View from the sea-front

Credit Management,  Jan 2007  by Andrews, David

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This month, David Andrews celebrates the FSA's move to fine a company for breaching cold calling rules. He also considers the recent press furore over what appears to be a sensible move by First Direct.

Just when the financial services industry is beginning really to smarten up its act, it is disheartening to learn that some firms are "allegedly" (as frazzled news room lawyers would always insist we added to any potentially damaging story) - getting fat on one of the oldest sales' methods in the book - cold calling.

The news that City watchdog Financial Services Authority (FSA) slapped Capital Mortgage Connections Ltd (CMC) with a £17,500 fine for apparent rule breaches, which included cold calling potential customers may, at first impression, appear to be rather innocuous. But there is a historical precedent here, as this is the first time a financial services company has been penalised for cold calling.

Now, I'm sure that I am not the only one who has rushed down from the top of the house to answer the phone - or clambered out of the bath only to find that I am speaking to Wayne or Kelly from some ghastly call centre or other - who wants to flog me a mortgage. Or a loan. Or a new broadband service. Or a credit card. I could go on.

So it is actually rather refreshing to learn that, at long last, the FSA is taking action, hitting a company where it hurts most - its finances. Not that seventeen grand is going to break the bank, I'm sure. And when compared with the £500,000 or so levied against Lloyds TSB for its role in the precipice bonds sale scandal, or the fines of many hundreds of thousands handed down to the many offenders in the ongoing endowment scandal, it is something of a drop in the ocean. But it's a start.

The fine was also imposed because of CMC's alleged failure to treat its customers fairly as it was unable to demonstrate that it gave appropriate pricing information on the accident, sickness and unemployment (ASU) insurance polices it sold. There are far too many firms out there pushing this frankly often useless cover, and the sooner they are rounded up and named and shamed the better. Extraordinarily, the FSA claims that 85% of CMC's business was generated by cold calling 85 per cent! - and that over 97% of ASU insurance polices sold by the firm were on a single premium basis. This means effectively that punters were paying interest on their insurance.

As ever, it is the most vulnerable who fall into these smooth talking traps, and I for one am right behind the FSA's long overdue crackdown. As Jonathan Phelan, head of retail enforcement at the FSA, succinctly put it: "Cold calling potential customers for mortgage business is against our rules, and firms operating in the industry should be aware of this. This is the first time we have taken steps against a firm for undertaking this activity and we will continue to monitor the market for instances of cold calling. Management is responsible for ensuring that firms comply with our rules and we will act where we find breaches."

Jolly good. If it means that I am not going to be hounded and harassed in my own home to purchase products that I do not want, then that is a cause for minor celebration.

Financial data analyst Defaqto has been in the news a good deal of late, principally for issuing dire warnings about credit card holders who are late payers or who are cavalier about going over their credit limits.

Now Defaqto reckons that errant customers could bear the brunt of card firms' hard line tactics in the wake of the Office of Fair Trading's move towards the end of 2006, which forced companies to cut so-called "delinquent charges" to a capped £12.

As credit card providers are now looking for alternative ways of protecting their margins in an already saturated market, late payers and those who regularly go over their credit lines look to be a convenient target.

Defaqto's Credit cards in the UK - Protecting Margins report revealed, for example, that our leading 'ethical' lender, Co-Operative Bank lost no time in ushering in a £2 monthly charge on its platinum base rate tracker card.

Here I have to admit to a passing interest, as it was my good self who tipped off the Daily Mail journalist who broke the story, which was then seized upon by Defaqto.

How did I get the drop on this story? Merely by pausing to have a quick look at the pile of mail from my various credit card providers on that particular occasion, a cursory glance over which revealed that the bank was loading on a two quid a month charge. In fact, I had long since stopped using the card, but I had omitted to inform the Co-op.

I was however somewhat surprised that none of our crusading personal finance writers picked up on what was after all a good story. When I was on a newsdesk, rummaging through the credit card marketing literature was invariably a good source for a story.

Instead, more often or not, journalists prefer to jump on whichever band wagon is passing through town. A recent example of the pack baying for blood was when First Direct - my personal bank - announced that it intended to levy a £10 £1,500 per month. The fee is to be waived for those holding other First Direct products.