Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by the Finance and Leasing Association (FLA)


   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 represent.


    —  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.


    —  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.


  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

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