James Hurley Published at 12:01AM, June 23 2014 Lenders that provide £18 billion to small businesses have been told to “clean up their act” or face tighter controls amid claims about controversial fees and abuses of insolvency. The unregulated asset-based finance industry, which lends to more than 40,000 businesses in Britain and Ireland, is facing increased scrutiny. Insolvency experts and a campaign group allege that some independent lenders secretly try to sign up businesses likely to go bust, or even that they engineer the insolvency of their clients, in order to profit from their collapse at the expense of the taxpayer and other creditors The sector’s trade body, the Asset Based Finance Association (ABFA), launched a new approach to self-regulation last year to tackle perceived problems. However, MPs have told the group that further “fundamental” reform is required if formal regulation is to be avoided. ABFA’s members lend to small businesses against their assets, typically advancing money against invoices by taking security over companies’ debtor books. The sector is being looked at as part of a Treasury Select Committee inquiry into lending after complaints from small companies that they have nowhere to turn if something goes wrong with their loan. There is also concern that so-called “termination fees” for clients that enter administration are being abused. These fees are ostensibly to cover the risk of a client leaving before the end of their contract but are charged when a client goes bust, often when the lender appoints an administrator. The fees can dwarf the total amount lent. Geoff Swire, an insolvency expert, has compiled data for The Times which indicates that in the first five months of 2014, more than 10 per cent of administrations involving asset-based financiers saw businesses going into administration less than 60 days after they first agreed to work with a lender. Contracts tend to last at least a year. ABFA produced a new code of conduct and dispute resolution service last year, but MPs are worried that the industry is not doing enough to tackle the abuse of termination fees, and that since ABFA is a voluntary membership organisation, not all of the industry is covered by the code. ABFA says it is limited in how proscriptive it can be over the use of termination fees by competition law. Andrew Tyrie, the Treasury Select Committee chairman, said: “Quite a lot of movement is needed or [this is] going to be one of those cases where self- regulation hasn’t worked”. ABFA said: “We will consider any recommendations made by the committee very carefully.” Brooks Newmark, Conservative MP for Braintree, said that while he accepted that most of the industry was reputable, a small group of rogue lenders was “poisoning the well”. “If ABFA and its members do not clean up their act . . . I will be calling for much tougher regulation from the outside. [The industry] has got to deal with the incredibly bad practices destroying some perfectly healthy businesses.” The ABFA spokesman added: “We are pleased that the Committee recognises the important contribution the industry makes to the UK economy and the excellent practice that is the norm. It is in the interests of the industry to address instances where standards have not been met.” Brian Moore, the chairman of the Campaign for Regulation of Asset Based Lending, said: “We want small businesses to be able to use asset-based lending with confidence. That won’t happen while the industry remains unregulated and while small companies have nowhere to turn when powerful lenders take advantage of them and their creditors.” http://www.thetimes.co.uk/tto/business/industries/banking/article4126960.ece
02/23/2017 08:49 AM
Asset Based Lending Fraud Asset Based Lending fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many instances, bank fraud is a criminal offence. While the specific elements of particular banking fraud laws vary depending on jurisdictions, the term bank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or theft. For this reason, bank fraud is sometimes considered a white-collar crime.
02/21/2017 08:51 AM
Financial regulation: City police - Multi £bn Asset Based Finance has no police - but many fraudsters!
April marks the fourth anniversary of a new financial regulation landscape in the UK. The Financial Conduct Authority blazed on to the scene in 2013 with a promise that there would be ‘nowhere to hide’ for financial services firms and individuals who misbehaved. Four years on, however, some solicitors representing small business owners and punch-drunk shareholders are questioning whether anything really changed with the arrival of the new City watchdog.
