Lenders accused of sharp practice, high pressure sales, dodgy commission payments in damning critique by FCA

The malpractice uncovered by the Financial Conduct Authority almost makes it seem as if the financial crisis never happened

The city watchdog has told lenders to clean up their act – in the nicest possible way (Reuters)

Amid uncertain times, there’s something almost comforting about the City watchdog issuing a report about lenders behaving disgracefully.

Come rain, or shine, you can always rely on the everyday skullduggery of people who advance loans.

As its missive makes clear.

“Dirty Tricks Deployed by Shiny Suited Salesmen and Their Bosses” is how I would have entitled the report.

But the FCA is expected to behave with a degree of decorum so we have “Staff Incentives, Remuneration and Performance in Consumer Credit”.

That title is as clear a demonstration of the fact that you can’t judge a book by its cover as you’ll find anywhere, because this book contains examples of sharp practice that, when you read them, could easily lead you to believe that the financial crisis and the ten years of reforms to the financial services industry that followed had never happened.

Some of the examples it highlights make grim reading.

For your starter, there was the retailer that gave its staff discretion over the interest rates charged to customers who took out loans with it. Naturally, higher rates led to higher commissions. You can imagine what happened there.

“There was a risk that staff could give false or misleading information to customers to make them believe they would not be able to obtain a lower interest rate than the rate they had already been offered,” the FCA opined. No kidding.

Then there was the lender that paid staff a flat commission on the loans they sold, but only if the value of the loan was above a set amount. Given that a customer asking for less than that would be worthless to sales staff, they were incentivised to apply the thumbscrews and indulge in high pressure selling to get the amount up, regardless of whether customers could afford it.

Want more? How about the retailer (a lot of the examples featured by the FCA involve retailers) whose staff overstated their customers’ incomes on applications for finance without their knowledge, to make sales and net commissions that amounted to up to 60 per cent of their pay.

Some lenders are still operating commission-only pay structures. Lots of them are pushing their people to sell, sell, sell, and never mind if the customers they’re selling to can afford to pay back their loans.

The reason that this is still taking place now, ten years after the crisis struck? Perhaps it is because banks got all of the attention because banks were the really bad boys that nearly broke the country. As a result, they had change forced upon them by regulators.

However, while that was happening, lots of other lenders merrily ran around operating the sort of stupid, short-sighted and backward sales-based pay schemes that contributed to getting those august institutions into so much trouble in the first place, leaving a trail of wreckage in their wake.

The FCA proposes to cure this disease by telling lenders they have to keep a close eye on pay schemes that might end up with their customers getting legged over.

It has also issued guidance of what it sees as bad practice.

If that sounds a bit weak, the long and short of it is that the watchdog is telling lenders to clean up shop or else, but in the nicest possible way.

Given the behaviour it has uncovered, I’d imagine the “or else” will have to be underlined soon.