F&I Management & Training

The Information Commissioner's Office (ICO) has ordered the owners of Tetrus Telecoms to pay £440,000 after an 18-month investigation found it sent as many as 840,000 unlawful spam texts per day over three years encouraging people to begin payment protection insurance (PPI) claims.

According to the investigation, the owners were making between £7,000 and £8,000 per day selling on the details of those replying to claims management companies (CMCs).

The decision comes shortly after Stephen Sklaroff, director general of the Finance and Leasing Association (FLA) told delegates at the FLA Motor Finance Convention that 53,000 "unfounded" claims had been filed with automotive companies in the first nine months of the year. "When we say 'unfounded'," explained Sklaroff, "we mean the products were never sold in the first place."

Director of training and compliance at Finance Cover Compliance at i-comply-online, described the decision as "a great step forward", and added that "ICO have also stated that they will, as a result of this investigation, target the CMCs that purchased customer information via these types of firms."

The fine is further good news for the industry regarding PPI claims a month after a long-running and high-profile legal challenge was withdrawn against Black Horse over the cost of commission of its PPI policy.

DATED: 06.12.12

FEED: MF

New car registrations were up 11.31% on last year to 149,191 units for November, confirming the UK market as the second largest in the EU, according to figures from the Society of Motor Manufacturers and Traders (SMMT).

Year-on-year growth recorded in every month so far this year except February has put the full-year market on course to record the largest volume of new registrations since 2008 and the SMMT has attributed this growth particularly to private sales which stood at 65,327 units in November, up 20.37%; 878,460 units, year-to-date, up 12.94%.

Customer retail has been cited as a boost to the overall picture in nearly every month this year: including 14.8% growth in April, 14.3% in May, 26.4% in July and 23.89% in October.

Both the SMMT and other commentators pointed to the growth of customer retail as supporting the market. Richard Lowe, head of retail and wholesale at Barclays, said: "New car sales have continued to outperform - driven by private demand rather than business".

Year-so-far and the year ahead

Year-to-date, new car registrations have grown by 5.43% to 1,921,052 units. Typically, December registrations top 100,000, putting the SMMT forecast of more than two million new sales in 2012 on target.

By SMMT figures, it would take a slump in December registrations to reach the forecast made by Motor Finance, on the basis of September's figures, of just 1,997,844 units, or the forecast by Professor Peter Cooke and White Clarke Group.

However, Paul Everitt, chief executive of the SMMT, warned the "outlook for 2013 remains challenging".

Lowe was in agreement and said: "the sector will do well to maintain the performance levels seen during 2012. That said, this is a resilient and dynamic sector which has proved its ability to cope with changing demands."

DATED: 06.12.12

FEED: MF

Regulation, and particularly the coming of the Financial Conduct Authority (FCA), dominated the ninth annual Finance & Leasing Association (FLA) Motor Finance Convention at the Williams F1 Conference Centre in Oxfordshire last week.

Although Stephen Sklaroff, director general of the FLA, began by congratulating attendees on the remarkable rise in finance penetration in the past year while the wider credit market contracted, migration of regulation to the FCA and the potential imposition of the Financial Services & Markets Act (FSMA) presented the "biggest challenge in decades".

Of particular concern to Sklaroff was the application of rules which governed a deposit-taking market, and he said the FLA would be focusing its lobbying efforts to ensure the government fully understood how this would affect the credit sector. Beyond this, Sklaroff said the March 2014 deadline for the new rules, which still required months of work, and their immediate implementation was "impossible".

Sklaroff assured delegates the FLA was raising these points both with government departments and, the previous week, at the House of Lords, asking for much of the current regulation to be kept in place.

There were two further problems, said Sklaroff: new capital adequacy requirements were yet to be resolved and the Financial Services Authority (FSA) appeared keen, despite misgivings from the industry, to have lenders and intermediaries regulate themselves through a system of appointed representatives.

Countdown to legislation

Responding to those points, Kirstin Green, deputy director, Consumer & Competition Policy, at the Department for Business, Innovation & Skills (BIS), and who works with the Treasury on shaping the FCA, said the government's aim was to encourage responsible lending and borrowing.

This would include increased freedom, empowerment and protection for consumers to choose credit, coupled with the government intention to "drive rogue companies out of the market".

Although Green recognised the "good job" performed by the Office of Fair Trading (OFT), which will handover many credit controls to the FCA, the changing pace of the market, including instant loans, required a "world-class regulatory regime" which could respond to gaps in protection while placing a "proportionate" burden on business.

Changing the CCA as it stood would entail parliamentary delays, said Green, and therefore a new body would have to be created that could respond to a shifting market. Maintaining the FSMA and CCA over companies, said Green, was "unstable" and "inconsistent".