ABFA a gumless Jelly fish
As head of commercial litigation at complex disputes specialists Stewarts Law, Clive Zietman acted for RBS shareholders in relation to losses sustained in its April 2008 rights issue. He told the Gazette: ‘If there was another financial crisis you would find a lot of the banks had [again] invested in products where they didn’t understand the underlying risk. You would be naive to think that it has all been cleaned up. I just don’t buy that.’ The leaden pace of redress for consumers ill-served by the sector has continued to grate. Predecessor watchdog the Financial Services Authority was criticised for its tardy handling of the payment protection insurance scandal, for example, not least because it gave birth to a vast claims management industry. It was also lambasted for repeated delays in the publication of its report into the collapse of banking group HBOS, as well as its handling of interest rate swaps mis-selling. Alison Loveday, chief executive of Manchester-based Berg Solicitors, is acting for a number of small business clients who allegedly suffered at the hands of RBS’s controversial (and now defunct) restructuring unit. A 2013 report by Lawrence Tomlinson, former adviser to the then business secretary Vince Cable, alleged that the bank wrecked small businesses in pursuit of profit. The state-controlled bank has admitted it ‘could have done better’, but has rejected allegations it tried to profit from distress situations. She says: ‘We were hoping that the FCA would really take hold of the [Global Restructuring Group (GRG)] dispute. Tomlinson clearly showed that something had been going on for years, but we still haven’t seen the regulator’s own report and I don’t think that puts the regulator in a good place.’ Loveday is not the only one frustrated by how long it takes the FCA to produce reviews into wrongdoing. Andrew Tyrie, chair of the Commons Treasury Select Committee, has written more than once to FCA chief executive Andrew Bailey asking for the GRG report to be published. Meanwhile, the Treasury committee published its own report last month into what it sees as a major cause for the frequent delays – the so-called ‘Maxwellisation’ process, by which anyone criticised in a report is allowed time to challenge it before publication. The review, carried out by Andrew Green QC and barristers from Blackstone Chambers, called for a fundamental overhaul of the practice. Tyrie said: ‘The principle that those criticised in public reports should have an opportunity to respond is sound. Nonetheless, there is a balance to be struck to ensure fairness, both to those who may have been subject to potential wrongdoing or malpractice, and to those subject to criticism in reports.’ The review concluded that the representation process has not only been overused, but also used for inquiries other than those conducted under the Inquiries Act 2005 (rules 13 to 15). It proposes a list of guidelines for chairs of inquiries not covered by this act, with the aim of reducing the length of time it takes for reports to be published. The report also calls on the government to revoke rules 13 to 15 as soon as possible; David Cameron’s administration agreed to look at this in July 2015, but nothing has happened since. Publication delays can indeed be lengthy. The FSA’s report into the failure of HBOS took seven years from inception to publication, while the FCA’s report into RBS’s restructuring group began three years ago. Loveday cannot be sure the GRG report does not contain material relevant to her own clients’ cases. She explains: ‘We don’t know what the report says and we are being told by the bank’s solicitors that it is not relevant. But how do we know until we see it?’
Former business clients of the Royal Bank of Scotland are accusing the bank of systematically manipulating documents to cover up wrong doing.
In an exclusive interview with the BBC, a former RBS employee has come forward to support allegations of document manipulation within the bank.
RBS says it categorically denies document manipulation and forgery.
Mark Wright started working for NatWest Bank in 1988 and was still there in 2000 when it was taken over by RBS.
In 2005, Mr Wright accused two former RBS colleagues of concocting bogus complaints purportedly from five of his customers.
He says the employees were from the bank's Group Compliance Unit established to deter misconduct and malpractice in RBS. He referred to the unit as the bank's "police".
Mr Wright's five customers later submitted statements contradicting the bogus complaints. The two accused compliance staff subsequently left the bank.
RBS customers who allege wrongdoing
The BBC has spoken to a number of businessmen and financial advisers who allege document manipulation and forgery by RBS all of which allegations the bank denies.
Mr Wright told the BBC that the bank failed to properly investigate the complaints or accord him the status of whistle-blower. "I had five individual customers who all came forward to me stating that the wording and conversations with this member of staff from group compliance were not their words, so effectively the telephone transcripts didn't reflect what the customer was saying." Mr Wright said as a senior manager he had a duty to report the falsifications. "I told my line manager this because he had been affected by the negative rating that Group Compliance had given me over these fictitious five customer complaints and falsifying the customer care calls so I decided to contact them all and the behaviour was the same with all five."
