The adoption of responsibility for the consumer credit regulatory regime by the Financial Conduct Authority (FCA) has ruffled feathers across the motor finance industry as regards lending practices and intermediary relationships. However, the new regime will have far-reaching consequences for ‘back office’ collections activity as well.
For the first time, the consumer finance collections industry will have a regulator as opposed to a licensing body. Those intending to remain in consumer finance collections will need to evidence a commitment to a culture which places the interests of the consumer ahead of profitability. But is this ‘at odds’ with the function of a debt collection agency (DCA)? How can a DCA and its staff be incentivised both to recover debts and hold paramount the interests of the consumer? Will lenders need to start benchmarking DCAs on criteria other than ‘cash collected’, and if there are other criteria, what significance will be attached to these?
While most DCAs operating in consumer credit will have needed to have demonstrated some historical understanding of Treating Customer Fairly principles, the new regime will require DCAs to provide evidence that would withstand an FCA audit. The FCA has signalled a much more interventionist policy and an intention to carry out what it calls "preventative work through structured conduct assessment" via the "Firm Systematic Framework". The key areas of assessment will be in:
Governance: How the business identifies and manages risk. We might expect this to mean the DCA should be able to show training and continuous improvement in areas like data security, effective and fair engagement with customers and dealing appropriately with vulnerable persons.
Product design: Whether the products offered meet customer needs. This has obvious applications for financial products and services, but it can also apply to DCAs. For example, at Burlington we have introduced our Customer Connect service, a forbearance tool designed to give the customer more flexibility in discharging debts.
Sales or transaction processes: We consider this would apply to a DCA’s administration of customer payments, that is, adhering to the Payment Card Industry Data Security Standard (PCI DSS) compliant card processing methods and maintaining safeguards as regards monies held on trust in client accounts.
Post-sales services: The FCA has indicated this would include (among other things) complaints handling policies, procedures and trend monitoring.
There are other ‘controls’ in the new regime which are designed to attach personal liability for key influencers responsible for the conduct of the business. DCAs will need to appoint at least one Approved Person, who will be designated by the FCA as "fit and proper" to perform the relevant controlled function. The Approved Person will be subject to sanctions (including financial sanctions) for failures to report to the FCA and for failing to abide by the code of conduct for Approved Persons.
Controls for businesses which run field-operative teams are likely to be tightened, with field operatives likely to be required to register as ‘Authorised Representatives’ of a directly authorised principal business.
Many of these changes are welcome and will level the playing field in the consumer debt collection industry. The FCA anticipates an exodus under the new regime and those who don’t want to play by the rules (or can’t) will exit the market. The net result is likely to be better outcomes for consumers and improved perceptions of debt collectors.
Adam Wonnacott is sales director at the Burlington Group