Instead, the FCA rule-based approach would mean stronger control, scrutiny over market entrants, more oversight and a faster response. Consumer products that were unsustainable or contained misleading advertising would be banned, but new participants would not be stifled, and the government was preparing a series of roadshows to clarify industry expectations.

Under current plans, January 2013 will see consultation on secondary legislation, including with the FSA, from which the FCA will draw most responsibility. The FCA will be created in spring 2013, pending approval of the Financial Services Bill, and begin its own consultation in September.

The OFT will cease to be as of April 2014, when the FCA rulebook will be "phased in", potentially with a two-year transition period for licence holders.

DATED: 05.12.12

FEED: MF

General Motors Financial Company (GM Financial) is set to acquire Ally Financial's international automotive financing operations, including GMAC in the UK, at a cost of $4.2bn (£2.6bn).

Created in 2010, GM Financial is the wholly-owned finance subsidiary of manufacturer General Motors (GM) which previously offered finance through GMAC and still holds a fractional stake in the company.

Ally bought the finance operations of GM outside the US in 2006 as the carmaker's business contracted in the mid-2000s. Those acquired operations were renamed Ally, except in the UK where it still operates under the trading style of GMAC.

At the end of 2011, 97% of Ally's wholesale vehicle financing and 82% of its retail financing was for GM dealers and customers.

Now, with Ally three-quarters-owned by the US government; and GM recovered from the bankruptcy of its Chrysler brand, and expiry of the Pontiac and Saturn brands, much of that business is returning to what appears to be its "natural buyer".

Despite this, Ally's operation in Canada was sold to the Royal Bank of Canada, not GM, in October for $4.1bn.

Globally aggressive

Subject to regulatory approval, from mid-2013 GM Financial will be running Ally's motor financing operations in Austria, Belgium, Brazil, Mexico, Colombia, Chile, France, Germany, Italy, the Netherlands, Sweden and Switzerland, as well as Ally's 40% share of a joint venture in China with SAIC.

GM Financial now expects its liabilities, including consolidated debt, to increase from $12bn to $27bn. As expected by GM in August, the assets of GM Financial will double to approximately $33bn.

The acquisition includes an injection of $2bn by GM into GM Financial to boost equity and ensure a pro-forma capital structure.

GM is predicting the transaction will add between $300m and $400m to GM Financial's annual pre-tax earnings.

The deal comes as GM begins its most "aggressive rollout" of new cars and engines following heavy losses in European sales, although an alliance with PSA announced in March was held up this month following the French government bailout of Banque PSA, the captive finance provider to Peugeot and Citroën.

DATED: 05.12.12

FEED: MF

The Bank of England has, Monday Dec 3rd published the initial data on the use of the UK Funding for Lending Scheme (FLS). 

The data reveals information from each group participating in the FLS (see chart below), the amount borrowed from the Bank, and the net quarterly flows of lending to UK households and businesses to the end of September, two months after the Scheme was launched.   In the quarter ending September 30, 2012, net lending by FLS participants was up by £0.5bn and total FLS drawdowns from the Bank were £4.4bn.

There are now 35 groups participating in the Scheme, which cover just over 80% of the stock of lending to the real economy.

Each FLS participant is able to borrow an amount up to 5% of its stock of loans to the UK non-financial sector as at June 30, 2012, plus any expansion of its lending from that date to the end of 2013.

The FLS works by reducing funding costs for banks and building societies, which allows them to reduce the price of new loans and increase their net lending.  Banks and building societies will need to expand their lending to maximize their benefits from the Scheme. 

Funding costs have fallen since the announcement of the FLS, but it will take time for reduced funding costs to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process.  It is therefore too early to use these data as a reliable indication of the impact of the FLS on lending volumes. 

Falls in funding costs

Paul Fisher, executive director for Markets at the Bank of England explained: “I am confident that the FLS will help the supply of credit. The incentives in the scheme are for banks and building societies to cut lending rates and hence lend more to get the cheapest funding.

“Since the scheme was announced we have seen widespread falls in funding costs across different sources and an equally wide variety of lending rate reductions. But it is too early to use these data as a reliable indication of the impact of the FLS on lending volumes.”

Ian Gordon of Investec said: “This morning’s data of FLS lending shows fairly predictable results. Barclays grew lending by an impressive £3.8bn, all of which triggers additional cheap funding at the lowest available rate – 25bps over Treasuries. RBS delivered net shrinkage of £0.6bn while Lloyds achieved negative net lending of £2.8bn.

“Lest we forget, Lloyds has promised to keep shrinking its core lending book until mid-2013. At least Barclays is positioned to grow. George Osborne can be grateful for that.”   Aside from the quoted UK banks, Santander posted a notable £3.5bn net reduction in lending. Positive contributions came from Nationwide (+£1.8bn), Coventry (+£0.6bn) and Virgin Money (+£0.6bn).