'I was suspicious'
Mr Wright said he learned later from colleagues that such misconduct was not uncommon in the bank's Compliance Unit. "I discovered through a member of staff from Group Compliance that it would be common practice that they would falsify files if they needed to create a certain picture." Mr Wright said he became increasingly concerned about the way the bank handled allegations of wrongdoing and had wanted a full external investigation because of the serious nature of his allegations. "I was suspicious of wrong doing from 2005 to 2012," he said. Mr Wright claims his standing within the bank suffered enormously as a result of his action. His employment status within RBS was changed to "undesirable" when previously he had been classed as "excellent". Bonuses were also stopped. In 2013 Mr Wright finally took redundancy after his GP diagnosed him with long term mental health issues. The bank upheld one of his grievances. A RBS spokeswoman said the bank was aware of these concerns being raised previously and that they had been thoroughly investigated and responded to. She denied there had been systematic document tampering at the bank. Mark Wright lives in the constituency of North Norfolk represented by former government minister, Liberal Democrat Norman Lamb. Mr Lamb said he has written to RBS five times to demand a meeting about Mr Wright's allegations.
How high did this go?
He said: "My fear is that it appears to be more than a few rotten apples behaving badly. There appears to be an institutional culture here that facilitated this corrupt practice. That's the allegation. "And the way in which they dealt with a whistle-blower, who ought to actually be respected and treated with the utmost seriousness, instead they pushed him through a very long process, the wrong process." Mr Lamb said: "Treating it as a grievance not going through the proper whistle-blowing process and allowing that individual to be destroyed rather that treating seriously the allegations that he raised and that for me begs the question. How high did this go? Did it go to the very top of the bank? And why are the current leadership not prepared to examine these really serious allegations thoroughly?"
London court hears of ex-HBOS banker’s ‘corrupt relationship’ with business consultant
Alison Mills, who once worked for Close Brothers, knew all about her husband’s business activities, the trial was told. Her 40th birthday trip to Barbados was attended by Mr Scourfield and Michael Bancroft, another QCS consultant, the jury heard.
The consumer watchdog Which? which carried out the study says the regulator, the Financial Conduct Authority should act to to cap the high unarranged overdraft fees on current bank accounts. Exorbitant overdraft fees are forming part of an FCA review into high interest loans which was in response to the Competition and Markets Authority’s two-year investigation into high-street banks, which was completed in August.
02/07/2017 10:44 AM
Thames Valley Police, together with the Crown Prosecution Service, has just completed the investigation and prosecution of one of the largest fraud cases it has ever undertaken. - Clearly they have not investigated the factoring industry
The sum of money lost by HBoS as a result of the actions of a corrupt senior employee and others was at the very least £250M. He and his fellow conspirators embarked on a spending spree involving yachts in the Mediterranean, villas in Barbados and Majorca, prostitutes, overseas bank accounts, and a general high life. This has been at the expense of the shareholders of the bank, and many medium and small companies which have been bankrupted and ruined. Little will be recovered. There are three aspects that I find particularly shocking about this case: firstly the length and cost of the investigation, has resulted in the case taking over 6 years to bring to court, 151 police officers and staff tied up in the investigation, and at a cost of more than £7M which has been borne by the householders of Thames Valley. However it is important to remember that this was not a victimless crime, the shareholders are largely pension funds, which most of us have a stake in, and companies which have been bankrupted, along with the livelihoods of their owners and employees. Secondly that a fraud of this size could have taken place either displays complicity or incompetence, a lack of corporate governance, complacency, and an absence of proper safeguards. An honest and efficient banking system is essential to the well-being of the country. It does not require more legislation and red tape, but it does require people do their jobs properly and honestly. Banking is damaged when corruption occurs within it. Lastly, and almost the most disturbing, if Thames Valley Police had not taken on this case no one else would have, and the crime would not have been investigated. The principal perpetrators would have escaped with their reputations intact and with enormous wealth. The cost in time and money for a police force to take on a major fraud investigation is considerable and a judgement has to be made whether the £7m spent on this case, and police officer time, could have been better spent in pursuing other crimes, such as child sexual abuse, and the multitude of lower scale frauds perpetrated against smaller companies and the elderly. If Thames Valley Police take on further cases of a similar nature it will again tie up a large number