Since July, most asset finance brokers who have been paying the minimum annual FCA fees of around £600 (including various extras) have been starting to be billed around £1,100, a hike of 83% in one year. Meanwhile for new broking firms, the application fee increased overnight by over 800% from £600 to £5,000.
The FCA consulted over the changes in April and published its final rules in July. It justified the increase on the basis that “small firms, who only pay a minimum fee, should make a contribution to the costs of regulating them that more fully reflects the costs associated with FCA authorisation and ongoing supervision”. This isn’t even the end of it, as the FCA states that this is the “first stage to bring greater alignment of these minimum fees with other authorised firms”.
For any broker, but particularly smaller businesses, an extra £500 expense is an unwelcome extra burden. It really says something about the regulator’s understanding of small businesses that it considers this is fair.
These increases are for ‘full permission’ brokers, who have authorisation for not only broking activities, but also debt counselling and debt adjusting. Most brokers who manage without the two debt permissions will now pay either £250 or £500 per year, depending on their volume of regulated business.
Given the hike in fees, particularly for full permission firms, it’s a good time for existing and new brokers to consider whether they can manage with only limited permissions, by not providing debt counselling and debt adjusting.
When the FCA first took over consumer credit in 2014, it wasn’t obvious asset finance brokers would need debt counselling and debt adjusting permissions. But then legal advisers spotted that if brokers are helping customer to settle finance agreements on cars - or other assets too, but it’s mostly cars - there’s a chance they will be advising the customer on whether to settle their existing agreement, or calling the existing lender to obtain a settlement figure. The former could be seen as debt counselling, and the latter as debt adjusting.
None of this mattered too much at the time. It was easy enough to tick the two debt permission boxes on the FCA application, and both the application and ongoing fees were the same.
But things changed in March 2015, when a new category of authorisation, limited permission credit broking, was introduced. This covers broking of consumer hire agreements and hire-purchase agreements, where there is no debt counselling and debt adjusting. It meant there was now a lower cost option for asset finance brokers.
Only a few brokers took up the option. Most had already been authorised or had submitted their applications, and many of the largest lenders insisted they still needed brokers to have the debt permissions. Also awareness was low both among brokers and FCA staff, with quite confusing information on the FCA website, which remains the case today.
With this latest change in fees, the incentive to switch from full to limited credit broking for small firms becomes far greater. But can it work if there’s a chance the broker might be dealing with customers with existing finance agreements that need settling? It can, subject to two constraints:
The broker should not advise the customer whether or not to settle their existing finance agreement (debt counselling). That seems fine, as customers trading in vehicles should already know they need to settle their existing finance first.
The broker should not call the existing finance company to obtain a settlement figure, wo the customer will need to do this, but isn’t that what often happens anyway?
Those two adjustments to practices seem to be all that’s needed for small brokers to save themselves £500 per year.
If this all sounds too good to be true, there is a catch. Limited permissions are only useful if lenders will accept them. Some now do, but others continue to insist on full permissions as a blanket policy. Lessors wanting to support their smaller brokers might now wish to review whether full permissions are really necessary. Even better, maybe its time for the industry to meet with the FCA to rationalise this whole area of broker fees.
The latest edition of the Asset Finance 500, the comprehensive directory of asset finance brokers' websites, will soon be available. Details at https://www.assetfinancepolicy.co.uk/asset-finance-market-analysis