HSBC is also a significant net lender in the UK mortgage market, but not a Funding for Lending participant.

Awash with liquidity

Gordon added: “Total drawings of ‘cheap’ scheme funding so far amount to only £4.4bn (including Barclays £1bn, Lloyds £1bn and RBS £750bn.) This simply reflects the fact that UK banks are currently awash with liquidity following a relaxation of liquidity buffer requirements and with ongoing balance shrinkage at Lloyds/RBS. Further (substantial) drawdowns will follow over the next 13 months as banks de facto use the FLS scheme to replace existing (more expensive) retail and/or wholesale funding. As expected, only Barclays is really using the scheme to deliver what it is intended to achieve.

“To be clear, the Bank of England’s objectives are suitably modest and/or realistic. Funding for Lending may well be considered a success if it ensures less shrinkage than would otherwise have occurred.”  

Note that data may not sum to the total due to rounding. Data may be subject to revisions. If an institution has signed up to the FLS after the deadline for providing the previous quarter's net lending data has passed, net lending flows may be shown as n/a. These data should be available in the next quarterly release of data.

* The FLS measure of lending covers drawn sterling loans to households and private non-financial corporations (PNFCs) by the FLS Group, which includes all UK resident monetary financial institutions and related specialist mortgage lenders within a group.

DATED: 05.12.12

FEED: AFL

A complex picture of changing national travel behaviour is revealed in On the Move: making sense of car and train travel trends in Britain – a report co-sponsored by the RAC Foundation, the Office of Rail Regulation (ORR), the Independent Transport Commission and Transport Scotland.

One significant finding is that company car mileage has fallen in the UK by 50% over the last 15 years.

Another is that at least two and a half million more women have driving licences in Great Britain today than 15 years ago.

“The surge,” the report said, “is predominantly due to a large rise in the proportion of women driving rather than mere population growth. The biggest increase came in the North East of England. The average distance women drive has increased too: up over a fifth (22%). Again, the North East led the way.”

Men shed their driving licences

Women have also helped boost National Rail travel with an 86% rise in mileage amongst those in their 30s. This compares with a 54% increase in rail travel across the board. In general terms the growth has been fuelled by more people taking the train rather than existing passengers travelling more frequently.

Over the same 15-year period there has been a collapse in company car mileage. This is a male phenomenon as men have typically been much higher users of company cars than women.

There are also significantly fewer young men with a driving licence today, down 14% compared with mid-1990s.

London is unique as the only British region - prior to the recession - to have seen a decline in traffic.

Cause and effect

The situation in the Capital is probably due not just to the introduction of the Congestion Charge Zone and investment in public transport and cycling, but also a steep drop in company car use, and the large number of international migrants and young adults living in the London, two groups which drive less than average.

“Cause and effect are hard to establish,” the report added, “but changes in travel patterns have occurred alongside big societal shifts:

• the average age women have their first child is 28, up from 25 in 1980;

• women's rate of economic activity has increased from 68% in 1985 to 74% in 2010 while men's has fallen;

• more middle-aged people are living alone; and

• increased life expectancy. For men it has gone from 71 in 1985 to 78 in 2010. For women, from 77 to 82.

The study team was led by Professor Peter Jones of University College London. In much of their work the researchers specifically excluded data from the recent recession so that short-term economic pressures did not mask long-term changes in travel patterns.

The researchers found little evidence of ‘peak car' - the situation in which there is no increase over a sustained period of time (and in some cases a decline) in average car mileage per person, even during periods of economic growth. Once company car mileage was excluded, those aged 30 and over outside London actually increased their car travel right up to the 2007 recession. This group accounts for 70% of the British adult population.

Fundamental changes

While the recession has damped down some of the effects witnessed prior to its onset, it has not reversed fundamental changes, so that between 1995 and 2010:

• rail mileage rose most rapidly - almost tripling - for business purposes (non-commuting);

• driving licence holding amongst women grew by 14%;

• driving licence holding amongst young men (ages 20 - 29) fell by 14%;

• company car mileage fell by 50%; and

• in London, car mileage per person has fallen by about a third overall. But while company car mileage has dropped by 57%, private car use is down less at 24%.  

Professor Stephen Glaister, director of the RAC Foundation, said: "This state of the nation report on how we get about reveals we overwhelmingly remain a country of car drivers.

"Strikingly it is women who have increasingly gone behind the wheel. This is a reflection of their growing social and financial independence over recent decades.

Peak Car talk

"The big question is: what will happen with young men? Will they take up driving as they age and their domestic and financial circumstances change, or will they go their whole lives without feeling the need to get a car?