of police officers and staff. Yet if it is not prosecuted no one will be brought to justice. I have an uncomfortable feeling that other police forces are in similar positions. If a bank is physically raided then a huge police effort will go into bringing the bank robbers to justice. If it is raided by its own staff it may well be ignored. There needs to be an agreed policy that if a major fraud is committed, and the Serious Fraud Office does not have the capacity to take it on, then the police force that investigates it is reimbursed by central government, or through a fine or costs imposed on the auditors, the bank and the offenders involved. In this case there does not appear to be a way to recompense Thames Valley Police and the Council Tax payers who part pay for their police force. The government should ensure that full restitution for the cost of prosecuting this case is made, and that every major fraud should be investigated. The entire budget of the Serious Fraud Office is only £44M a year, whilst for the City of London Police, who also investigate fraud, it is considerably less. When compared to a fraud of this size, then it is clear that far greater resources need to be made available to tackle the scale of the problem. The overall annual fraud and cyber-crime loss is put at nearly £200BN. It affects everyone, from the elderly and the vulnerable, to small businesses and to the largest. Combatting fraud should be financed properly, and it should not be necessary for local police forces to take on cases of this size and complexity. Until this is done properly at a national level fraud will continue to be the largest financial crime in the UK, and the crime of choice for intelligent criminals. If ever there was a possible spend to save measure, financing the fight against fraud would be the most productive. I wish to congratulate the Thames Valley Police officers and staff who have pursued this case to a successful conclusion over the last 6 years. It has been an uphill struggle at times, and their persistence has been rewarded. Anthony Stansfeld Police and Crime Commissioner for Thames Valley
David Mills and Lynden Scourfield, right, were jailed for stealing millionsTHAMES VALLEY POLICE
There were cheers and applause at Southwark crown court as Lynden Scourfield, 54, a former senior manager at HBOS, was sentenced to 11 years in prison, with Judge Martin Beddoe describing the disgraced banker as “utterly corrupt”.
Judge Beddoe handed a 15-year sentence to David Mills, 60, and said that the banker-turned-business consultant was a “thoroughly corrupt and devious man, adept at exploiting the weaknesses of others”. He told Scourfield: “You have shown not one shred of remorse. I don’t know how Mr Mills got hold of you. He is the devil to who you sold your soul in exchange for sex, for luxury trips with or without your wife, for bling, for swag,” said the judge.
“People haven’t just lost money but in some instances their homes, family and friends. People who could have expected to be comfortable in retirement were left cheated, defeated and penniless,” he added.
Mills’s wife, Alison, 51, was given a three-and-a-half-year jail term after being found guilty on one charge of conspiracy to conceal criminal property.
People haven’t just lost money but in some instances their homes, family and friends
Michael Bancroft, 73, an associate of the couple, was jailed for ten years, and John Cartwright, 72, another business colleague of the rogue consultants, was handed a three-and-a-half-year sentence. Mark Dobson, 56, a former colleague of Scourfield’s at HBOS, was jailed for four-and-a-half years. The sentences were the culmination of a five-month trial that exposed how the crooked bankers conspired with the consultants to asset-strip HBOS business customers who had been put into the lender’s Reading-based specialist unit for firms in financial difficulty . However, instead of helping turn around the customers’ fortunes, Scourfield authorised tens of millions in illegal loans that were then used to pay the exorbitant fees of the Mills family’s business, Quayside Corporate Services, in return for exotic holidays and envelopes stuffed full of “funny money” to pay for his hire of prostitutes. At one point, Scourfield was even given an American Express card by Mills to pay for his personal expenditure.
Estimates of the total losses incurred by HBOS vary, but some experts have put the cost of the scandal to the bank, now part of Lloyds Banking Group, at more than £1 billion.
The Millses made so much money from the scheme they were able to afford a lifestyle that included high-end cars, an estate in Gloucestershire, and a 100ft yacht named Powdermonkey. Bancroft owned a villa in Portugal, as well as a large property outside the Warwickshire town of Shipston-on-Stour.
Nikki and Paul Turner, whose business was one of those targeted by the fraudsters and who played an instrumental role in uncovering the scandal, said that they took “only partial satisfaction” in the lengthy sentences handed down by the court.
“People have lost their businesses, people have had their lives ruined, and have been met by at best callous indifference, and at worse little less than persecution, by one of the UK’s leading high-street banks,” said Mrs Turner.
Lloyds is under pressure to compensate the victims of the scam and the Turners have written to Lord Blackwell, the bank’s chairman, demanding redress from the lender.
