FCA Regulatory fees and levies: policy proposals for 2014/15

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1 FCA Regulatory fees and levies: policy proposals for Response by the Money Advice Trust Date: JANUARY 2014

2 Contents Page 2 Page 3 Page 4 Page 5 Contents Introduction / About the Money Advice Trust Introductory comment Responses to individual questions 2

3 Introduction About the Money Advice Trust The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust s main activities are giving advice, supporting advisers and improving the UK s money and debt environment. We give advice through National Debtline, Business Debtline and our online service, My Money Steps. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK s money and debt environment by contributing to policy developments and public debate around these issues. We help approximately one million people per annum through our direct advice services and by supporting advisers through training, tools and information. Public disclosure Please note that we consent to the public disclosure of this response. 3

4 Introductory comment We welcome the opportunity to comment on the Financial Conduct Authority proposals on regulatory fees and levies. We particularly welcome the proposed exemption from fees for free-to-client debt advice providers and the exemption from the Financial Ombudsman Service levy. We have concentrated particularly on our response to the proposed FCA debt advice levy. 4

5 Responses to individual questions Question 1 Do you agree with our proposals for consumer credit application fees? We support the proposals for consumer credit application fees for firms with limited permissions. We support the principle that firms applying to become consumer credit lender should pay an appropriate fee depending on the type of business they intend to transact. We agree that companies that are applying for permission to operate in more complex or high risk areas should attract higher fees. Such areas are identified in the paper as firms offering high-cost short term credit, firms using bills of sale and the home-collected credit sector. It would appear that the intention is to include fee-charging debt management companies in this bracket too. This broadly replicates the OFT regime whereby it was recognised that licensing applications for similar high-risk groups would be treated differently and would attract a higher level of scrutiny. We note that the FCA has now revised the fees proposals to take into account the size of firms at the application stage. We welcome the revised consultation proposals as we agree that it is fairer to build into each category a provision to allow for a sliding scale of fees depending upon company size. We can see that from a small trader perspective, the requirement to pay the same fee as a large limited company in the same category could be seen as unreasonable. Question 2 Do you agree with our proposed charge of 3,500 per type of agreement submitted for a consumer credit validation order? We have no comment to make on these proposals. Question 3 Do you agree with our proposed structure for periodic (annual) fees for consumer credit firms? We have no detailed comment to make on these proposals as they do not apply to free debt advice providers. However, it seems fair to charge annual fees based on a sliding scale according to the income of the firms. 5

6 Question 4 Do you have any comments on our draft definitions of consumer credit income and proposals for reporting the data? We have no comments on these definitions. Question 5 Do you have any comments on our proposed concessions on consumer credit fees for businesses with social objectives? We strongly welcome the proposed exemption from both application and periodic fees for not-for-profit debt advice providers. We welcome the acknowledgement that FCA fees might affect the capacity of not-for-profit bodies to continue to provide free debt advice to vulnerable consumers. This is particularly the case for smaller charities. We also support the proposed concessions on consumer credit fees for credit unions and community benefit societies. Question 6 Do you have any comments on our proposed approach to the ombudsman service levy for consumer credit firms? We strongly support the proposal to exempt not-for-profit debt advice providers from paying the ombudsman service levy. We would also seek confirmation as to how the Financial Ombudsman Service case fees for individual complaints will apply to the not-for-profit debt advice sector. As we have said in our responses to previous FCA consultation on this issue, we would very much support consideration of exemption for such bodies from ombudsman case fees. It could be extremely challenging for smaller advice agencies with fewer resources to find the money for ombudsman case fees. It is vital that the FCA and the ombudsman ensure that both the costs and administrative and reporting processes are proportionate for free-to-client agencies. Question 7 Do you have any comments on our proposed approach to the Money Advice Service levy for consumer credit firms? We believe that all consumer credit firms should contribute to the Money Advice Service levy, recognising that there are practical issues with this during the interim permissions period. Question 8 Do you have any comments on our proposal to create a new fee-block for firms holding client money or assets or both? We have no comment to make on these proposals. Question 9 Do you have any comments on our redrafted definitions of income for fee-blocks A13, A14, A18 and A19? We have no comment to make on these proposals. 6

7 Question 10 Do you agree with our proposed annual maintenance charge for approved reporting mechanisms (ARMs)? We have no comment to make on these proposals. Question 11 Do you agree with our proposal to require application fees to be paid by credit or debit card? These proposals seem reasonable. It seems unlikely that a trading business would not have a credit or debit card that would allow them to make payments in this way. Could this measure affect any small traders? Question 12 Do you agree with our proposal to calculate the first year s periodic fee of a newly authorized firm on a monthly pro-rata basis? This appears to be a very sensible proposal. Question 13 Do you agree with our proposed technical clarifications to the FCA fees manual? We have no comment to make on these proposals. Question 14 Do you agree with our proposed amendment to the FCA financial penalty scheme? This appears to be a very sensible proposal. Question 15 Do you agree that we should use the three component approach, evenly allocated, of using consumer-usage data, the five Money Advice Service outcomes and a levy based on our own allocation for 2013/14 to allocate money advice costs to fee-blocks? If not, please give your reasons and suggest an alternative. This is both a complex and delicate task, and we have no particular comment to make on the three component approach. Question 16 Do you agree with how the consumer-usage data has been mapped to Money Advice Service fee blocks? If not, please give your reasons and suggest an alternative. We have no comment to make on these proposals see Q18. 7

