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Financial Conduct Authority – CP 13/14 - FCA regulatory fees & levies 2014/15

Summary of response

Consumer credit fees

We are strongly in support of the proposed concessions for credit unions in relation to fees for consumer credit activity.  Most credit union lending is exempt from the Consumer Credit Act owing to credit unions’ unique status as lenders operating under an interest rate ceiling.  This is replicated at EU level with an equivalent exemption in the Consumer Credit Directive.  Since credit unions are both operated ethically, on a co-operative ownership model, and offer a responsible alternative to high-cost lenders, it is welcome that Government and the FCA are preserving this exemption in order to support credit union activity and expansion.

As such, while the majority of credit union business falls outside of the purview of consumer credit regulation, there are some limited activities – agreements expressly involving a third party supplier, for instance – which are fully regulated.  Historically however, the OFT has waived its license fee for such activity in consideration of the social value that credit unions provide.  Were the FCA to require credit unions to pay a comparable fee to that paid by all other consumer credit firms this could present a significant barrier to engaging with these relatively niche areas of business.  

We are therefore pleased that the FCA proposes to waive all fees (apart from the proposed, lower £200 application fee) for all credit unions seeking consumer credit authorisation until they reach £250,000 revenue generated from regulated activity.  

In light of the peculiarities of credit unions’ status under consumer credit regulation, we would like to request guidance for credit unions on calculating and reporting consumer credit income from regulated activities.  This reporting requirement in itself is likely to present a barrier to entry to regulated credit activities for some credit unions given this is such a niche area for the sector.

Money Advice Service levies

In relation to the levies for MAS’s generic money advice services, we are broadly satisfied with the outcome but do have some misgivings regarding the complexity and subjectivity of the mapping exercise to establish levy rates.

We appreciate very much the commitment included in the consultation paper to make appropriate concessions to mitigate the impact of the debt advice levy changes on credit unions.  We are of the view that credit unions should pay as little as possible – preferably nothing – for the provision of debt advice. This is because credit unions are actively engaged in providing support to those in financial difficulty and who become over-indebted. In doing so many work in partnership with debt advice services and / or help members to escape high cost debt.  

We are very keen that the amount different firms pay is a fair reflection of the burden firms place on debt advice services. Since credit unions represent a very negligible proportion of the debt advice cases this lack of a burden upon provision should be reflected in the fees paid by the sector.

While we appreciate that decisions in relation to consumer credit firms are being deferred to future consultation, in earlier policy documents around levies for the provision of debt advice, there was a clear commitment to consumer credit firms being require to contribute to the levy once they are brought under the FCA. However, despite these earlier commitments the consultation document makes no reference to requiring consumer credit firms to contribute towards the costs of debt advice, only vaguely in relation to Money Advice Service’s generic money advice service.    

We are strongly of the view that all consumer credit firms should be required to contribute to debt advice provision since they are clearly a major contributor to problem debt across the country. For instance, payday lenders, pawn brokers, rent-to-buy stores and home-collected credit companies all contribute to problem debt but none are required to contribute to the provision of debt advice under the current proposals while credit unions are.   

Finally, we are not entirely convinced by the rationale behind employing write-off rates as a proxy measure of debt problems.  Firstly, it is not clear how the write-off rate is being calculated and compared between secured and unsecured lending.  It would be very helpful if this could be clarified so that the methodology employed can be scrutinised.

Secondly, the crude write-off rate measure does not account for the fact that mortgage debt, by its secured nature, is less likely to be written off given the significant consequences that doing so can have for all concerned (both borrower and lender).  It therefore stands to reason that unsecured credit should represent a much more significant proportion of write-offs but this does not mean that underlying mortgage costs or (for non-home owners) rent costs (not to mention various non-credit debts such as unpaid bills, tax and the like) are not a factor in the overall debt position of those seeking advice.

The full response is available to download on the right.