For big-ticket items such as furniture, utilising finance plans to spread payments is commonplace – yet, points out Ben Mason, if a retailer or their lender offering finance packages fails to fulfil the FCA’s new authorisation demands, they could be forced to cease trading, or worse …
For many, buying furniture is a big financial commitment. That’s why so many choose to make purchases using store cards or special finance packages offered by the retailer. From the UK furniture industry’s perspective – an industry which contributed £9.4b to GDP in 2013 – sales via credit arrangements are a valuable source of income.
However, against this backdrop, important regulatory changes are afoot. And there’s a danger that if ignored, these changes could ultimately mean that tap of income coming from sales on credit slowing to a trickle or even drying up altogether. This could be the reality if the chain of lenders and brokers which supply the finance – as well as retailers themselves – fail to obtain the necessary authorisation to continue under rules which came into force last year.
The new regulation I’m referring to was set by the FCA in April 2014, when it assumed oversight of the consumer credit sector from the Office of Fair Trading (OFT). Consumer finance underpins all sorts of businesses, from furniture retailers to chains of electrical appliance providers and department stores. These new rules affect the entire finance supply chain, either via direct links to lenders or indirectly through brokers. The whole chain must meet the new regulations if furniture finance packages can continue being offered.
So what has changed? Essentially, if you offer any kind of lending, debt management, credit broking, hire or credit information services to customers, you must now be authorised by the FCA and prove that you meet their standards of practice in order to legally trade.
The majority of these firms will have previously held a Consumer Credit Licence with the OFT. They need to apply for authorisation during their allocated application period – known as landing slots. Those businesses getting involved with consumer credit for the first time can apply for authorisation whenever they like.
“Quite simply, firms cannot afford to underestimate the time and resources they need to put into this”
The first landing slots for firms to apply for authorisation started in October 2014, and new ones start every month through to next year.
However, despite firms being told when their landing slot is, far too many are way behind in the process. Not just in understanding what they need to do and when they need to do it by, but also what it will require from them in terms of time, resources and information.
The absolutely critical factor with all of this – which too many firms are still unaware of – is that this authorisation process is not optional. It simply has to happen. Firms who fail to obtain authorisation by March 2016 will be deemed to be trading unlawfully and could be forced to cease consumer credit activities immediately.
That would mean fewer sales, reduced income, damage to the credit supply chain, and ultimately a significantly weaker furniture retail sector.
Firms actually face two separate challenges. First, to become FCA authorised, and this application has to be submitted during their designated landing slot which is 31st March 2016 at the latest. Second, to maintain ongoing compliance.
Both of these are time-consuming processes. Our estimate is that for the 14,500 firms across furniture retail, office equipment suppliers, double glazing firms and many other sectors, the entire authorisation and compliance process could cost £100m by 2020.
Quite simply, firms cannot afford to underestimate the time and resources they need to put into this. There is support available, but consumer finance firms need to make the most of their landing slots and get their compliant policies and procedures in place now. For those who have not yet addressed this, it’s now a race against time.
Ben Mason is the CEO of Compliancy Services, a specialist regulatory compliance consultancy which helps clients achieve Financial Conduct Authority (FCA) authorisation and maintain regulatory compliance by adopting a long-term partnership approach. This article was published in the March issue of Furniture News magazine.
