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FCA fines Vanquis Bank £1.9m and orders £168m redress package

The Financial Conduct Authority (FCA) has fined credit card provider Vanquis Bank £1.9m for failing to disclose the full price of its repayment option plan (ROP). 

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The watchdog, which said Vanquis was responsible for “very serious breaches”, has also ordered Vanquis to repay an estimated £168m in compensation which constitutes the amount of the charges not disclosed to customers when they bought the ROP.

 

The ROP was an add-on service to customers which enabled them to take payment holidays over a certain period, if they paid a fee.

 

A payment holiday meant customers could miss one monthly payment out of a 12-month period - and their account would still remain up to date.

 

The FCA said that when selling the ROP, Vanquis told customers how the product worked and what the monthly charge was, but did not inform customers that the full cost of the product included an interest component where there was an end of month unpaid balance on their credit card.

 

The FCA has ordered Vanquis to pay back the interest customers were charged on the ROP from April 1 2014 to when customers were informed of the full cost of the ROP. 

 

Vanquis has voluntarily agreed to pay back the interest customers were charged on the ROP before this period, from June 2003 to March 31 2014, because during this time the FCA was not responsible for regulating the consumer credit market.

 

As part of the FCA’s investigation into the bank, it reviewed calls from sales agents. The regulator said that in 100 percent of the calls it reviewed - none explained the full cost of the product to customers. 

 

Communication failures
The FCA said, however, that agents at Vanquis explained that the principal cost of the ROP was a monthly charge of either £1.29 or £1.19 per £100 of a customer’s outstanding balance, but they did not explain to customers that the ROP could attract interest at the card rate, which was compounded unless the account balance was paid in full at the end of the month.

 

The APR on the card could vary from 19.9 percent to 79.9 percent. Therefore, customers did not have all relevant information to make an informed decision when purchasing the ROP. 

 

The FCA requested Vanquis freeze sales of the ROP in April 2016. Through a customer contact exercise in late 2016 Vanquis disclosed to its customers the full cost of the ROP and gave customers the opportunity to cancel it.

 

Mark Steward, director of enforcement and market oversight at the FCA, said: “Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing. Customers are entitled to be told all relevant information when being offered financial products. These were very serious breaches. 

 

"Vanquis has decided now to do the right thing by acknowledging the wrong-doing and offering to compensate its customers. We are pleased the firm has extended the compensation to customers who purchased the ROP before we took responsibility for regulating the consumer credit market.”

 

The FCA found that the firm breached principle six (customers’ interests) and seven (communications with clients) of the FCA Principles for Businesses. 

 

The regulator added that customers who had this product do not need to do anything - they will be contacted by the firm directly in due course.

 

 

A rights issue

Following the news of the fine and compensations pay out, Provident has announced a rights issue to raise £331m and “strengthen its balance sheet”.

 

The rights issue will raise the funds needed by Vanquis to meet the payments required by the FCA.

 

Provident said that further proceeds from the rights issue will be used to bolster the group’s position to enable it to meet its current and future regulatory capital requirements. These requirements could involve future payouts pending the outcome of the FCA’s investigation into Provident’s car financing arm Moneybarn.

 

The FCA is looking into Moneybarn’s creditworthiness assessments, its treatment of customers in default or arrears with forbearance, and the provision of information about termination processes.

 

Speaking on the rights issue, Malcolm Le May, Provident’s group chief executive, said: “To grow the business and deliver long-term sustainable returns to our shareholders, the Provident Financial Group needs to strengthen its balance sheet."

 

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