"There has been much talk of ‘peak car' - the idea that individual car use has reached a plateau - but strip out the one-off impact of a collapse in company car mileage and prior to the recession we were actually driving more.

"Let's not forget about population growth. An extra 10m people are predicted for the UK over couple of decades and whatever we do individually will be dwarfed by the travel needs of these extra people.

"We must recognise that future transport demand will vary by time, place and demography. Every one of us has different transport needs and a simple one-size-fits-all approach will not work."

Solid understanding

ORR's director of markets and economics, Cathryn Ross, said: "As the number of passenger journeys continues to increase - 1.5bn passenger journeys took place last year, growing 8% from the previous year - it is vital that there is a solid understanding of the reason for rail's growth and popularity. It is only through examining and understanding rail use that the industry can ensure it is providing what passengers, taxpayers and funders need and want.

"Huge investment has gone into the rail industry and the benefits can be seen. Hundreds of thousands of people across Britain rely on trains to get them from A to B, for business and for leisure.

"This research shows how more and more people, across ages, parts of the country, income groups and for a wide range of reasons, are opting to travel by rail.  It is hugely beneficial, helping the rail industry establish the factors prompting people to choose trains and helps develop a greater understanding of rail travel and its relationship with other forms of transport."

DATED: 05.12.12

FEED: AFL

ING Lease UK’s decision to cease writing new business and run-off its total portfolio is unlikely to be the last of its kind according to LPM Outsourcing (LPMO).  

LPMO believes that banks are still reviewing the implications of operating within the confines of Basel III and its associated capital adequacy requirements.  As a direct result of these requirements, other leasing portfolios may begin to look unattractive for bank investment if lending margins are insufficient.

Ian Dennis, business development manager at LPMO, explained: “Basel III requires banks to add to their capital base or reduce their lending. More specifically, Basel III may also make it harder for some banks to find sufficient capital for longer term financing such as leases.  

“The first leg of the credit crunch created a withdrawal of some players from the market, however, the number of run-offs never hit anticipated levels as lessors held onto their portfolios.  

“The departure of ING Lease UK is likely to trigger a renewed round of soul searching within banks. Banks are also going through a process of regularly reviewing their capital adequacy requirements and how that affects their overall strategy. Over the next 12-18 months we expect to see further run-offs as the long term fixes to the banking system are put in place.”  

However, Dennis stressed that an increase in run-offs, as banks and finance houses reshape their strategy, does not necessarily mean an overall reduction in funding from leasing.  

Easy access

“Some funders with easy access to competitively-priced funds, such as deposit accounts, will be adding to their asset finance activities just as some will be reducing their exposure to leasing.  

“But with so many banks competing for equity capital and competitively priced funds it is inevitable that some banks will view leasing products as non-core to their business, resulting in the run out of leasing portfolios.”  

Dennis added that the challenge for banks and finance houses is to squeeze the maximum possible value out of any asset finance books that they put into run-off. Whilst they may prefer to sell their book of leases to a competitor it may be hard to realise the embedded value in the portfolio and manage the potential impact upon their own balance sheet if sold at a loss.  

“The problem,” he said, “is that some of these portfolios are literally too big to sell and the number of potential buyers is very few. There still remains a discrepancy between the sale- and purchase-prices available for portfolios. This has persuaded a lot of institutions to run these books off themselves to ensure that they extract all the revenue from the portfolio.  

“That’s gives them the option of reducing the size of the portfolio over time, until it is small enough in size to make it into a more manageable purchase for a wider range of buyers.”  

Balancing the cost of run-off versus the portfolio-embedded income  

A primary concern of funders that decide to put books of business into run-off is how to ensure that costs are paired back so that the entire process is a profitable as possible.  

“When lessors consider how they effectively manage the book,” Dennis said, “they typically retain a skeleton staff to handle the back office administration of the portfolio. Because of the specialist nature of the leasing sector staff costs can be higher than in other areas of finance.”  

“Service standards have to be maintained but running these closed portfolios to maximise the cash collected is a key objective.  Using an outsourcing partner can be a way to reduce the overhead costs involved, especially if the existing software platform can be retained and the migration of data avoided. Outsourcing to a third party can provide a branded solution for the client and enable consistent service levels whilst reducing the need to retain staff.”  

“Basel III creates winners and losers in the asset finance market but for those operators that decide they just want to scale back on the capital they commit to the leasing market, there is an increasing pressure to do so in as cost effective a way as possible.”

“The likelihood is that following the departure of ING, others will review their own portfolios, scale back on their field forces and revise their business models. Such changes could see an expansion of the desire to outsource the management of the “run out” to third party outsourcers like LPMO.”   

DATED: 05.12.12

FEED: AFL