At the end of January the FCA released a letter to the CEOs of all registered High Cost Short Term Credit providers reminding them of their obligations. A copy of the letter can be found at https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-hcstc-firms.pdf but in summary it covers:
- Using credit brokers responsibly
- Doing proper affordability
- Treating customers fairly when in difficulty
- Governance and Controls
- What happens if your permissions lapse
- Purchasing portfolios
- Finalising your application
The tone of the letter is clear, but very firm. It starts by saying comply or you will be operating illegally and ends with think carefully about everything we have said before submitting your application.
It is in every respect consistent with the messages the FCA have been putting out ever since coming in to regulate this market:
- Do the right thing for the customer
- Have the right controls in place
- Don’t try and play the system
The impending closure of the application window for HCSTC firms (December 2014 – February 2015) brings the lapsing permissions and purchasing portfolios points to the fore. Many firms are dealing with one or both of those issues at the moment and with time rapidly running out, there is bound to be lots of movement over the last few weeks of the window as firms look to get onto solid ground before the window closes.
It is very clear from the letter that there is absolutely no wiggle room in the application window for those firms who have not yet submitted their application. Failure to do so is absolutely the end of the ability to trade. In these terms ‘trade’ means everything – advertise to customers, lend new money, collect outstanding debt, follow up on litigation action or getting anyone else to collect debt on your behalf. In short – if you haven’t applied before the deadline, any agreements you have in place with customers become unenforceable from the 1st March.
This could potentially have a significant impact on those smaller firms who have residual books, particularly those that are being collected through third party debt collectors or in other forms of run off. The recent changes in regulation have seen many firms move out of the HCSTC bracket for new business whilst still collecting out older debts – without the appropriate application this won’t be possible beyond the end of February.
One obvious option for those fimrs impacted is to sell their HCSTC books to a third party to realise some of the value whilst they still can. It is very clear that the FCA have seen this as an opportunity for firms to try and dodge regulation and have subsequently spoken out about it in their letter.
The letter has placed all of the responsibility on the purchasing party and it is very clear that they will be reviewing any last minute purchases in some detail to make sure that the appropriate customer outcomes are being delivered. The fact that they are drawing the readers attention to specific requirments in the CONC rulebook should be evidence enough that get this wrong, and you can expect to hear from the FCA soon.
In summary, none of the letter was new news. All of the points were there before, but from this it is possible to suggest that either the FCA are making noises because they know they have delivered their objectives in this market, or more likely because they still believe that there are firms out there who are trying to play the system and find ways to work around, instead of with, the regulation.