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Financial Services analysis: George Mallet, barrister at Henderson Chambers, considers the changes introduced by a recent Financial Conduct Authority (FCA) policy statement on price comparison websites.
Following a consultation, the FCA has issued the final text of its rules and guidance for price comparison websites (PCWs) comparing high-cost short-term credit (HCSTC) products. A policy statement from the FCA set out its response to the feedback received to its October 2015 consultation on consumer credit proposals in response to the Competition and Markets Authority’s (CMA) recommendations on HCSTC. The rules come into force on 1 December 2016.
What changes are introduced by this policy statement?
Product listings can no longer be based on a ‘firm’s commercial interests’.
How will this impact on a PCWs operating or business module?How will this impact on a PCWs operating or business module?
PCWs work as follows: consumers input preferred HCSTC characteristics into the PCW (the size of loan, duration, etc). The PCWs then generate results that match the consumers’ requirements. The PCWs must now ensure that the results are not skewed in favour of HCSTC providers that have provided financial incentives to the PCWs.
It would be reasonable to assume that this will have a significant impact on PCWs. Research contained in the various consultations suggested that HCSTC frequently sought to incentivise PCWs by way of commission. Any such arrangements, as now prohibited, will be essentially redundant to the HCSTC provider from December 2016. It is unclear how reliant PCWs are on revenues generated by commission but it may well be that they are about to lose an important income stream.
On a positive note, PCWs should not be prevented from developing their own unique ranking metrics. Results will have to be ranked in order of total amount payable (TAP). However, where HCSTC results produce the same TAP the PCWs are afforded the right to develop mechanisms of ranking (albeit within existing legal requirements).
How will the changes impact on the underlying arrangements a PCW has with its lending/broker panels?
The new rules come into force on 1 December 2016. What should PCWs /lenders/brokers be doing between now and then to meet the new requirements?
In particular, PCWs must ensure that:
is based (wholly or partly) on the firm’s commercial interests or its commercial relationship with any person
PCWs will not, however, be prevented from including financial promotions other than those that resulted from the search itself from appearing so long as they are not within the ranking tables.
PCWs would be well advised to seek legal assistance in the interim to ensure that they are fully prepared for the pending amendments to CONC. It should also be noted that if there are genuine reasons why a PCW, lender or broker cannot comply by 1 December 2016 there is provision in the CMA’s Order for this.
What impact (if any) will the new rules have on the wider PCW market?
How will consumers benefit from the new rules?
However, the Policy Statement and Instrument stop short of addressing some of the more opaque and controversial features of HCSTC. The Instrument does not address how lenders and brokers assess borrower creditworthiness or provide guidance on cold calling. The FCA has indicated that it will continue to investigate those matters, as well as continuing its review into whether a price cap should be imposed on the market.
Interviewed by Diana Bentley.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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