Could the FCA have a role in the regulation of enforcement agencies?

shutterstock_254574685The Trust’s policy manager Meg van Rooyen explores one possibility for future regulation of enforcement agencies, as the advice sector’s Taking Control campaign for bailiff reform continues.

Reforms that came into effect in 2014 have seen some improvements for how enforcement agents (the new name for bailiffs) collect debts. The rules around entry have been clarified, the range of exempt goods widened, there is a clearer fee structure, the language has been modernised, with better signposting to sources of free debt advice.

However, as the sector’s Taking Control report showed, the reforms have not achieved their key objective: changing the behaviour of bailiffs and bailiff firms when dealing with vulnerable people in debt. We are pleased that the Ministry of Justice has listened, at least, to our continued concerns in announcing a new call for evidence on the impact of bailiff action on people in debt. However, these problems go beyond just a few rogue bailiffs – it is the system that needs reform.

That’s why we believe independent regulation and a free, independent complaints mechanism is crucial to bringing this about.

The Taking Control report calls for regulation – not necessarily a new regulator – and this was very deliberate. There are a range of options that could be considered – including a new regulator (and complaints mechanism) covering all kinds of bailiff, or the use of an existing regulator such as the FCA.

Could the FCA have a role?

The FCA currently regulates financial services firms and authorises a wide range of firms from those who offer consumer credit to debt collection agencies and debt advice agencies. The Financial Services and Markets Act 2000 (Regulated Activities) Order sets out what classes of regulated activity are covered by FCA jurisdiction.

Authorisation under the FCA regime means that consumers can complain to the Financial Ombudsman Service as the statutory dispute-resolution scheme set up under FSMA. This covers most financial products and services and is crucially both free for consumers and makes impartial decisions based upon a fair evaluation of the complaint.

It was announced in the 2016 budget that following an independent review the FCA will be taking on the regulation of claims management companies to strengthen the regulatory regime. This area is currently regulated by the Ministry of Justice with the Legal Services Ombudsman operating the redress scheme. This decision could create a very useful precedent for considering future bailiff regulation.

The question should now be asked, of whether it is time to expand the role of the FCA to take on relevant regulatory areas of activity that complement its existing remit. Both individual enforcement agents and enforcement agencies themselves could be authorised by the FCA going forward. The FCA already authorises debt collection and debt purchase companies for conducting regulated consumer credit activities (for which full permission is required under the “debt administration and debt collection” category).

Some of these debt collection companies also offer enforcement services to collect unregulated debt. As enforcement firms have applied for FCA authorisation for their debt collection activities there is already considerable overlap within the regulatory area as the firm must abide by the spirit of the FCA principles and CONC rules in carrying out its wider activities.

Although we believe the FCA takes into account the way in which a firm behaves in collecting unregulated debt, it will not always be aware of the activities of separate enforcement sections or sister firms. As such companies already have to comply with stringent FCA rules and treat customers fairly for one part of their business, we believe it makes sense to cover the whole customer journey for firms from the point that the consumer originally incurs the debt to the outcome of enforcement by bailiffs.

FCA regulation could provide the following benefits:

  • No set up costs for a brand new regulator – the FCA as a regulatory body is an established regulator with a centralised and coordinated system for enforcement agents and firms to apply for authorisation and abide by rigorous conduct and supervision regimes.
  • Firms could pay for regulation in the same way as other authorised firms by way of an application fee and annual levy to pay for other regulated activities such as provision of the ombudsman service.
  • Reducing the complexity of the system is a key regulatory principle. Simplification of the enforcement structure to one form of enforcement agent under a centralised regulator using a common authorisation structure with commonly applicable fees could bring the benefits of simplification.
  • Regulation by the FCA could provide control and oversight of both individual enforcement agents and the firms that appoint them, to tackle both individual and systemic bad practice. This could help to stamp out aggressive behaviour and excessive enforcement on the doorstep and help protect people in vulnerable circumstances.
  • The Taking Control of Goods National Minimum Standards could be given statutory force and form the basis of a rule book which would be underpinned by the FCA regulatory principles.
  • At present there is no simple, easy to access and cheap mechanism for complaints about fees and firm behaviour. Redress through a universally applicable free, independent and simple to access complaints mechanism to the Financial Ombudsman Service would remedy this. This would replace the complex web of complaints and redress which can encompass complaints to trade bodies, the courts (with the high risk of incurring court costs), and various different forms of ombudsman depending upon the type of debt.

Whilst it is possible to identify obstacles to be overcome in this process such as ensuring that the regulator can ensure an interactive relationship with HMCTS, this relationship is already going to be established through the new regulatory process for the claims management sector. The relationship between High Court enforcement jurisdiction and the current exemption from certification rules and separate fee structure, could form part of this process. The Ministry of Justice Reform Programme and the Lord Justice Briggs Civil Courts Structure Review recommendations for an online court with its own legislation, rules and procedures provide an ideal point to look at the regulation of enforcement again.

Other options

This is, of course, only one option. There could be a new regulator – or a different existing regulator could be given wider powers. However, in the search for a regulatory solution, the FCA seems a good place to start.

We will be working with the Ministry of Justice on its new call for evidence – and engaging with the bailiff industry on how it can improve its systems and processes, short of independent regulation. Neither course of action, however, will prevent us from continuing to make the case, to government, for the systemic changes that people in debt ultimately need.

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