Memorandum by the Finance and Leasing
1. THE FINANCE
The Finance and Leasing Association (FLA) is
a trade association representing some 98 major companies in the
consumer, motor and asset finance industries. Collectively, their
credits outstanding amount to £100 billion. They finance
30 per cent of all consumer credit, one third of all gross capital
fixed investment and more than half of all new cars. Our members
comprise banks, subsidiaries of banks and building societies,
leading retailers, manufacturer-owned finance companies, and a
range of independent entities. We are by far the largest trade
association representing these sectors.
2. Most of our members are either authorised
institutions or their wholly owned subsidiaries. Very few of them
do any business regulated for conduct of business purposes by
the Financial Services Authority, other than incidentally. Asset
finance and leasing business is unregulated, and consumer finance,
including motor finance, is regulated under the Consumer Credit
Act up to a ceiling of £25,000.
3. With the exception of the final point on
money laundering, this submission relates to the consumer and
motor finance sectors. The products of which our members are specialist
providers are unsecured lending, point of sale retail and motor
credit (through shops and motor dealers for the most part), revolving
credit, store and credit cards, and secured lending (second mortgages).
4. FLA operates a code of practice, which is
binding on its full members. The code is supported by a complaints,
conciliation and arbitration scheme. The code is currently being
reviewed. Like the Council of Mortgage Lenders we believe that
our Code is a good basis for the conduct of the industries we
5. THE FINANCIAL
The provisions of the Consumer Credit
Act 1974, and the licensing powers of the Office of Fair Trading,
provide a sound regulatory framework for credit products within
a ceiling of £25,000. It has operated effectively for many
years and is familiar to credit providers, consumers and trading
standards officers. There is therefore no point in bringing it
within the regulatory scope of the Financial Services Authority.
This appears also to be the Government's view. Consumer credit
is, however, manifestly a "financial service". It should
therefore be included within the wider definition of financial
services for the purposes of determining the scope of the Financial
Services Ombudsman to handle complaints.
FLA does not support the idea which
has been mooted of a separate credit Ombudsman. We believe that
it would give rise to anomalies, distortions and confusion.
We strongly support the concept of
a wide-ranging Financial Services Ombudsman Scheme with compulsory
and voluntary jurisdictions, as proposed in the Bill. It will
be possible for unauthorised as well as authorised businesses
to submit themselves to the new complaints regime, and for complaints
about both regulated and unregulated business to be handled by
the Ombudsman, provided the definition of "financial services"
is a wide one. There is no particular reason for the Financial
Services Ombudsman's scope to be confined to the category of business
regulated by the FSA. No broad definition of "financial services"
has to our knowledge been published. This is probably not necessary
so long as common sense is the guide.
It is clear from HM Treasury's Progress
Report of March 1999 (11.5) that the boundary of the Ombudsman's
compulsory regime is to be adjusted to encompass the financial
services activities of authorised persons even if they are not
regulated by FSA. Specifically, the report offers as an example
unsecured lending, which is already included in the Banking Code
and falls within the remit of the Banking Ombudsman. We welcome
this. Such products are also delivered by unauthorised institutions,
just as other consumer credit products (see paragraph 3 above),
are provided by both authorised and unauthorised institutions,
and are direct substitutes for each other. In our view it would
be anomalous to limit the Ombudsman's scope in respect of consumer
credit to unsecured loans, and a market distortion if the scope
of his (or her) voluntary jurisdiction were not identical to that
of the compulsory jurisdiction.
An equally important argument is
that for consumers, a single point of entry for complaints about
financial services to a clearly independent Ombudsman would be
a huge advance. There would also be a single set of rulings on
complaints, a further reinforcement of simplicity.
Such a framework would provide the
most encouraging environment for the continuing evolution of voluntary
codes of practice such as our own and that of the Council of Mortgage
Lenders into sets of standards for specialised business within
a single definition of good practice for the whole financial services
industry. It would also provide an incentive for firms outside
the compulsory jurisdiction to participate in the Ombudsman scheme,
with consequent economies of scale.
6. THE REGULATORY
The majority of second mortgages
are governed by the Consumer Credit Act 1974 because they fall
within the financial ceiling of £25,000. First mortgages
have been a major focus of recent political and consumer concern
because of their dominant position in the overall financial planning
of most families, and because, being first charges, they are not
subject to statutory regulation of any kind. This is not the case
with regulated second mortgages. We do not share the view of the
Council of Mortgage Lenders that HM Treasury's cost benefit analysis
later this year should be extended beyond first mortgages. Nor
do we see a review of the licensing powers of the Director General
of Fair Trading as an issue closely related to the regulation
of first mortgages.
7. MONEY LAUNDERING
We note that the FSA's money-laundering powers
are intended to extend only to authorised institutions. Our own,
FLA Money Laundering Guidelines extend to all full members of
the Association, authorised and unauthorised, and will continue
to do so. Whilst it makes eminent sense for FSA to be the body
with responsibilities in this area, it seems illogical to limit
them to authorised institutions. Money-launderers themselves recognise
no such boundaries. These powers surely trace their origin to
the EU Money Laundering Directive, and there is no particular
logic other than tidiness in restricting them to authorised institutions.
13 April 1999