Credit ‘time bomb’ warning

Compliancy Services, a consultancy which provides advice about financial services regulations, believes firms across the consumer credit supply chain could face a bill of more than £100m over the next five years if they want to obey the rules. The consultancy fears that the high street may struggle to offer the same level of finance deals to consumers next Christmas.

According to Compliancy Services, problems will arise if lenders and brokers who supply consumer finance, including retailers, fail to obtain authorisation under new rules. If they don’t comply, they could be forced to stop all consumer credit related activities. Calculations carried out by Compliancy Services indicate that 14,500 firms across the consumer credit supply chain will face costs of more than £38m to obtain their authorisation. Combined with the further costs of up to £13.8m per year to remain compliant, Compliancy Services estimates it could cost the sector more than £100m by 2020.

Consumer finance underpins businesses of all sizes, from nationwide chains of electrical appliance providers and department stores to independent furniture shops.

These firms access finance for their customers through arrangements with lenders, either directly or through a broker, and the entire chain must meet regulatory rules if firms are to continue selling on finance.

Ben Mason, the chief executive at Compliancy Services, said: “Far too many firms are still way behind in understanding how to apply for FCA authorisation and what they need to do to be compliant. It’s not optional either; if they don’t do this in time, there’s a risk that the FCA could take enforcement action against them. Ultimately, they may no longer be able to offer any regulated consumer credit services.”

While the immediate risks of non-compliance will fall on high street firms, there are also dangers for wholesale finance lenders. According to Compliancy Services, they risk losing their distribution network and route to market if firms in the chain don’t gain authorisation.

Andrew Davies, the head of loans at Leeds-based retail point of sale credit provider Hitachi Capital Consumer Finance, said: “There is no doubt that the availability of point of sale finance has a major impact on the retail industry, consumer spending and therefore the economy as a whole. Our own research shows the purchasing decisions of more than 80 per cent of UK consumers are heavily influenced by the availability of credit. Retailers who don’t offer finance risk losing a staggering 44 per cent of customers as they will look elsewhere, so the impact on retailers who fail to obtain full permissions could be significant.”

Mr Davies said Hitachi Capital has been working closely with its retail partners since last April to make sure they continue to provide access to finance.

Mr Davies added: “We are confident that the majority are well prepared for full authorisation, with no disruption to consumers. The issue is more likely to sit with smaller retailers and brokers who may struggle to meet the deadlines.”

An FCA spokesman said: “We want to ensure that all providers of consumer credit, from pay day firms to debt management firms are operating to the highest standard and putting the needs and interest of consumers first. Part of this process is authorising firms; where a business who wants to supply credit is approved by the FCA.”

The FCA has been holding meetings to discuss the authorisation process with firms over the last year, the spokesman said.

“Firms who have not sought authorisation cannot operate in this market place,’’ the spokesman added.