What’s changing in relation to price comparison websites?

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.

Original news

Final FCA rules for price comparison websites, LNB News 26/05/2016 108

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?

The policy statement sets out the FCA’s response to feedback received with respect to the Consultation Paper CP 15/33 Consumer credit: proposals in response to the CMA’s recommendations on high-cost short-term credit (October 2015). For those that have been following the CMA and FCA’s tightening grip on PCWs that operate in the HCTSTC market, the notable feature of the policy statement is that much of the feedback received is supportive of existing proposals. Consequently existing sentiment is brought into legislation by the enacting of the Consumer Credit (High-Cost Short-Term Credit Price Comparison Website) Instrument 2016, which will amend the Consumer Credit Sourcebook (CONC) from 1 December 2016.

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?

The 2016 Instrument restructured CONC 2.5A.6 to clarify that a firm must ensure that neither the ranking of search results, nor the prominence of the display of results, nor whether a loan from a lender or credit broker is displayed at all is based (wholly or partly) on the firm’s commercial interests or relationship with any person.

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?

As stated above, certain commission arrangements between PCWs and HCSTC providers will be, from December 2016, essentially redundant to the HCSTC lenders. Consequently it can be safely assumed that the process of providing commercial incentives to the PCWs will end. The extent to which PCWs rely on these arrangements is unclear. However, it may well be that PCWs will need to find alternative revenue streams to plug the gap left by the closing of the commercial arrangement practice.

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?

PCWs, lenders and brokers will need to carefully re-appraise their practices to ensure that they are compliant with the pending amendments to CONC.

In particular, PCWs must ensure that:

  • customers are able to enter the value and duration of their desired loan when specifying the criteria for a search and that the results be displayed on the basis of only that information (CONC 2.5A.3)
  • consumers are able to enter a reasonable range of options of values of loan or of durations of loan, when specifying the criteria for a search (CONC 2.5A.4)
  • results of borrower searches are ranked by the TAP, where results have the same TAP the PCW must rank the result according to another criterion permissible under CONC 2.5A (CONC 2.5A.5)

neither:

  • the ranking of the results of a search for a HCSTC product, nor
  • the prominence of the display of the results of such a search, nor
  • whether a loan from a lender or credit broker, whose loans the firm arranges to compare or claims to compare, is displayed in the results of such a search

is based (wholly or partly) on the firm’s commercial interests or its commercial relationship with any person

  • information provided on the PCW must comply with other financial promotion rules under CONC 3
  • information provided on the PCW must comply with other financial promotion rules under CONC
  • the brand names of lenders whose HCSTC products are displayed on the website are listed in one place

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?

At present, it is not clear how far the amendments to CONC with respect to HCSTC PCWs will affect the wider PCW market. At present, the new rules will not apply to other sectors.

How will consumers benefit from the new rules?

Consumers will benefit from greater transparency and quality when using PCWs for HCSTC. The use of the TAP (as opposed to annual percentage rate (APR)) will be particularly helpful as borrowers and lenders alike have often criticised the use of APR in short term lending where durations are intended to be substantially less than a year. TAP therefore will give borrowers a clear picture of the costs of entering into any particular HCSTC agreement.

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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