional challenges. Cash
is king but a collections strategy that focuses
introspectively on collection, rather than
customer outcomes, can impact upon FCA
cultural requirements.
FCA THEMATIC REVIEW – EARLY ARREARS
MANAGEMENT IN UNSECURED LENDING
The recent Thematic Review has highlighted
some of the principal issues. Earlier in
its business plan for 2015/2016 the FCA
identified, as one of its five key objectives in
its supervision of the consumer credit market,
the need to ensure that firms were treating
customers fairly and exercising appropriate
forbearance when seeking to recover debts.
The underlying theme of the Review relates
to culture – this will significantly influence how
much due consideration and forbearance is
afforded to customers in arrears difficulties.
The press release that accompanied the
Review stated: “We found that firms who
put customers at the heart of what they
do saw the benefits of positively engaging
with customers and agreeing sustainable
repayment solutions. However, we found
that firms whose culture was not motivated
by securing fair customer outcomes were
focused on securing payment as quickly as
possible…we expect firms to embed a culture
of doing the right thing for the market and
consumers”.
FCA ENFORCEMENT ACTIVITY
Arrears practices have featured highly in
recent FCA enforcement activity. More latterly,
HSBC has had to address past practices
of firms it has taken over overcharging
customers in arrears. This highlights the need
to ensure transparency and fairness in arrears
fee charging – do these fees truly reflect the
additional costs incurred in managing the
arrears? And is adequate provision made
in arrears handling policies for waiving
these fees to assist customers who are in
financial difficulties? Previously, the payday
loan market has been forced into expensive
remediation schemes for customers who
were in financial difficulties and not being
treated fairly. Other enforcement cases focus
on fair customer outcomes. In the residential
mortgage sector, delays in identifying and
addressing customers who were in financial
difficulties, a key requirement of FCA rules,
has led to an expensive remediation scheme
for one particular lender.
OUTSOURCING
Outsourcing causes particular issues, not
merely the need to thoroughly vet and audit
your agents but also to ensure that the
correct authorisations are in place. Offshore
outsourcing presents specific challenges
particularly with regard to ensuring that those
agents are lawfully able to carry out the
activity. An overseas firm may not be able
to directly secure FCA authorisation due to
its inability to meet threshold conditions and
relying upon appointed representative status
can also be challenging. This is particularly
due to the appointed representative being
subject to the approved persons' regime.
The FCA's recent review on appointed
representatives in the Insurance Sector
contains some valuable insight into the
considerations that a firm should take into
account before any form of outsourcing.
CONCLUSION
So the key to meeting FCA compliance is,
firstly, establishing the right culture and,
secondly, having a clear written and compliant
forbearance policy that is regularly reviewed
and on which agents are assessed for
compliance on a regular basis. Culture can
only be directed from the top down and senior
management engagement is essential to
achieve this.
MEET THE DWF CONSUMER CREDIT TEAM
David Wood has spent a large part of his
35-year career as a litigation and recoveries
specialist in banking, asset finance and
consumer credit. In recent years he has
concentrated on advising clients on
compliance issues. Partner John Perez, who
heads the team, is a legal and compliance
advisor to the motor finance sector. Partner
Julia Williams heads the firm's lender services
volume collections operation.
David L Wood Partner, Asset Finance and
Consumer Credit Regulation, DWF LLP
This information is intended as a general discussion
surrounding the topics covered and is for guidance
purposes only. It does not constitute legal advice
and should not be regarded as a substitute for taking
legal advice. DWF is not responsible for any activity
undertaken based on this information.
AS A CICM MEMBER YOU CAN RECEIVE FREE LEGAL ADVICE FROM DWF
VISIT THE CICM WEBSITE AND CLICK ON THE FREE ADVICE LINE.
24 March 2017 www.cicm.com
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