Final FCA rules for price comparison websites

14 Dec 2016 | 6 min read

The Financial Conduct Authority (FCA) has published its final rules for price comparison websites in its policy statement (PS 16/15), which came into force on 1 December 2016. Ian Norman, partner, and Rajiv Agarwal, regulatory advisor, at Lightfoots LLP, examine and assess the key changes, their likely success, as well as the challenges that lie ahead.

What are the key changes brought about by the coming into force of the FCA’s new rules on price comparison sites?

The key provisions introduced in relation to high-cost short-term credit (HCSTC), contained in new section CONC 2.5A in the Consumer Credit Sourcebook (CONC) within the FCA Handbook, set out the additional requirements covering the following areas:

Rankings

When credit brokers act as price comparison websites (PCWs), they would be required to rank HCSTC products in ascending order of price according to the total amount payable (TAP) and to display the information in a way that neither the ranking of search results for products nor the prominence of their display is based on the firm’s commercial interests or its commercial relationships.

Advertising

PCWs are required as part of any financial promotion or addition advertising for HCSTC to be outside of the ranking table and not interspersed within them, with the search results being clearly distinguishable from any other financial promotion. FCA has also added guidance to clarify that all information displayed on the price comparison website must comply with the requirement to be ‘clear, fair and not misleading’ and the detailed rules in CONC 3 and, in particular, CONC 3.5 through the inclusion of a representative example.

Website search functionality

PCWs comparing HCSTC are required to enable consumers to search according to the value and duration of the customer’s desired loan.

Market coverage

PCWs are also required to list in one place on the website the brand names of lenders they compare.

What problems are the new rules trying address? How successful do you think the new rules will be in doing so?

The Competition and Markets Authority (CMA) published the final report of its market investigation into payday lending in February 2015, following a referral for investigation by the Office of Fair Trading in 2013. Based on its findings, CMA concluded that there are features of the UK HCSTC market which prevent, restrict or distort competition, leading to an adverse effect on competition. Consequently, some customers end up paying more for their loans than they would in a market with more effective price competition. The CMA recommended that the FCA should review the current framework for PCWs comparing HCSTC, and use its regulatory tools to raise standards.

The FCA reviewed the CMA recommendations and formulated the new rules, after consultation, to improve standards of fairness and transparency with a view to ensuring best outcomes for consumers who use PCWs to make such purchases.

In our view, this regulatory intervention will help raise standards and create a level playing field which should allow PCWs to stimulate stronger competition between firms. It should also help in removing barriers to growth and encourage new entrants. This should ultimately lead to better outcomes for consumers.

Have there been any challenges for firms in preparing for the introduction of the new rules? Do you foresee there being any ongoing challenges once the new rules are introduced?

In the process of PCWs engagement with the FCA in preparation for the new rules coming into force, certain concerns have been raised that:

  • the proposed rules may dis-incentivise PCWs from broadening their comparison to firms with whom they do not have a commercial relationship
  • the accuracy of search results for a loan on the basis of value and duration would depend on the lenders providing up-to-date information, and
  • the prevention of other advertising from appearing with the search results could undermine the commercial viability of some comparison websites

The main challenge for firms is to ensure implementation by the deadline of 1 December 2016, which is six months from the publication of the proposed changes, not considered enough by some firms to make system changes after discussing and receiving full information from each of the lenders that they cover. The ongoing challenge will be for lenders to update the PCWs before introducing any changes to their products to ensure compliance with the new disclosure requirements.

What does all this mean for lawyers and their clients? What should they be doing next?

Clients should by now already have finalised the system changes to be ready for 1 December implementation. Those who have not received regulatory/legal sign off (either internal or external) on their implementation may like to do so as early as possible to avoid any initial or subsequent breach.

How does this fit in with other developments in this area of law? Do you have any predictions for future developments?

PCWs have gained popularity among consumers and have become the online tool of choice for those who want to secure a good value deal easily and conveniently, without having to trawl various different websites. They play a significant role in selling the products and services for which they provide cost and price details to consumers and therefore are also caught by the provisions of the Consumer Protection from Unfair Trading Regulations 2008, SI 2008/1277 (CPRs).

There are some specific regulations contained in the CPRs that are of particular relevance to PCWs. CPRs, regs 5 and 6 prohibit commercial practices which are misleading (whether by action or omission) and which could cause the average consumer to take a different transactional decision which may not be in their best interest.

We believe the FCA’s rules will re-inforce the objective enshrined in law for fairness and transparency to consumers, especially those who are considered vulnerable by reason of their financial circumstances and are required to use the HCSTC products and services.

Given the FCA’s interest in this area, we believe it will continue to monitor the efficacy of these changes and may consider further measures to achieve its remit of encouraging fair competition within this sector if it or the CMA continues to have concerns. For example, the FCA has already signalled its intention to review the HCSTC price cap in the first half of 2017.

Interviewed by Susan Ghaiwal.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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