The Journey to the Financial Conduct Authority (FCA)

The Collections Perspective

The Financial Conduct Authority’s (FCA) adoption of responsibility for the consumer credit regulatory regime 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 just 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? How can a DCA (and its staff) be incentivised to both recover debts and still hold paramount the interests of the consumer? Will lenders need to start benchmarking DCA’s on criteria other than ‘cash collected’, and if there are other criteria, what significance will be attached to these?

Whilst most DCA’s operating in consumer credit will have needed to have demonstrated some historical understanding of TCF principles, the new regime will require DCA’s 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’ (FSF).

The key areas of assessment will be in:

Governance: How the business identifies and manages risk. In a DCA space, we might expect this to mean that the DCA should be able to evidence a culture of 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 when considering financial products and services that might be offered by a bank or motor finance provider; but it can also apply to DCA’s. For example, at Burlington we have introduced our CustomerConnect service, which is forbearance tool designed to give the customer more flexibility in discharging debts.

Sales or transaction processes: We consider that this would apply to how a DCA handles and administers customer payments, i.e. adhering to 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 that 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 who are responsible for the conduct of the business. DCA’s 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.

There are also likely to be tighter controls for business that operate field operative teams, 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 that there will be something of an exodus when the new regime takes hold and that those who don’t want to play by the rules (or who are simply not equipped to do so) will exit the market. The net result is likely to be better outcomes for consumers and, with any luck, a positive change in perception of debt collectors.