8 Question 17 Do you agree with how the consumer outcomes have been mapped to Money Advice Service fee-blocks? If not, please give your reasons and suggest an alternative. We have no comment to make on these proposals see Q18. Question 18 Do you agree that the debt advice costs should take account of both total lending and write off levels, on a 50% basis for each, and mapped to A1 and A2 fee blocks? If not, please give your reasons and suggest an alternative. Our experience of developing our own funding model, leads us to believe that some high level comments are worth making here. The overarching principle that funding for debt advice should be allocated to the firms who will benefit from the provision of free debt advice remains vital, in our view, to ensuring a fair and proportionate approach to funding debt advice services via the Financial Conduct Authority (FCA) levy. We continue to support the Money Advice Service s commendable aspiration over time to fulfil a preventative function in relation to problem debt. Their own recent research shows that across the UK, 8.8 million people, or 18% of the adult population, are thought to be overindebted. Of these, only 17% are currently receiving advice to get help to deal with their debts and 21% do not recognise themselves as being in debt. 1 Despite the majority of those in debt not accessing advice, demand for free-to-client debt advice continues to grow at a time when funding for services has reduced. The Trust has continued to see strong demand for its debt advice services with calls in to National Debtline averaging 20,000 per month whilst demand for our online offering averages 38,000 per month (calculated as unique visits to National Debtline s website). Despite the double-dip recession officially ending in October 2012, many households are continuing to face financial hardship and mounting debts as a result of the legacy of the economic down-turn. Historic demand for our services is shown to correlate strongly with macro-economic factors within the UK economy. In particular, demand for advice increases in line with rises in both the representative interest rate on a 10,000 personal loan and with the volume of labour market redundancies. 2 Planned welfare reform is also expected to have a significant impact and we have already seen increases in calls relating to both rent arrears and council tax arrears which may be attributable to these changes. There is a pressing need for people who are already over-indebted or are heading that way to be able to access free advice in a timely and effective way. 1 Money Advice Service Indebted lives: the complexities of life in debt Money Advice Trust/Gathergood Demand and capacity

9 In this context of high levels of demand for debt advice, the costs of advice should be borne not just by market share (lending) but should also take account of those who generate that demand by encouraging people to take on debt which later requires the services of free debt advice providers. This has been a key element of the substantial work we have undertaken over the last three years through our Funding Model Working Party (FMWP), which is chaired by Sir Brian Pomeroy and before him by Robert Skinner. This work is aimed at attributing the cost of advice more directly to the organisations and products that make debt advice necessary. We have used data from National Debtline to develop this formula. We feel strongly that this is leading to a fairer funding model and we would encourage all lenders to adopt responsible lending and collection practices. The increasing contribution to our funding by high cost lenders and energy suppliers show that our model is starting to work effectively. It is worth noting that the debt advice element of the levy is circa 34 million, the majority of which (circa 30.5 million) goes to specific face-to-face projects in England, Wales, Scotland and Northern Ireland. Although this funding is most welcome, it only represents a proportion of the total funding provided to the free-to-client debt advice sector for all types of debt advice in the UK including telephone and online services. (The Trust estimates this to be approximately 150 million per annum). Other funding for the sector comes from fair-share contributions paid for by creditors, voluntary donations (allowing companies to foster effective and mutually beneficial partnerships with debt advice agencies) and Government support. In December 2012, the Money Advice Service published its Audit of the supply of debt advice services across the UK 3 where it estimated that the total amount available towards face-to-face debt advice services for was circa 53 million (from organisations such as local authorities, the Money Advice Service, the Legal Services Commission, the Big Lottery Fund and the Welsh Government). Friends Provident Foundation in their February 2011 report The Impact of Independent Debt Advice Services on the UK Credit industry 4 cited that around two-thirds of all funding of free-to-client charitable debt advice services came from central and local Government in the form of grants from Government (an estimated 106 million million). We welcome the inclusion of home finance providers into fee block A and wonder if other organisations could be included in this. We may have misunderstood the proposed fee structure here but we wonder where other consumer credit levy companies sit who are not necessarily deposit takers or home finance providers e.g. credit card companies and finance houses. The suggestion from the BIS Select Committee that there could be a separate levy on payday lenders, ring-fenced by the Money Advice Service, to help fund debt advice seems like it could add another level of complexity, the unintended consequence of which is that funders believe that the debt advice sector is generously funded and does not need further support (70% of the Trust s funding comes from voluntary donations). Would it be easier to include payday in the fee block? It is perhaps worth noting in passing that debts to Government remain one of the most significant problems we see at National Debtline. We believe that they too should contribute

10 to the provision of free debt advice, and continue to talk to a number of Government departments about how they might help, as well as to local government. 10

11 The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: Fax: