APDSI response to proposals for amendments to the Conduct of Authorised Persons Rules

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1 APDSI response to proposals for amendments to the Conduct of Authorised Persons Rules About the Association of Professional Debt Solutions Intermediaries Ltd. Full name Job Title Mr. Kevin Still Director of trade association Date 30 September 2012 Company name CMC Micro-business Address Postcode Acknowledge receipt Acknowledgement address APDSI Ltd. No Bessacar, Station Field, Skellingthorpe, Lincoln LN6 5UX Yes please to As above APDSI s primary interest is the Conduct of Authorised Persons Rules around the activities of claims management businesses engaged in the reclaim of PPI, though our comments below would probably be relevant to all businesses in the financial products category, especially where money or debt advice may be involved. Contact details: M: W: 1 P a g e

2 1. Do you have any comments on the proposals to amend the Client Specific Rules? ANNEX A (page 47) Client Specific Rule 6(b) APDSI supports this revision Client Specific Rule 6(d) APDSI supports this revision with regard to marketing literature, but not necessarily in contractual documentation and main website Client Specific Rule 11 APDSI supports this revision Client Specific Rule 18 APDSI supports this revision including the proposed change to 18(b) Phase 2 (page 49) APDSI supports all the proposed changes listed in Annex A regarding Phase 2. APDSI welcomes any actions taken by a regulator and their appointed agents to improve the conduct of claims businesses and strengthen consumer protection provided this does not place an unnecessary burden on compliant businesses and that guidance is clear and unambiguous in determining unacceptable behaviour. We generally support the approach set out in the Executive Summary (points 5 and 6). We do feel that there should be some consideration where transgressions of conduct cross regulatory boundaries between the MoJ and the OFT. APDSI also welcomes decisive action by regulators and their enforcement agents with regard to non-compliant activities by both licenced and unlicenced operators. This includes reporting of non-compliant businesses that are likely to cause consumer detriment by licenced businesses as part of their duty under Conduct of Authorised Person Rules. APDSI welcomes the expansion of the CMR Unit compliance team and the secondment of staff from the Financial Ombudsman Service (FOS) and the Legal Ombudsman (LO). One aspect that is not adequately covered is with regard to the conduct of CMC businesses around fee collection, notably where the CMC isn t licenced by the OFT. We are made aware by many of our debt management clients of aggressive fee collection tactics by CMCs [entirely independent of APDSI] where the client has little or no surplus income to pay a fee for the services of a CMC where the compensation is not cash in hand. It is generally not our policy to add such a debt on to a Debt Management Plan (DMP) where it was evident that the client couldn t afford the fee. APDSI feel that the Conduct of Authorised Persons Rules should be extended to ensure that client agreements should not include unfair terms, in line with the Consumer Credit Act, notably around penalties for non-payment and the methods of enforcement used which may result in consumer detriment and the necessity to decline the PPI provider compensation offer in the first instance. (continued ) 2 P a g e

3 2. In relation to Client Specific Rule 6 (d), should the proposed amendment go further and prohibit CMCs from stating, during any marketing calls, that they are regulated unless specifically asked by a prospective client? A reputable and recognised trade association in this sector would be welcomed relative to PPI reclaims, especially where this involves money advice and/or debt advice. APDSI feels that the proposed amendments are sufficient and that limiting usage of the amended phrase Regulated by the Claims Management Regulator in respect of regulated claims management activities to marketing & advertising collateral, excluding the main business website, should be sufficient. 3. In relation to Client Specific Rule 11, should CMCs be required, as a condition of authorisation, to publish details of their terms & conditions, fees and any other charges online and as standard? APDSI feels that it is important when communicating with a prospective client that they are aware that the business is properly authorised and by which regulator, particularly if the prospective client wishes to make a complaint about any aspect of their experience with the business. Membership of appropriate trade associations should also be listed. Many of our members are authorised/regulated by several regulators and supervised by a number of parties (e.g. an Insolvency Practitioner or an IFA). YES. It is notable that many micro-businesses are very poor at complying with the minimum standards of representing their business status (i.e. business names is a sole trader and the identity of the sole trader). 4. In relation to Client Specific Rule 11, do you have any alternative proposals that could address the issues regarding fees charged by some CMCs? For example, could a ban on CMCs levying fees on anything other than a cash in hand compensation award paid to a consumer be effective? (This would mean that a CMC could not charge a consumer a fee if the compensation awarded was deducted from the We are also concerned that many micro-businesses are applying VAT when they are not registered for VAT. The VAT no. should be displayed. APDSI has a number of members that are specialist debt solution providers. The majority of our members clients are likely to have arrears with their unsecured creditors and set-off would be a very common method of delivering compensation by these creditors. We would not support a blanket ban on CMCs levying fees on compensation that is not cash in hand. Some of the debt relief can be very 3 P a g e

4 outstanding balance of a loan or other type of credit agreement where the consumer does not receive the award directly). considerable, amounting to tens of thousands of pounds written off arrears balances. Given that there is a UK tax liability on any accrued interest that forms part of the compensation then this should be paid to the CMC or the client by the PPI provider as cash in hand. There should be PPI provider guidance to this effect, especially as they routinely include the clause regarding UK tax liability in their offer letters. There should always be a warning to consumers that UK tax may be payable on compensation (whether cash in hand or not) AND the CMC should have a duty of care to determine whether the creditor offer should be accepted given the circumstances of the consumer (i.e. their benefits may be affected if the compensation is treated as income in that tax year). It is our members experiences that they have clients with multiple claims against one or more PPI providers in their creditor portfolio. This will include several closed accounts. Where creditors link accounts, which is very common, then this needs to be taken account of at a holistic level when determining how to invoice the client, if at all. Client best interest is a key factor, especially where the level of debt relief may be significant and the combination of cash in hand and set-off compensation may in fact bring the debt solution to an end (e.g. IVA, DMP). Where a genuine service has been delivered, which may involve complex discussions between several departments in very large creditor groups then this needs to be properly reflected in the fee structures, which should be entirely transparent to the clients before they engage with the CMC. The matter of VAT should be seriously considered. The OFT has confirmed that where debt adjustment services have been provided that a CMC should be appropriately licenced with Categories D and E. Debt adjusting is VAT exempt and 4 P a g e

5 5. In relation to Client Specific Rule 11, should CMCs be required to tell prospective clients, more clearly and explicitly that their fees would be charged irrespective of whether they ultimately receive a cash-in-hand compensation award? (Under this scenario a CMC would need to make clear to the prospective client that their fee must be paid independently from any compensation award deducted from the original agreement, should that be the case.) 6. Do you have any comments on the proposals to make additional amendments to the General Rules? set-offs should be treated as debt adjustment. The removal of VAT from most CMC sales invoices would have a major impact on current fee structures. Businesses that are not properly licenced to deal with clients in serious financial hardship (as defined in the Lending Code) should not be taking on clients where there is a very high probability of set-off being applied by creditors. This is particularly true of clients that are already in a debt solution (e.g. DMP, IVA, undischarged bankrupt) and this should be disclosed in the initial discovery and evidence gathering phases with the client before they enter a written & signed client agreement. Fee disclosure should be absolutely transparent and use of the MoJ s business and consumer bulletins by CMCs at the pre-contractual stage should be considered. We provide access to these documents from our member area of the APDSI website and provide regulatory updates to our members. Provision should be made for situations where the outcome cannot be accurately predicted on a no win, no fee basis, such that the fee for a set off only case may place the client in a position of not being able to pay the fee. These provisions should include the ability of the CMC to waive fees on a case-by-case basis [notably if there are multiple claims] and in dealing with potentially vulnerable clients. There is considerable synergy here with the OFT Debt Management Guidance. Providers should have a vulnerable client policy, notably in dealing with clients that may fall under the Debt & Mental Health Guidance. APDSI supports the clarification on the definition of client. APDSI would welcome greater clarity on when a professional [commercial] business is not regarded as an Exempt Introducer, for example, an Insolvency Practitioner where the mis-sold PPI is regarded as an asset in an IVA or Protected Trust Deed (Scotland). The Insolvency Practitioner offers the services of a licenced CMC to the party to the IVA, who then signs up with the CMC. Depending on the 5 P a g e

6 wording of the IVA proposal the compensation may or may not arise to the Supervisor of the IVA. The Insolvency Practitioner does not receive any commission from the CMC, but may be able to deduct supervisory fees from any payments into the IVA under the terms of the IVA agreement. APDSI has sought clarification as to when an intermediary seeks to realise a PPI reclaim (e.g. as an asset in an IVA, as above) as part of their professional duties through a CMC, whether they can be an agent of the CMC without the necessity to be licenced. APDSI supports the revised wording of: Where a business accepts introductions from exempt introducers it shall be responsible for ensuring that the exempt introducers do not undertake any activity that, if carried out by a regulated person, would breach the client specific rules on advertising, marketing and soliciting business. CMC businesses should have the necessary controls in place to monitor the activities of Exempt Introducers and Agents. APDSI is able to provide support in directing members to public registers to check the status of businesses that members deal with on a commercial basis. 7. Do you have any comments or views as to the likely transitional or other costs to business that may be incurred by the proposed amendments to the Conduct Rules? 8. Would a grace period for businesses to implement any required changes to its business be necessary? If so, how long should the grace period be in order to enable all CMCs to successfully adhere to the amended rule framework? As per our response to Question 1, APDSI supports the revisions to the General Rules. We would expect the transitional costs to be minimal on compliant businesses. A transitional period is always sensible to allow compliant businesses to adapt and seek external counsel that their client agreements and consumer facing collateral are compliant with the amended rule framework. A period of between 3 to 6 6 P a g e

7 9. Do you have any comments or views on the likely costs or benefits to business arising from the proposed amendments to the Conduct Rules? months would be sensible, but with sufficient advance notice of the changes that would absolutely need to be in place by April If businesses want to adopt the new wording proposed for 6(d) in advance of April 2013 then it should be allowed to do so without being seen to breach the current rule framework. All CMCs should be subject to external audit against the amended rule framework within a reasonable time span from the rules coming into force. This should be a necessary cost of doing business in this sector and improve consumer confidence in choosing a complaint business. Public domain complaint data and complaint uphold rates at a CMC level would assist in consumers making an informed choice. CMC records should demonstrate where a client has been informed of the choice to pursue a claim themselves and have elected to use their preferred CMC. If the CMR Unit continues to focus on tackling the poor practices seen within the Payment Protection Insurance (PPI) sector, such as high volume claims, claims where no PPI had been sold and non-compliant marketing then this should benefit compliant businesses that collaborate with the CMR Unit. Having this information in the public domain is important, along the lines of the OFT regime where enforcement activity is available on-line and communicated to the media. 10. Do you have any comments or views regarding the current rules in relation to coldcalling? APDSI welcomes the CMR Unit investigation into individual CMCs believed to be buying leads generated from unsolicited texts and automated calls. We also welcome the CMR Unit, Ofcom, the ICO, the OFT and DMA collaboration with the mobile marketing industry to pool resources, share intelligence and mount an effective campaign of joined up action to tackle the sending of unsolicited text messages and automated calls marketing claims services. This one aspect of cold calling, which is illegal, brings the sector into dis-repute and reflects poorly on those operators, like APDSI, that do not engage in these practices. The strengthened rules to ensure that CMCs are responsible for lead generators and exempt introducers are welcomed and CMCs should be able to demonstrate 7 P a g e

8 that they have adequate controls in place to monitor the activities of their business sources, as is not the case with the OFT licensing regime. Guidance should be consistent with that issued by the ICO and the scale of penalties that they can apply. Many of the findings outlined in the OFT response in 2011 to the CAB Super-complaint should be taken on-board in the CMC sector. 11. In view of the moratorium that would exempt micro-businesses from any new regulation (including amendments to the Conduct of Authorised Persons Rules) until 2014, do you consider there to be any compelling reasons why the proposed changes should be implemented prior to the end of the moratorium period? YES. The micro-businesses are frequently the businesses that seriously transgress the rules and fly under the radar of the regulators and their enforcement agents. There are too many sole traders masquerading as larger businesses that should be subject to the same rules as larger businesses. This should be a cost of operating in this sector, where financial stability should be a factor, notably where client accounts are involved. 12. The CMR Unit welcomes your views on the Equality Impact Assessment in terms of the potential equality impacts of the proposals. Are there other ways in which these proposals are likely to impact on race, sex, disability, sexual orientation, religion and belief, age, marriage and civil partnership, gender reassignment or pregnancy and APDSI supports co-ordinated education of small businesses to ensure that they are fully aware of their obligations and welcomes the regular MoJ business bulletins to authorised businesses, which we publish on our website as regulatory updates and on our LinkedIn forum. There are direct parallels with the OFT misleading & otherwise undesirable names guidance, where it was clear that many small licenced businesses are unaware of their obligations to have their website on their licence and other trading styles recorded. This has made differentiating between the deliberately non-compliant and the non-deliberate transgressions very hard for the regulator and enforcement teams to deal with on a proportionate basis, meaning that many serious transgressions are not spotted until licence renewal or variation. There should definitely be consideration for those with mental health issues, consistent with what has been done with the Debt & Mental Health guidance. This information is regarded as sensitive in data protection terms, but is likely to be important when considering the conduct of a business in dealing with clients that 8 P a g e

9 maternity that you are aware of? 13. Bearing in mind the Government s reducing regulation agenda, moratorium on micro-businesses and the general need to be proportionate in our approach; do you feel that further changes to the rules, not covered in this consultation are required in order to further improve the regulatory regime? may have this type of vulnerability. Plain English and a client s ability to understand the consequences of a client agreement are important and their subsequent rights under the agreement (e.g. Cooling off period). As stated above, there should be strengthening of the rules around fair terms in collecting fees and the methods of enforcement that are proportionate to achieve this. By way of example, the Payday Lending sector have just had to implement a code of conduct in this respect, notably regarding clients in financial difficulty or that are vulnerable. Drawing on the parallel of the Debt Management Guidance, the controls around client accounts need to be extremely tight, especially with regard to independent inspection by chartered accountants that a true client account is being operated by businesses of all sizes. VAT registration and VAT exemption on debt adjustment also need to be addresses as a matter of urgency, as this has a major bearing on the fee paid by the consumer. 9 P a g e

10 CMC SPECIFIC QUESTIONS 14. Does your business currently refer to its regulatory status in advertising or marketing material? If so, please indicate which type of material the statement is used in (i.e. Client letters, contracts, websites or other material) 15. If your business intends to refer to its regulatory status after the proposed change is in place, do you foresee any additional costs that would need to be incurred to make the required changes? If so, please quantify these costs 16. Do you foresee any long term benefits regarding the amended regulatory statement? 17. Since use of the regulatory statement is not compulsory, would the proposed amendment make you more or less inclined to use the regulatory statement in advertising or marketing material? 18. What, if any, impact would the revised rule have on business volumes? 19. Do you support the proposed amendment to CSR 6 (d)? Client Specific Rule Does your business currently require clients to sign a contract in order to confirm that they wish to proceed with a claim (including confirmation of permission to take an upfront fee - if applicable)? 21. If your business does not currently use signed contracts, would there be any additional costs incurred in order to comply with a new requirement for signed contracts? If so, please quantify these costs. 22. Do you foresee any long term benefits regarding a requirement for signed contracts between a consumer and a business? 23. What, if any, impact would the revised rule have on business volumes? 24. Do you support the proposed amendment to CSR 11? Client Specific Rule What effect, if any, would the proposed change have on your business? 26. Do you support the proposed amendment to CSR 18? 10 P a g e

11 General 27. Overall, do you foresee any change in the total number of complaints received by your business as a result of the proposed changes? If so, please indicate how you expect things to change. 28. On average, how much does it cost your business to reply to a consumer complaint? 29. Overall, do you foresee any change in the operating costs as a result of the proposed changes? If so, how do you expect these costs to change? 30. Overall, do you foresee any change in business volumes as a result of the proposed changes? If so, how do you expect volumes to change? 31. Are you responding on behalf of a CMC that would be classed as a micro-business employing fewer than 10 employees? 11 P a g e

12 Response completed by: Kevin Still Director APDSI Limited 30 September 2012 About the Association of Professional Debt Solution Intermediaries (APDSI) The Association of Professional Debt Solution Intermediaries Limited was incorporated in England & Wales as a company limited by guarantee on the 27 October It is a not-for-profit organisation established as a professional trade association representing FSA authorised and OFT licensed intermediaries wanting to refer clients in financial hardship to licensed and competent debt solution providers approved by the trade associ ation. The Mission of the Association is to: 1. represent the views of the members of the Association to regulators and others on matters of common interest regarding the re gulation of the debt solution intermediary market 2. provide a forum for the continuing education and professional development of members and their employees and agents 3. provide a forum for the compliant promotion, development and diversification of the debt solution intermediary market 4. promote best practice in the debt solution intermediary market and to assist members in assisting their clients who may be facing financial difficulties Website: Code of conduct: kevin.still@apdsi.org.uk P a g e