Lavish cruises on superyachts, sex parties with porn stars, holidays to Barbados… the exploits of the crooked bankers found guilty this week of plundering £1billion from small firms defy belief.
Their extravagance and greed has seen them compared to the characters in The Wolf Of Wall Street, starring Leonardo DiCaprio.
But for Nikki Turner this was no Hollywood film script. These were real wolves, baying at her door.
And when the mother of two finally tracked down Lynden Scourfield – one of the fraudsters who had ruined her life – she was given a shocking insight into their shamelessness.
‘We’d been trying to get through to him for days and I finally got him one evening at 6.30pm,’ she recalls.
‘He picked up the phone and told me he was in a hotel in Birmingham and he’d just got out of the shower. “I’m naked,” he said. “I’ve just got a towel on.” It was so inappropriate; I didn’t know what to say.’
12/24/2015 09:10 AM
Measured response to ABFA claims!
Jeff makes some interesting points in his reply; I would say that we should never challenge the right of free independent journalism that is ‘regulated’ unlike the factoring industry. He is right that asset based lending is worryingly not covered by any financial regulation or the PRA and is instead covered by the Sale of Goods Act 1979 which also covers pawn shops. I do not believe when the Act was written that was designed to cover sophisticated financial products which even ABFA seem to be unable to work out the cost of borrowing from their members.
He has failed to mention that appalling abuses of his members clients on an industrial scale that has been exposed in the Telegraph, Times, FT and the Treasury Select committee to name a few. The Telegraph led with an example of broker(s) been given substantial incentives to find struggling SMEs to put into insolvency to profiteer on their assets at the expense of HMRC and other unsecured creditors.
He challenges RABF to give him example(s) of 90+% APR from his members – that can be easily be done. To work out how much factoring will cost is simple; There is a monthly admin fee based upon the maximum facility a company will require, an interest charge of x% above base rate and where necessary a mandatory invoice insurance. You put those into the Growth Street APR calculator and job done. Cleary the asset based finance industry like to keep this as a black art to hide the obscene profits. Brian Moore Campaign for Regulation of the Asset Based Finance Industry www.rabf.org.uk
There would be a technical difficulty with your proposal inasmuch as asset based finance will generally be provided on the basis of debt purchase. In that sense, it is not lending and interest is not charged. So strictly speaking it would be misleading and potentially illegal to use interest rates or APRs.
However I appreciate the underlying point that you are making which is transparency about the overall costs of finance to businesses and that is something the ABFA fully supports.
An asset based finance facility will often be a bespoke service tailored to the specific requirements and circumstances of the client. The two primary costs to a client of an ABF facility will be a service charge and a discount charge; with the latter being payable only on the funding drawn down. These charges will be easily comparable between providers.
There are likely to be other contractual charges that will be specified in the contract to reflect any additional services that a client requests or to cover other events outside the normal running of the facility. Again, these will be easily comparable between providers. The market is extremely competitive and I would always recommend that potential clients shop around to ensure they get the most appropriate facility for them, although the most appropriate facility might not always be the cheapest.
Comparison between a single rate or metric like an APR can work for a standard off the shelf product like a credit card or a personal loan. But for a service-oriented facility intended for businesses rather than consumers, there is a risk that one ends up comparing apples with pears.
A prospective facility needs to be considered qualitatively, not just quantitatively. For instance, there are some client businesses that use factoring for the service element (ledger management and collections) and don’t even draw down funding. What is key is that SMEs understand the options available to them, what the benefits and costs are and are able to make an informed choice. Transparency about the overall costs of finance is key to that and is something that the ABFA fully supports and encourages amongst its Members.
I note that you have copied in Lucy Armstrong, the chair of the Professional Standards Council, which, as you know, is independently responsible for maintaining and enforcing the Standards Framework which all our Members work under. How to ensure transparency in fees and charges is something that the PSC considers on an ongoing basis - if you do have any specific examples or evidence of what you believe is poor practice I would encourage you to bring them to Lucy’s attention.
In the meantime, best wishes for a Merry Christmas and a Happy New year.
Chief Executive Officer
Asset Based Finance Association
12/21/2015 08:21 AM
Borrowers open to exploitation over fees Providers of asset-based finance to small and medium-sized enterprises should declare an APR showing the true annual cost of the debt, just as lenders to consumers must do, campaigners say. The Campaign for Regulation of Asset Based Finance describes SME finance as “the next financial scandal in the making,” pointing out that large chunks of the sector are exempt from the sort of protections normally offered to consumer borrowers.
