Where firms provide finance under regulated hire or hire purchase agreements, as opposed to loans, many have been in the habit of passing complaints about the underlying asset back to the dealer. Nikki Worden, partner at Addleshaw Goddard, looks into the issues this creates.
It is no secret that many firms offering regulated lease finance are still grappling with the impact of FCA requirements on their business. But few thought that moving from OFT to FCA regulation might also mean looking again at their complaints processes, which became subject to the consumer credit jurisdiction of the Financial Ombudsman Service (FOS) as long ago as April 2007.
Lenders financing the purchase of goods or assets under CCA-regulated loan agreements have always been subject to joint and several liability with the supplier under section 75 of the Consumer Credit Act if there is any misrepresentation or breach of contract, and so lenders are used to having to own and process section 75 complaints.
But where firms provide finance under regulated hire or hire purchase agreements, as opposed to loans, many have been in the habit of simply passing complaints about the underlying asset back to the dealer for the dealer to liaise directly with the customer, whether under formal or informal arrangements.
The question that some may ask, therefore, is whether a complaint about an asset financed under a regulated hire or hire purchase agreement comes under the jurisdiction of the FOS at all. This becomes all the more important now that firms have moved into its compulsory jurisdiction and so must report all complaints to the FCA.
To come within the FOS jurisdiction, the type of activity to which the complaint relates must fall within the scope as defined in the relevant FCA rules on dispute resolution. For asset finance firms authorised for credit-related regulated activities, that will mean that it must be a complaint either about a regulated activity, or about an activity that involves lending money (excluding restricted credit where that is not a credit-related regulated activity).
There is, of course, an argument that a complaint against a firm in its capacity as provider of the asset will not be a complaint falling within the FOS jurisdiction at all, on the basis that it is only the finance element that is the ‘regulated activity’ – the provision of the underlying goods is not FCA-regulated in itself.
Further, the practical argument can be made that consumers complaining about goods under regulated hire agreements will already have statutory remedies against the finance provider under Part 1 of the Consumer Rights Act 2015.
However, a quick look at the FOS website will tell you that, since as long ago as 2009, FOS has been taking a dim view of firms encouraging customers to complain to, or handing off complaints to, the original dealer if there is a problem with an asset financed under a regulated agreement.
The FOS view is firmly that, since the asset is provided under an agreement which is a regulated agreement, and since the finance provider is the ‘supplier’ of the goods, any complaint regarding those goods or that asset should be properly made to the finance provider and therefore will be within the FOS jurisdiction.
From a regulatory point of view, it is irrelevant to the FCA that, in practice, if a customer wants their car, van or equipment to be fixed, this is likely to involve liaising with the original dealer in some form or other.
Furthermore, from a reporting perspective, the FCA has confirmed that “all” complaints should be included on the complaints return, whether they are about the finance or the underlying asset.
Unfortunately, as things currently stand, it would appear that it is not possible to split the different types of complaint out into different categories on the return. Complaint numbers in respect of complaints about the underlying asset and the regulated-hire finance itself both need to be reported together in the ‘all other credit-related activity’ section.
Likewise complaints about assets financed under regulated hire purchase agreements must be reported in the ‘hire purchase/conditional sale agreements’ section of the return.
Unfortunately, therefore, it is currently impossible for the FCA to distinguish from the returns whether a firm’s complaints are about the finance package or about the goods or asset financed.
This lack of categorisation has caused consternation in the industry. Some finance providers do, in fact receive significantly more complaints about the financed goods than they do about the financial product, and it is possible in such circumstances for those complaints to tip them over the 500 complaints mark, so that their figures will be published.
This clearly causes concern about misplaced reputational damage, quite apart from the concern that the FCA will not get a clear understanding of the complaints being received by regulated asset finance providers.
Interestingly, in the context of reporting insurance complaints, the FCA has placed considerable emphasis, in its notes on completion of the return, on reporting against the element of the insurance product complained about.
For example, if there is a term assurance policy with a critical illness option, where the complaint relates to the term assurance element, it should be reported under ‘other pure protection’ but where the complaint relates to the critical illness element, it should be reported under ‘critical illness’.
The industry has already fed back to the FCA on this issue, and the regulator has been receptive to the points made, so the good news is that we can be optimistic that changes will be made to the complaints return form in the not too distant future.
The timing of the feedback has been fortuitous, as the FCA is currently looking to review how it publishes complaints data, so now is a good time to also review how that data is categorised. It has therefore agreed to consider adding an extra category to distinguish between credit disputes as opposed to complaints about the asset or goods financed.
In the meantime, however, the key theme for firms is that, where they involve dealers in complaint-resolution, they must continue to ‘hold the pen’ and ensure that they have adequate systems and controls around their complaints-handling processes.
This means ensuring that there is sufficient oversight of dealer complaint-resolution, including obtaining management information, so that accurate reporting can be submitted to the FCA.
Firms should also ensure that the requisite eight-week timeframe is continuing to be observed and a final response sent, detailing FOS rights if the matter is not yet resolved (whether or not it is about to be resolved). <