Improving Complaints Handling – New FCA rules
The new rules for complaints handling, set out in PS 15/19, will come into force on 1 July 2016. The changes to the DISP rules are aimed at improving the consumer outcomes especially in relation to complaints currently resolved by firms through the informal process (within the following business day) allowed under the rules. The changes introduce a ‘summary resolution’ requirement for the complaints that are currently resolved within the following business day of the receipt of complaints by extending the time for resolution of such complaints to 3 business days from receipt and requiring firms to send a written communication to customers for each complaint. The changes also require firms to record, analyse and report all complaints received by them to the FCA including those closed through the summary resolution process.
In summary, the FCA have introduced the following new requirements for firms:
- Extending the ‘next business day rule’ (for complaints handled less formally by firms, without sending a final response letter) to the close of three business days after the date of receipt
- Reporting all complaints, including those handled by the close of three business days after the firm receives them
- Raising consumer awareness of the Ombudsman service, by sending a ‘summary resolution communication’ following the resolution of complaints handled by the close of the third business day after receipt
- New rules limiting the cost of calls consumers made to firms to a maximum ‘basic rate’, including all post-contractual calls and all complaints calls
Additionally, firms will be required to send data to the FCA’s improved ‘complaints return’ system, twice a year covering all complaints they receive.
These changes, apart from the cost of calls rule (which has already come into effect on 26th October 2015) will be effective from 30th June 2016.
As all complaints – both formal and informal – will be covered by the new rules, the new requirements are likely to have a significant operational impact for most firms including the need for additional resources that may be required for dealing with all customer grievances (however minor) in a formalised way, carrying out a trend analysis for all such complaints as well as recording and reporting all complaints to the FCA periodically. In fact, the first reporting of informally resolved complaints will start with the complaints return due for submission on or after 1 July 2016, which means that some firms may need to maintain full record of both formal and informal complaints from January 2016. While most firms do keep such records for an internal analysis, the formal reporting requirements impose a mandatory duty to do so in a structured manner to facilitate meaningful analysis and accurate reporting.
(Lightfoots will be able to provide tailored solutions to firms to enable them to meet their regulatory obligations under new rules including staff awareness training, complaints management, help with final response letters, record keeping and complaints reporting. If you need to discuss any of the requirements please contact us.)
FCA’s Review of Retained Provision of the CCA – Call For Input
It has been acknowledged that the transfer to the FCA has left consumer credit regulation in a state where it is quite complex and extremely difficult to navigate for those not fully familiar with the framework. In recognition of this, Part 5 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2014 has mandated the FCA to undertake a review of the CCA provisions retained by the FCA for regulating consumer credit and submit a report to HM Treasury. The review under Part 5 of the RAO Amendment Order will, in particular, consider whether the remaining provisions of the CCA could be replaced by rules or guidance made by the FCA under FSMA. The FCA’s report may make recommendations relating to the exercise by HM Treasury of its powers, under section 107 of the Financial Services Act 2012, to repeal some or all of the provisions of the CCA.
The FCA are, accordingly, seeking input from the industry in relation to their review of retained provisions of the Consumer Credit Act (CCA).
A large number of CCA provisions were retained in April 2014 when the FCA took over the regulation of consumer credit from the OFT, including certain rights derived from the Consumer Credit Directive (CCD) such as the rights of withdrawal, early settlement and termination of open-ended agreements. Some retained provisions provide for specified sanctions against the creditor or owner – such as unenforceability without a court order or until the breach is remedied. Examples include where a firm fails to provide the prescribed pre-contractual information or to provide a compliant statement or arrears notice. A number of retained provisions provide for a role for the courts, including in relation to enforcement orders, unfair relationships and time orders.
The range of sanctions applied by the FCA under FSMA is fundamentally different. In particular, a breach of FCA rules does not usually render an agreement unenforceable but it typically gives rise to the possibility of regulatory action by the FCA themselves under Part 14 of FSMA and a right of private legal action.
FCA’s main objective of the proposed review of CCA’s retained provisions is the continuing development of an effective and proportionate regulatory regime which ensures appropriate protections for consumers.
(Lightfoots will engage with its clients and consider providing input into the process so that the industry’s views are appropriately considered by the FCA before removing any of the retained provisions)
FCA Update for Second Charge Mortgage Firms: MCD Related Permissions
The FCA have updated their webpage on the Mortgage Credit Directive (MCD) with
information for firms that offer second charge mortgages. The MCD comes into force on 21 March 2016 and applies equally to first charge and second charge mortgages with the regulation of second charge loans moving from the FCA’s consumer credit regime into their mortgage regime.
To carry on second charge activities after 21 March 2016, lenders, administrators and brokers will need appropriate mortgage permissions. Among other things, the FCA have said that second charge firms still have time to apply for regulated mortgage permissions. An interim authorised firm, or an authorised firm that previously had interim permission for second charge mortgage business, must apply before 21 March 2016 to get a new interim permission for regulated mortgage business.
This means that a firm will be able to continue doing second charge mortgage business until their application has been determined. The FCA have confirmed that in some instances they may have issued a “minded to authorise” letter and that lenders should engage directly with brokers to check the status of their applications.
If an interim authorised firm, or an authorised firm that previously had interim permission for second charge business, has made an application or variation for second charge mortgage permissions and it has not been approved or rejected by the FCA by 21 March 2016, the firm will receive a new interim permission for regulated mortgage business. The consumer credit interim register will be updated to show this on 21 March 2016 and the new interim permission will remain in place until the application has been determined.
