As part 8 of the Retail and Banking Market Investigation Order 2017 (RBIO) comes into force on the 2 August 2017, we take a look at what this means for lenders offering products to SMEs going forward.
If you are a lender offering unsecured loans or overdrafts to SMEs with annual sale revenues not exceeding £25 million, beware - a new world order awaits.
The Competition and Markets Authority (CMA) undertook a detailed investigation into the supply of retail banking services in the United Kingdom in 2015. The CMA identified low customer engagement, a lack of product information and poor transparency as key barriers to healthy competition within the retail banking sector. To tackle these barriers the CMA developed (after much consultation (but very little fanfare) the RBIO. Whilst many parts of the RBIO are already in force, part 8 - specific to SME lending - is just around the corner.
Part 8 of the RBIO
Part 8 of the RBIO focuses on lenders that offer SMEs unsecured loan and unsecured business overdraft products up to a value of £25,000. Any lending to SMEs which goes above £25,000, or lending of any amount which is secured, is going to be exempt.
If you have a product which is caught by part 8 of the RBIO the CMA will impose the following four rules upon you from 2 August 2017.
- You must continuously publish and display a representative APR or a representative effective annual rate (the Rate) on your website. You only need to publish one Rate to reflect the range of products caught by part 8 of the RBIO, as opposed to an individual rate for each product in turn. The Rate must be published and displayed prominently on your website and must be kept up to date.
- The Rate must be published and displayed prominently wherever you advertise a price for a relevant product in any of your marketing and advertising materials (in any medium) and/or where such marketing or advertising material (a) indicates a rate of interest or an amount relating to the cost of credit, (b) includes a favourable comparison relating to credit or (c) includes an incentive to apply for credit or enter into an agreement under which credit is provided.
- You must continuously publish and keep up to date on your website and in marketing or advertising material contextual information on how the Rate was calculated. The RBIO sets out specific information which must be shown (as a minimum) in respect of a qualifying loan product and a qualifying overdraft product respectively. Items include size and term for a loan product and the nature and amount of any charges associated with an overdraft product.
- You must release certain information in respect of the relevant product(s) to third parties. The RBIO defines third parties as 'any person who supplies or intends to supply intermediary or other services to SMEs on the cost of lending such as a comparison website or a finance platform.' The information to be released and which must be kept updated includes:
- charges, terms and conditions and how you reasonably expect the Rate to vary with loan size and length for the relevant product(s)
- the contextual information referred to in point (3) above; and
- any ancillary information reasonably requested by a third party that is necessary or desirable to enable use of the information provided above and that is reasonably practicable for you to provide.
At this stage we do not believe that the RBIO places an obligation on SME lenders to engage with third party comparison websites without invitation but it is very clear that lenders caught by part 8 of the RBIO must ensure that third party comparison websites know where to look to get this information when needed.
What other parts of the RBIO are relevant?
Whilst part 8 of the RBIO is the 'business end' of the RBIO for the purposes of SME lending there are other parts of the RBIO which need to be considered as well. By way of example, article 52 of part 12 gives rise to an obligation on all providers of SME lending products caught by the RBIO to submit an annual compliance report to the CMA. The first of these compliance reports must be provided to the CMA no later than 2 December 2017.
There is also part 13 of the RBIO which confirms that the CMA may give instructions to any party caught by the RBIO with a view to ensuring better compliance with the RBIO and part 14 of the RBIO which confirms that any party caught by the RBIO will be required to provide any information or documents to the CMA as the CMA deems appropriate.
The world of SME lending
The world of SME lending is changing and if you find yourself caught by the RBIO you must have your website and marketing materials in an 'RBIO compliant form' on or before 2 August 2017. A failure to do this could expose you to the scrutiny of the CMA which now has a wide range of powers to enforce the RBIO whether by informal directions or via civil proceedings for an injunction or 'any other appropriate relief or remedy.'