Enforcement against WPPL and Andrew Hart
The Financial Conduct Authority (FCA) has prohibited the director of Wage Payment and Payday Loans Ltd ("WPPL"), Andrew Barry Hart, from performing any function in relation to any regulated activities following failures to comply with regulation. In addition to the prohibition, the FCA has refused WPPL’s application for authorisation, cancelled their interim permission to carry out regulated activities, and widely publicised the case.
This is the first prohibition of a senior manager in the consumer credit sector for a failure to comply with regulations since the FCA took over the consumer credit regulatory role in April 2014.
What does this tell us about the FCA’s attitude to certain consumer credit businesses, such as payday lenders? Is this the first action in a wider campaign against these businesses?
The FCA’s approach to payday lenders
The FCA took over regulation of the consumer credit sector from the Office of Fair Trading (OFT) on 1 April 2014. Firms which were licensed to carry out regulated activities with the OFT were moved to an interim permission regime from 1 April 2014 which allowed them to carry on consumer credit activities pending full authorisation.
The FCA set out a timetable for firms with interim permission to apply for full authorisation, with areas of the consumer credit industry which were deemed ‘high risk’ targeted with the earliest deadlines. Payday lenders were one of the first categories of business targeted by the application timetable. Failure to apply for authorisation by the dates set by the FCA would lead to the cancellation of the interim permission, as would refusal of an application.
In the representations made by WPPL and Andrew Hart in response to the FCA action, it is clear that they believe that they have been unfairly singled out as part of a plan by the FCA to reshape the payday lending industry. WPPL claimed that “it is the authority’s aim to put several payday lenders out of business and only leave a handful of large businesses remaining”. In a similar vein, Mr Hart’s representations complained that he and WPPL “are being made scapegoats for the payday loans industry”.
Were these complaints justified? In their response to these representations the FCA denied that their general approach to regulating consumer credit firms was relevant, and that their decisions were based on the facts of the specific case. In response to Andrew Hart they stated that this case was distinctive in his responsibility for systemic failures across all aspects of WPPL's lending activity.
In the press release accompanying the final notices, Mark Steward, the FCA director of enforcement and market oversight, stated:
“There is no place in an FCA-regulated consumer credit market for firms like WPPL or senior managers like Mr Hart, who lack the requisite integrity and competence to ensure customers are treated fairly and all relevant regulatory obligations are met. We will continue to use our powers to protect consumers and tackle firms who cross the line and senior managers whose failures have caused or contributed to the firm’s failures.”
This certainly indicates that the FCA is determined to take a hard line against regulatory breaches, and is set on cleaning up the parts of the consumer credit industry that it feels falls below the standards set by the regulations.
However, while the action the FCA has taken in this case is fairly draconian, there is evidence in the final notices that a more liberal approach had been taken in other cases.
Amongst Andrew Hart's complaints in his representations was that the action taken against them was ‘unfair and disproportionate’ compared to that taken against other payday lenders. Interestingly, the FCA agreed that different approaches had been taken with other payday lenders where issues had been identified and voluntary requirements put in place.
This was because these lenders had behaved differently, acknowledging and apologising for failures, overhauling their systems and controls, changing members of management responsible for failures, committing to paying redress to customers and subjecting themselves to skilled person reviews.
Although a softer approach appears to have been taken in some cases, the FCA’s response to the representations makes it clear that firms cannot automatically expect or demand flexibility from the FCA. When Andrew Hart’s representations complained that “The Authority has shown no flexibility and provided no assistance to Mr Hart which could have helped him to run the business compliantly” the FCA’s response was blunt:
“this representation demonstrates that Mr Hart does not understand what is expected of a firm regulated by the Authority… it is not the Authority’s role to provide compliance services to the firms that it regulates"
It seems that any flexibility from the FCA is gained by admitting breaches and taking genuine steps to rectify them. And, as may be expected, any leniency is granted at the FCA's discretion, and cannot be demanded by firms.
Andrew Hart and WPPL’s breaches of the regulations
In considering the wider implications of this case, the fact that the WPPL's and Andrew Hart's breaches of the regulations were particularly severe has to be taken into account. The full list is too lengthy to reproduce here, but the worst breaches include the following:
- The FCA identified a number of misleading and unfair communications with customers. One case involved a response to a bulk email sent out to customers in default proposing repayment plans, and suggesting the alternative would be a default letter. When a relative of one of the customers responded that a payment plan would be helpful, as the customer was ill following an overdose where taking out a number of short term loans appeared to have been a contributing factor, Andrew Hart’s response was to ask what the offer per month was. He did not offer any forbearance, despite the customer clearly being in an extremely vulnerable position.
- WPPL, and on occasion Andrew Hart himself, regularly threatened to take legal action against customers whose loan accounts were in arrears. In one case WPPL claimed to have obtained a County Court judgment (”CCJ”) against a customer and that they had would be charged additional costs of £360 as a result. In fact, no CCJ had been obtained. Andrew Hart was copied into these emails, and took no action to address this.
- WPPL had no written policies in place during the relevant period, contravening requirement under SYSC 6.1.1R to have adequate policies and procedures in place.
- The requirement under CONC 5.2.1R to assess a customer’s creditworthiness, including considering how affordable the loan is and whether the customer can repay it on time while meeting other reasonable commitments, was breached. WPPL had no specific process when making lending decisions, and bank statements and payslips were not routinely requested.
These go well beyond what technical breaches of the regulations and include behaviour that many would consider unethical.
That Andrew Hart and WPPL so seriously breached regulations makes this case less useful when considering the wider implications of the FCA's regulatory regime. It is difficult to imagine any sensible regime or regulator coming to a different conclusion in this case regardless of strategy – in fact, the FCA found that WPPL had failed to comply with the equivalent standards under the OFT regulatory regime.
Lessons for consumer credit businesses
While the outcome for Andrew Hart and WPPL suggests that the FCA takes a hard line, the overall picture presented by the final notices is more nuanced. The FCA has set the standards set out in the regulations as an absolute minimum that businesses must adhere to, and appears to apply these standards consistently across all regulated businesses.
While meeting these standards may be more challenging for small businesses, there is no evidence from this case that the FCA is trying to consolidate the consumer credit sector into fewer, larger businesses. There is also no evidence that the FCA is taking a particularly harsh stance against payday lenders – here the severity of the FCA’s actions are a proportionate response to the regulatory breaches.
While businesses under voluntary requirements which proactively and positively engage with the FCA appear to get an opportunity to make changes to their businesses to meet the regulatory standards, there is no obligation on the FCA to show leniency. And there is no leeway on the standards themselves.
Businesses with interim permissions applying for authorisation should take this into account, and consider taking advice from lawyers or compliance consultants to ensure that these standards are met, and that evidence is available to show that the standards have been met.
If voluntary requirements are put in place businesses should carefully consider how to engage with the FCA in a way that maximises the chances of an opportunity to make changes that will allow them to continue carrying out regulated activities, although the FCA will expect more than superficial changes.