Asset-based finance, in which SMEs take on debt against assets ranging from plant and machinery to unpaid invoices, is at an all-time high, says the Asset Based Finance Association. But while new sources of SME funding have been welcomed, some fear businesses are vulnerable to exploitation. “Some lenders hide the true cost of this credit by advertising products using prices that either fail to include fees, or use rates for periods shorter than one year,” warned James Sherwin-Smith, chief executive of Growth Street, who is backing the campaign. “The lack of price clarity means firms are paying more than they should.”
Published: 21:57, 19 December 2015 | Updated: 21:56, 19 December 2015
Small companies taking out loans are being charged interest rates as high as 90 per cent, say campaigners who are demanding a change in legislation to force lenders to come clean over costs.
Pressure groups hope their calls will be considered as part of a review of lending to small companies launched this weekend by Parliament’s Select Committee on Business, Innovation and Skills.
Banks and other lenders are already required by law to publish the annual percentage rate they charge for loans, credit cards and mortgages, but they are not bound by the same rules when making loans to businesses.
Crucially such APRs take into account the cost of extra charges, which add significantly to costs.
The Campaign for Regulation of Asset Based Finance has written to representatives of the leading banks to call for a published interest rate to be mandatory.
Brian Moore, a spokesman for the campaign, said: ‘This single move would bring much needed clarity to the true price of asset-based finance and help clients compare the costs.’
He added: ‘Support is building and it has been breathtaking the number of businesses who have seen our blog and then rung us up saying they went for what looked like 2.5 per cent plus an admin fee that turned out to be an APR of more than 90 per cent.’
Moore said the lack of an official APR calculation meant examples of loan rates given by lenders could be misleading because various fees, compulsory insurance and other charges could boost the total cost to something far higher than expected.
Campaigners have lobbied the Asset Based Finance Association – which counts all of the leading banks among its members – as it claims such lenders are the worst offenders.
James Sherwin-Smith of business lending comparison website Growthstreet is wholeheartedly supporting the demands for the clear pricing of the cost of loans to small businesses.
He said: ‘I hope the Select Committee on Business, Innovation and Skills will back our campaign for an APR for all SME finance products.’
Bank lending to smaller firms has been the subject of controversy since the credit crunch.
Select Committee chairman Iain Wright MP said: ‘After real difficulties during the credit crunch, business access to finance appears – superficially at least – to be back to normal.
'But small businesses in particular still say that access to finance is one of their biggest obstacles to future growth.
‘As a committee we want to look at how access to finance has changed since the end of the financial crisis.’
The Business, Innovation and Skills Committee has launched an inquiry on access to finance, looking at how the landscape for access to finance has developed since the end of the financial crisis and the improvements on finance which Government could make to boost the number of successful and high-growth businesses.
Iain Wright MP, Chair of the Business, Innovation and Skills (BIS) Committee said:
"After real difficulties during the credit crunch, business access to finance appears, superficially at least, to be back to normal. But small businesses, in particular, still say that access to finance is one of their biggest obstacles to future growth. As a Committee, we want to look at how access to finance has changed since the end of the financial crisis. Among other issues, we will want to examine some of the alternative ways of raising finance, such as crowd-funding and peer-to-peer, and whether they are sufficiently well-regulated and monitored for companies to be confident in utilising them."
Scope of the inquiry
The Committee is seeking evidence on the following points:
How has the landscape for access to finance evolved since the end of the financial crisis?
What have been the most successful Government policies to assist growing companies access private finance and where is there room for improvement?
Does the UK have globally competitive markets / suppliers for financing (and debt financing) at 1) seed 2) venture and 3) growth stages? What steps could Government take to strengthen these systems?
Are alternative methods of raising finance (such as crowd-funding and peer-to-peer) sufficiently well-regulated and monitored for companies to be confident in utilising them?
What are the main improvements or interventions, in terms of finance, that the Government should make to achieve the objective of increasing the number of successful and high-growth businesses in the private sector?
