Following the Financial Conduct Authority (FCA) taking over control of the market from the Office of Fair Trading (OFT) on April 1st 2014, firms operating within the consumer credit market have a six month window to bring their operations in line with FCA expectations. This is a regulator that is not only much stricter, but also more proactive in enforcing its rules compared to the previous incumbent.
With thousands of credit firms already forced to shut up shop and pursue other avenues after finding that their business models no longer stand-up in the new regulatory landscape, those remaining clearly do so to serve a strong, healthy market. To thrive in the tough FCA regime, these firms will not only have to comply with a regulator vowing to enforce tough rules on complaints handling and treating customers fairly, but also prove that they are doing so consistently. Adapting to these changes will bring forth a number of challenges, but proactive firms should be looking to draw upon examples of best practice from elsewhere in the financial services sector.
Charter UK, the leading specialist provider of enterprise complaint and feedback management software, has outlined the three key areas that consumer credit firms need to be concentrating on:
Customer service – Treating Customers Fairly
Consumer credit firms need to demonstrate to the FCA that the fair treatment of customers is central to their corporate culture, and that any products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups. Firms also need to show the specific steps they are taking to ensure that consumers are provided with clear information and suitable advice at all times, and that they are being kept appropriately informed before, during and after the point of sale.
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Root cause of complaints
Complaints against consumer credit firms are likely to rise in the short-term as firms adjust to the new regulations they’re under. However, this needn’t be a bad thing. The FCA wants to see evidence that consumer credit firms have the ability to capture the root cause of any recurring problems or complaints in a consistent and structured way – not only in order to meet its consumer protection guidelines, but also to identify what behaviours, actions, inactions and/or conditions need to be changed to deliver a more positive outcome for customers. Fixing any gaps or errors early on will give firms a steady footing for future business under the new regulator.
Processes, systems and tools
Even though most consumer credit firms have been told what they need to do to comply with the FCA’s rules, many still don’t know how to do it. Firms can address this issue by ensuring that their internal processes, systems and tools are fit for purpose according to the FCA’s requirements. The systems that underpin how customers are treated will play an especially important role to play in compliance – and will be a crucial factor in how firms can either benefit from or conversely fall foul of the reforms.
Paul Clark, CEO of Charter UK, comments:
“The new Consumer Credit regulations have already proved to be a massive shake-up for this previously lightly-regulated industry. The first few months under the FCA have already seen the exit of thousands of firms who were either incapable or unwilling to conform to the new higher standards.
Whilst the FCA is portraying this mass exodus as a good thing, many consumers may feel differently. Whilst we can celebrate the disappearance of the firms guilty of improper practices that the press have warned us about, what about the rest? The vilification of these firms in the media doesn’t take away from the fact that a market for short-term credit serves a vital role for many consumers.
As such, instead of celebrating these closures, we should concern ourselves with ensuring that those firms which intend to stay in the market are able to comply with the FCA’s regulation as efficiently and effectively as possible. Similarly, it is vital that these firms also understand the carrot that comes with the stick – and can quickly start reaping the business benefits that also accompany this type of consumer protection regulatory reform.”