Following a consultation in October 2015, the FCA published final rules for PCWs displaying high cost short term credit (HCSTC) products, namely payday loans. This action was taken in response to the CMA's recommendations on high cost short term credit.
The CMA found that it is difficult for consumers to identify the best value loan product on offer given thei r specific borrowing requirements as PCWs did not allow them to enter information about those requirements as part of their search. It also suggested that to reflect competitive neutrality, PCWs should enable consumers to view loans ranked on the basis of objective criteria, and that the default ranking should be the price of the loan. Currently, rankings are influenced by the PCW's commercial relationships with providers whose products are displayed, which according to the CMA, lacks transparency and can negatively influence consumer outcomes.
The CMA recommended that the FCA use its regulatory tools to raise standards for PCWs comparing high cost short term credit products.
The final rules were published in May 2016 in PS16/15 and PCWs have been given si x months to prepare for the new requirements.
The rules are contained in a new CONC 2.5A which is found in the section of the FCA Handbook covering conduct of business requirements for credit brokers. The five requirements apply to firms who own or operate a price comparison website (as defined in CONC 2.5A.1) and are summarised below.
- Must allow the consumer to compare on the basis of price alone – not ranked pursuant to commercial interests – CONC 2.5A.2
► This is a key requirement and a significant change to current business models. A PCW that displays any termson which HCSTC is available from different lenders must not do so in a way that is based either wholly or partially on its commercial interests or those of any commercial r elationship it has with any person
► There is no accompanying definition of "commercial interests" or "commercial relationship" but FCA commentary in PS16/15 suggests that such a relationship will certainly exist where the PCW receives some form of remuneration or commission from one or more product providers.
- Functionality must allow for search of loan amount and duration – CONC 2.5A.3
► PCWs must provide for functionality that allows a consumer to search for a high cost short term credit product by loan amount and duration and the results of that search must be capable of being provided on the basis of that information. A range of values of loan or durations can be used by the PCW to satisfy this requirement. PCWs are also free to go beyond the requirement and are encouraged to innovate and provide further search options to improve the customer experience.
- Results of search must rank the price of products available by reference to total amount payable in ascending order – CONC 2.5A.5
► The FCA considers that price is one of the most important factors to consumers and likely to be a key feature of competition going forward: it should be the primary basis for ranking products. PCWs must rank starting with the loan with lowest total amount payable first and the highest last.
- Financial promotions must not appear within any ranking table – CONC 2.5A.8-10
► The FCA determined that promotional material within the ranking table has the potential to confuse consumers and send inconsistent messages about the rankings. Financial promotions cannot be displayed in or between the results of a search and any results of a search must be clearly distinguishable from a financial promotion. That said, the FCA has not banned financial promotions around ranking tables such as banner advertisements.
- Names of lenders to be displayed – CONC 2.5A.11
► PCWs are required to include a list, in one place, the brand names of lenders whose HCSTC products are displayed on their websites.
Some PCWs who responded to the FCA's consultation suggested there would be a negative commercial impact to them if there were restrictions on how and where financial promotions could appear on their webpages, in particular, where products were ranked. To be commercially viable, they argued that only minimum restrictions should be placed on the PCW's ability to build in additional advertising around the ranking tables.
Some respondents raised the question of what rules apply to information they see on the website before carrying out a search as research suggested that many do not use the search function, but relied on the default list appearing on the PCW's landing page, for example. Any rankings displayed – whether these are generated by the consumer, or provided up front by the PCW before any search must comply with the new CONC 2.5A.2.
IMPLICATIONS FOR PCWS DISPLAYING OTHER CREDIT OR FINANCIAL PRODUCTS?
In PS 16/15, the FCA says that it does not intend to extend these new rules to PCWs comparing other types of credit products. That said, they are working on a substantial piece of work for the UK Regulators Network on PCWs covering both financial and non-financial products and services. They have also announced a Call for Input this week on high cost short term credit as a whole, so there may be implications for PCWs displaying other types of credit in due course – including credit cards, guarantor loans and home credit offers. The CMA announced that it intends to carry out a market study into PCWs which is expected to begin in late 2016/2017 with an interim report to be published by 28 March 2017.
The regulatory attention on PCWs therefore will continue into 2017. The rules coming into force on 1 December for PCWs displaying high cost short term credit products introduce additional requirements for them which are prescriptive and carry additional compliance costs. The changes are also likely to have an impact on their commercial relationships with lenders, but at the same time, improved transparency for consumers.
The restrictions on financial promotions from appearing in the ranking table means t hat PCWs and lenders will be exploring how to continue promoting their products on websites in a way that is commercially viable. For example, it is possible that more innovative marketing techniques will be used and larger banner adverts will be deployed . However, the parties will need to be mindful that all financial promotions still need to meet CONC 3 and ensure these are clear, fair and not misleading. Advertising that misleads consumers into thinking it is part of an objective comparison is likely to be in breach of CONC 3.
The new rules, although specific to PCWs that display payday loans, are also likely to set the direction of travel for PCWs more generally, so it would be prudent for all PCWs to take note of these changes.