Mr. Moore’s letter reminds Mr. Longhurst that commitments number 2 and 3 in the ABFA code of conduct stipulate that member companies must act with integrity – dealing fairly and responsibly with clients and guarantors – and that members must provide clients and guarantors with “all the appropriate information” in a timely and transparent manner. But when it comes to publishing a representative APR, Moore asserts that the ABFA’s operating principles fall short of the mark:
“Clauses 3.1.1 through 3.1.8 within the Guidance then go on to state ways in which ABFA members should provide clients with information on fees and charges, however the Guidance falls short of being prescriptive in this area.”
Moore goes on to describe the asset based finance industry as suffering from a crippling lack of transparency – one in which the true cost of funds is obfuscated by complex tariff structures and hidden fees. Such comments are supported by the findings of a MarketInvoice study, published in May of this year, which revealed that the UK’s banking sector has been fleecing businesses for £758m each year on invoice financing – an overcharge of £425m.
How will Mr. Longhurst and the ABFA react to the call for greater transparency? To clarify, the RABF is lobbying the ABFA to require that all financial promotions and product documentation carry a representative APR. This feels like a somewhat difficult principle to oppose, as any counter-argument would by necessity hinge on defending the notion that business owners are better left in the dark when it comes to cost of capital.
Growth Street provides flexible overdrafts of up to £150k for small businesses, and is highly transparent around costs. Borrower rates vary case-to-case, but are typically 8-15% per annum. Growth Street recently launched an APR calculation tool, in order to assist SMEs in comparing the price of various forms conventional and alternative finance. CEO James Sherwin-Smith offered his take on the state of transparency within the small business lending space:
“SME finance is the next UK financial scandal in the making. Business lending is currently exempt from APR regulation, which enables some lenders to hide the true cost of this credit by advertising products using prices that either fail to include fees, or use rates for periods shorter than one year. Factoring providers typically quote charges as a low percentage over base rate; however, the fees found in the small print usually constitute the majority of the cost. The lack of price clarity available to SMEs means small firms are paying more than they should for commercial finance. Something needs to be done, and we will be campaigning for APR for SMEs, to form part of the wider government agenda to improve price transparency.”
TO: Jeff Longhurst, Asset Based Finance Association (ABFA), 15 December 2015
Subject: Making APR mandatory within the ABFA Code of Conduct
As CEO of ABFA, you will know that the ABFA Code for Members clearly states that:
·ABFA members shall act integrity and deal fairly and responsibly with clients and guarantors (Commitment 2)
·ABFA members shall provide clients and guarantors with all the appropriate information in a timely and transparent manner (Commitment 3)
Further, the ABFA Guidance that accompanies the Code states that “ABFA members shall ensure their marketing activities, whether through advertising, sales literature of verbal assertions shall be honest, fair and clearly understandable.” (1.2.3).
Clauses 3.1.1 through 3.1.8 within the Guidance then go on to state ways in which ABFA members should provide clients with information on fees and charges, however the Guidance falls short of being prescriptive in this area.
The level of detail the Guidance goes into to try and hold members to Commitment 2 & 3, while not mandating adherence by being prescriptive, should perhaps come as no surprise. The asset based finance industry is rife with a lack of transparency when it comes to the true cost of finance, obfuscating the real price through complex tariff structures and significant fees that are buried deep in the terms and conditions of often lengthy contract documentation. This is also consistent with recent findings of the FCA review of, and the CMA investigation into, the supply of SME banking services, which found that “prices are opaque and lending products are complex”.
One route that could help clean up the industry, and potentially avoid further regulatory scrutiny, would be for ABFA to hold true to their Commitments and the ethos of the Guidance by mandating that any financial promotion or product documentation carries a representative Annual Percentage Rate (APR).
This single move would help bring much needed clarity to the true price of asset based finance, and help clients compare the cost of finance between propositions and providers.
Some alternative finance providers (such as business overdraft platform Growth Streethttp://www.growthstreet.co.uk) offer transparent and fairly priced working capital solutions, including tools to estimate both the APR and the total cost of credit (TCC) that businesses pay. If alternative providers can do this, why can’t ABFA?
Jeff, if ABFA and its Members want to honour their commitment to being fair, responsible and transparent, and truly have nothing to hide, it would be a huge step forward for the industry to make the disclosure of APR a mandatory requirement. I welcome your response.
Spokesman Campaign for Regulation of Asset Based Finance