Consumer Credit Thematic Reviews. Louise Marfany, Manager, Consumer Credit Supervision

Transcription

1 Consumer Credit Thematic Reviews Louise Marfany, Manager, Consumer Credit Supervision 1

2 Two thematic reviews for Staff remuneration and incentives Early arrears management in unsecured lending 2

3 What is a thematic review? Assesses a current or emerging risk relating to an issue or product across a number of firms within a sector or market focus on one theme. Can be discovery finding out more about what is going on or mitigation tackling a known issue or both. Looks at several firms at once usually a sample reflecting a spread across the relevant sector. Usually publish a report, with findings and messages for the whole sector. 3

4 How do we do it? Evidence Gathering Desk-based review of documentation and data Case file reviews and call listening Site visits Staff observations and interviews Mystery shopping Consumer research Stakeholder engagement Analysis and moderation Toolkits for consistent analysis Calibration across firms Mixed teams with specialist resource Moderated conclusions across firm sample Findings and actions Are the rules clear and working as they should? Are there compliance issues within individual firms or across firms? Are there competition issues in the market? Feedback to firms in sample and remediation/mitigation plans agreed. Communications to industry and other stakeholders. Follow-up sector-wide actions? Rules and guidance, supervisory follow-up, further analysis? 4

5 Why Remuneration & Incentives? Supervisory work to date suggests many consumer credit firms may be operating high risk incentive schemes for staff Incentives can often lead to poor consumer outcomes if not managed effectively. Work carried out by the FSA / FCA in 2012, 2013 & 2014 found a number of firms had schemes that were likely to drive misselling. 5

6 Findings of previous reviews Risk management Few firms had fully considered risks in their incentive schemes Schemes were so complex management did not understand them Complexity Lack of control Controls to manage risks in incentive schemes were often lacking A number of managers received a bonus based on the sales made by the staff they supervised Conflicts of interest 6

7 Which firms are we interested in? Broad range of sub-sectors including lenders, collectors, brokers and firms where consumer credit is secondary to main business Mix of business sizes Approximately 100 firms in stage one; TBC stage two Considering remuneration and incentives for both sales and collections agents focus on the front line and their managers 7

8 Our approach Stage One Desk-based review of incentive policies, remuneration arrangements and controls 100 firms Stage Two On-site visits and more detailed testing Selection of firms, number tbc Stage Three Findings and next steps Feedback results to firms and action taken if required 8

9 Timescales Stage one information request June & July 2015 Stage one analysis Q3 Q Stage two visits and analysis Q4 Q Conclusions and reporting Q

10 Early arrears management in unsecured lending A discovery thematic project to examine how lenders treat customers in early arrears and the outcomes for customers. To test whether firms have due regard to the interests of their customers and appropriately exercise forbearance to reduce the risk that customers financial situation will unduly worsens as a result. To assess firms for compliance with the existing rules and principles and consider whether good and poor practices are employed. 10

11 Why early arrears? Broad definition from the identification of customers in probable difficulties at a pre-arrears stage to the point at which the lender formally defaults the customer and/or charges off the debt. The ways in which firms engage with customers in the early stages of arrears can be critical to the ultimate outcome for those customers. Borne out in complaints data and intelligence. 11

12 Firms and products Firms Products Focus on lenders Monoline and multi-product Early outsource and wholly in house Range of collections strategies Credit cards Personal loans Retail finance Own brand and white label 12

13 Our approach Stage One Fact finding: reviewing information FCA already holds on firms. Meetings with a selection of lenders. Stage Two Desk based review of firm information relating to the handling of arrears e.g. policies and procedures, management information. Stage Three File reviews to test consumer outcomes. Stage Four Site visits to firms: interviews and observations on key areas of risk. Stage Five Assessment and moderation Stage Six Feedback, reporting and further action if required. 13

14 Timescales Desk-based review of firm information August - October 2015 Case file reviews Q Visits Q Analysis and reporting Q

15 Questions? 15