General Insurance Add-Ons: Guidance on Value Measures
The FCA published on 1 March 2016, a feedback statement (FS16/1) which summarises the responses received to its June 2015 discussion paper on general insurance add-ons and outlines the next steps.
FCA found that competition was not working well for consumers in add-on markets. There was little competitive pressure on firms because add-on buyers were less likely to shop around and were less price-aware than they would be when choosing a stand-alone product. They identified poor value in both add-on and some stand-alone products sold by firms, which the FCA measured by claims ratios. The FCA also highlighted that the lack of a commonly available measure of value to assist market participants with value judgements heightened these issues.
The discussion paper had set out a number of potential options for presenting measures of value:
- The claims ratio as a stand-alone value measure;
- A package of measures: claims frequencies, claims acceptance rates and average claims pay-outs (“scorecard option”);
- The claims ratio plus claims acceptance rates.
Having considered the feedback to the discussion paper, the FCA have decided to take forward a scorecard as its preferred option for presenting measures of value. The scorecard will include claims frequencies, claims acceptance rates and average claims pay-outs, potentially with the inclusion of an average premium metric. The FCA have stated that they still prefer publication as a market transparency remedy, rather than point-of-sale disclosure to consumers. They consider that the scorecard could give users a wider breadth of information about general insurance products sold to consumers, while reducing some of the risks and costs associated with the claims ratio.
However, rather than consult immediately on introducing a scorecard approach for a broad scope of general insurance products, the FCA have decided to run a pilot covering a small number of products. This will enable them to obtain further evidence of the remedy effectiveness and costs ahead of any potential consultation. The FCA intend to launch a pilot of the scorecard in the summer, on a limited number of products. They envisage that the pilot will cover two one-year periods and data will be published on the FCA website. The FCA will continue to engage with stakeholders on the pilot design ahead of its launch.
Ageing Population and Financial Services – DP 16/1
The FCA have published a discussion paper on ageing population and financial services. The discussion paper contains contributions by a range of interested individuals and organisations and is intended to provoke discussion and debate about how the financial services industry can better meet the needs of the UK’s ageing population.
The FCA’s aim is to ensure that consumers have access to products and services that are well governed and deliver value for money in competitive markets. They have said that the discussion paper will build on the existing work they are already conducting, including that on changes in the pensions market, how financial advice is delivered and consumers in vulnerable circumstances.
In addition to publishing this paper, the FCA have been developing a project theme that will look at key issues for the ageing population in all their aspects. This programme will include a series of meetings with stakeholders, research of the key issues and, in due course, development of recommendations that will form part of their overall regulatory strategy for the ageing population.
The FCA have acknowledged that the topics discussed in the paper are not comprehensive and that they would like to hear from the industry to enhance their understanding of the issues and opportunities to improve markets for older people, particularly on areas not covered by the contributions. Comments have been requested by 15 April 2016. The FCA will publish a feedback statement as part of their wider strategy for the ageing population, which is expected to be completed by next year.
The regulatory initiative in this area is aimed at addressing the key issues potentially faced by the older customers in accessing certain financial products and services and the outcome of the FCA’s study is likely to have significant impact on financial markets including within mortgage lending and financial advice sectors.
Proposal to Issue Guidance on the FCA’s View of Enforcing Security under the Consumer Credit Act 1974: GC 16/2
The FCA have published in February 2016 a guidance consultation (GC 16/2) on a proposal to issue guidance explaining how it will interpret provisions of the Consumer Credit Act 1974 (CCA) regarding the enforcement of security in relation to a regulated credit agreement or a regulated consumer hire agreement involving a guarantor or surety.
In February 2015, the FCA had brought out a consultation paper on proposed changes to its consumer credit rules and guidance, including in relation to guarantor loans. They published a feedback statement and final rules in policy statement, PS15/23, in September 2015 and stated that, in their view, taking or demanding payment from a guarantor (for example, under a direct debit or continuous payment authority) would not amount to “enforcement” of security for the purposes of section 87 of the CCA and so would not require a default notice.
After reconsidering the matter the FCA have now revised their view of how a court is likely to interpret the relevant CCA provisions. They are therefore consulting prior to issuing guidance to update the statement made in PS15/23.
The FCA’s revised view is that if the creditor wishes to request or take payment from the guarantor following non-payment by the debtor, the creditor must first serve a default notice on the debtor (and provide a copy to the guarantor) and allow at least 14 days for response. This applies to all regulated credit agreements (and regulated consumer hire agreements) involving a guarantee or indemnity. Similar principles would apply in other cases involving enforcement of security.
Also, in the FCA’s view, failure to serve a valid default notice means that the creditor cannot take payment from the guarantor. If payment is taken, contrary to section 87, the debtor or the guarantor may have a cause of action against the creditor. In addition, in such cases the FCA may consider taking regulatory or disciplinary action against the firm.
The FCA have stated that they would take the finalised guidance into account in deciding whether a firm has followed the law and whether, therefore, any supervisory or enforcement action is warranted. In light of the statement made in PS15/23 it would not expect to take disciplinary action solely on the basis that a firm has taken a payment from a guarantor, without issuing a default notice to the borrower and a copy to the guarantor, in relation to such actions taken by firms during the period from 28 September 2015 to 19 February 2016. Comments have been called for by 18 March 2016.
(Lightfoots have made a detailed submission on behalf of one of its clients asking the FCA to potentially revert to their previous position on this, highlighting some of the potential legal and regulatory issues with regards to their revised view about the enforcement of security in relation to guarantor loans)