How the Consumer Duty Applies to Debt Collection and Purchase
From ‘manufacturer’ to ‘distributor’ and ‘open products’ to ‘closed products’ the new Consumer Duty comes with a plethora of new definitions to wrap our heads around. It’s vitally important to do so, mainly because a failure to understand the definitions can materially impact the way in which the duty applies to your organisation.
Throughout the duty, manufacturers have additional responsibilities in relation to product reviews, value assessments and setting the distribution strategy, so the first step is to properly understand whether your firm is a manufacturer or distributor. Exploring this from a debt collection / purchase perspective is interesting and to do so we need to look at two specific definitions:
Manufacturer “a firm which creates, develops, designs, issues, operates or underwrites a product” (or did so historically for a closed product or an existing product)”
Product “any specified investment, or the provision of a service in the course of carrying on a regulated activity, or an ancillary activity, distributed or to be distributed to retail customers and which, unless the context requires otherwise, is not intended to relate to an individual contract.”
We can see that a manufacturer under the duty is a firm that [amongst other things] operates a product. Then we consult the definition of a product, which presents an interesting point when it states, ‘the provision of a service in the course of carrying on a regulated activity.’ It is not a push to identify debt collection as the provision of a service or, actually, an ancillary activity for that matter. Additionally, it is also one which is ‘in the course of carrying on a regulated activity.’ Therefore, joining the two definitions together, debt collection meets the definition of a product which therefore means debt collection agencies and buyers meet the definition of a manufacturer.
Manufacturers have extra responsibilities and need to ensure their ‘products’ have been created with the characteristics of the target market in mind. The method of completing this is through a product approval process requiring senior manager review and sign-off. Products must only be approved once a pre-defined set of criteria has been reviewed. We have created a product approval template to assist firms.
Product approvals attempt to pro-actively ensure products are right for customers and are likely to produce good outcomes through avoiding harm and allowing the customer to achieve their financial objectives. However, in the real world often things don’t happen as we thought they would, and the FCA have thought of that. Product Reviews, whether open or closed products, are required to then test how the product has actually performed in the real world. The reviews must assess whether the target market has been correctly identified and the tangible impact the product has had on those individuals, with learnings applied immediately. Again, we have created a template to help firms with these assessments.
There is a lot to do, and the above templates are just a starting point, designed to ensure the regulatory required points are factored into your own. Firms will, however, need to mould the questions so they fit their specific circumstances. For example, a debt collection firm does not target a specific market, instead they have a market of customers provided to them. Despite this it is too simplistic to ignore the target market requirement, instead debt collection agencies should take steps to recognise the characteristics of the customer base they expect to be provided by clients. Once they know this they should shape their provision of the service in a way which avoids foreseeable harm, demonstrates good faith and provides excellent customer support.