Proposals by the Financial Conduct Authority (FCA) to increase the variable fee paid by authorised debt collection firms could have ‘unintended consequences’ for smaller agencies, according to the Credit Services Association (CSA), the body that represents the debt collection and purchase industry.
The proposed increase could see regulated firms paying over 50% more than they currently do for their annual fee, a substantial hike at a time when the industry is also having to cope with the rising cost of compliance.
And although some of the larger firms may be able to absorb such an increase, or adapt their business plan to accommodate it, Peter Wallwork, CEO of the CSA believes that many small-to-medium sized businesses will struggle to do so:
“Those SME businesses that are already spending substantially on compliance will now face further costs at a time when budgets are stretched to meet the new regulatory demands,” he says. “This could lead to SME businesses exiting the market, abandoning innovation or reducing staff; those with particularly stretched finances may shut down entirely.”
The CSA argues that this does not appear to be in keeping with the FCA’s stated approach to promoting effective competition; the FCA commits to not impose ‘…excessive regulatory barriers that may then restrict new entrants and thereby inhibit competition, diversity and choice…’
In addition to the proposed increase, the FCA suggests that the fee may in fact be subject to further change: “Should the assumptions prove incorrect and it be necessary for a larger increase in the variable fee, we would expect the FCA to assess its impact and give regulated firms the opportunity to respond,” Peter adds. “The FCA should confirm that any additional increase would also be subject to consultation before being imposed on firms.”
The CSA has previously encouraged the FCA to reconsider the fee structure in order to more proportionately distribute the costs among regulated firms and ensure that SME businesses are not priced out of the market by excessive compliance costs.
“We would again suggest that the FCA consider revising the fee structure for consumer credit firms, with the possibility of a tiered variable rate, which would ensure the costs of regulation were shared more fairly and proportionately,” Peter concludes.
The CSA’s views were expressed in its response to the FCA Consultation Paper (CP16/9).