Regime change is a phrase that has come to be associated with the attempts to topple dictatorships in the world’s troublespots. But it’s also applicable to big changes in regulation of the UK financial services industry.
Many people will have heard that the Financial Conduct Authority has replaced the Financial Services Authority as part of the reforms introduced after the banking collapse that brought on the recession.
More recently they may have heard how the Chancellor, George Osborne, has given the FCA powers to cap the interest rates charged by payday loan companies, of which the best known is probably Wonga. Just last month he went further and allowed the regulator to cap how much customers will pay overall. This takes in any arrangement or penalty fees attached.
The same regime change is being applied to the debt collection industry, which is to be regulated by the FCA from 1 April 2014. One aim is to drive out the aggressive cowboys who tarnish the industry’s image.
Adam Wonnacott of Burlington Group (the Enforcement Team of the year 2013, it says on their website) wrote as long ago as July 2012: ‘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 simpy 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.’
One important step in improving that perception was taken on 1 January 2013 with the introduction of a new code of practice by the Credit Services Association and its subsidiary Debt Buyers and Sellers Group. This is a model for the collections industry that enshrines principles of fairness, forbearance and transparency in dealings with debtors.
The document bears reading in full, as it sets out the ‘kite mark of high standards’ that members of the industry’s only national association are obliged to meet. You can read it in pdf format from a link on the CSA’s homepage here.
So what, you might ask, will be different under the FCA compared with the FSA? One key change was identified by Peter Wallwork, the chief executive of CSA DBSG, in an article for October’s CCR Magazine to coincide with publication by the FCA of a lengthy consultation document you can download as a PDF. He wrote: ‘The FCA has suggested that, under its watch, the concept of “guidance” will be substituted for a clear set of black and white “rules” – a change in emphasis from “you should not” to “you will” or face the consequences. And the consequences would appear to be dire.’
The association, he said, would lobby to make the new regime both proportionate and fair because ‘what is decided now will be set in stone forever’.
Not everyone is convinced that FCA regulation is entirely good news. A survey by FICO, a predictive analysis and decision management software company, and Marketforce found that 67% of respondents thought the regulations would drive up collection costs and 64% that they will hurt collection rates, CreditMan.co.uk reported late last month.
The survey was carried out among 180 executives responsible for debt collection and recovery at banks and debt collection agencies. The former were more sanguine about compliance with the FCA’s new regime, with only 51% expressing worry about collection rates. But at debt collection agencies, 75% worried about rising costs and 79% about impaired collection rates.
FICO executive Nick Walsh was quoted as saying that collection agencies were caught ‘between a harsh economy and a tighter regulatory environment’. And Juliet Knight, director of market intelligence firm Marketforce, echoed his call for agencies to invest in systems to handle the requirements of a ‘non-negotiable’ regime.
Regime change indeed. And at SJ Collections, we have the experience of dealing with changing regulation and a longstanding commitment to the highest standards of conduct in debt collection, to give our customers confidence in 2014.