Rather than simply providing an echo-chamber for accepted opinion, we want to ensure that there is an informed and balanced debate and we will therefore be seeking views from all sides of the industry. We will also be hosting a session run by a claims management company – details to follow!

Why now?

There are many reasons why this session is timely: the FCA’s current focus on historic motor finance agreements; the failure of the industry and the FCA to manage the transition away from discretionary commission arrangements without regulator intervention to protect the orderly functioning of the industry; the tendency for regulated business practices and processes to creep into unregulated business (just as appears to be happening in this case); and more generally the changing environment in which we operate – away from courts and legal process towards regulators and an ombudsman who seems to lack proper oversight and is empowered to reach decisions unilaterally which then require a judicial review to overturn.

Now is the time for us to understand the participants in the FCA’s ecosystem - to hear what they think; to assess the merits of their arguments; and to decide how best to respond without allowing a complaint to become something more.

Super-complaint

A super-complaint is a complaint made by a designated consumer body – like FSB – where it believes that features of a market are, or appear to be significantly harming the interests of consumers. This first super-complaint (under rules established in 2013) was made to the FCA. Super-complaints require fast-track consideration including a written response within 90 days.

The FSB set out a number of ways that overuse of personal guarantees may be damaging small firms. It provided case studies which it believed provided compelling evidence of harm, but did not back the illustrations with quantitative data. Instead FSB asked the FCA to gather quantitative data from regulated lenders.

The FCA in turn have said that where lending falls within their regulatory perimeter they will gather data (April 2024-June 2024); they will review a representative sample of firms’ policies and procedures to better understand when lenders will require personal guarantees; and they will test how firms’ policies and procedures comply with the obligations for firms carrying out credit regulated activities, as set out in the Consumer Credit sourcebook. FSB has been critical of FCA’s response, and in particular the refusal of the regulator to gather data on personal guarantees underpinning loans to limited companies, which is where FSB believes the key harm is occurring.

Details of their findings will be available shortly. The data will be sent to FSB around the time of the conference.

Industry response

The asset finance industry representatives with whom the AFC have talked, greeted the super-complaint news with some dismay.

To many, the use of PGs is a little like a nuclear deterrent – necessary because it gives Directors a strong personal interest to repay a corporate debt, but unused in virtually all circumstances. Like nukes it comes with an element of mutually assured destruction. PGs are expensive, slow to execute, and represent the worst of all outcomes for everyone involved. But they stop borrowers acting in bad-faith, and without them it is hard to get wholesale funders to agree to part with their cash.

Other industry practitioners see the focus on PGs as an opportunity. The asset finance industry relies on hard assets for collateral, not personal guarantees. The industry is better placed to avoid using PGs than many other lenders; and it can apply them more selectively.

Join the debate – and see what ideas get sparked!

AFC believe there are clear commercial opportunities as well as benefits for our industry’s customers which may come from listening to FSB concerns and responding to them constructively.

We welcome hearing your comments and want you to send us the questions you would like us to put to Martin. We hope you will join the conference to see what ideas get sparked from these interactive discussions.

Details of the AFC UK Summer Conference 2024 are available at: https://afcconferenceuk.com/assetfinanceconnect2024/en/page/home

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