The FCA has fined Vanquis Bank ("Vanquis"), £1.97m (including a stage 1 settlement discount of 30%) and required it to pay restitution to clients estimated at around £11.87m. Vanquis has voluntarily agreed to make additional restitution in the sum of £156m. Vanquis is a non-standard credit card lender. It services around 1.7m customers, a large proportion of whom have had issues obtaining credit cards and mainstream banking services because of their financial position and credit history.
In around June 2003, Vanquis started to offer the so-called Repayment Option Plan ("ROP") to its new and existing customers. The ROP was designed to allow customers to better re-build their credit rating and to manage their credit. The relevant features of the ROP included: (i) an account freeze for up to two years in case of significant change in customer circumstances, during which time the account could not be used but interest would not accrue; (ii) a payment holiday of one month, during which time interest would accrue; (iii) a so-called "life-line" available once annually in certain circumstances to avoid a late payment fee, although interest would accrue; and (iv) SMS messages sent to customers 5 days before they were due to make a payment or if they were nearing or over their account limit. The charge for the ROP was based on a percentage of the outstanding balance, with the percentage depending on whether the customer was "full plan" (employed or self-employed) or "standard plan" (those not eligible for "full plan").
Vanquis generally sold ROP during telephone calls with customers, including during the "on-boarding" process, when customers had to call Vanquis to activate the account. However, existing customers were also contacted in relation to ROP. In each case, customers were asked if they wanted to "opt in" to the ROP. The sales calls that took place in relation to ROP were scripted. They included emphasis on the fact that ROP was optional and its benefits. The script said that the cost of the ROP was £1.29 per £100 outstanding (1.29%) for "full plan" customers and £1.19 per £100 outstanding (1.19%) for "standard plan" customers. However, the FCA determined that in 100% of the sales calls samples, inadequate information was provided to customers about interest and ROP. The script did not make clear that the ROP cost was a purchase transaction that would itself attract compounding interest at the normal card rate. The interest rate payable on the account ranged from 19.9% APR to 79.9% APR.
Once a customer "opted in" during a sales call they would receive the ROP terms and conditions. Both these terms and conditions and an associated welcome pack explained that the ROP was a purchase transaction that would itself attract interest at the card rate. Nonetheless, the FCA determined that the provision of terms and conditions after the sales call and the opt-in would never be sufficient to discharge Vanquis' obligations to provide adequate and accurate information.
Vanquis made a considerable amount from the ROP, as at March 2016 around 40% of Vanquis' total outstanding balances were covered by the ROP (around £595m).
The FCA became aware of the issues with the ROP sales call when Vanquis applied for consumer credit permissions after the transfer of responsibility for consumer credit from the OFT to the FCA on 1 April 2014. On 19 April 2016, Vanquis agreed the terms of a voluntary requirement. This included the requirement that it immediately cease sales of the ROP and provide already opted-in customers with further and better details of the ROP's costs and features, including worked examples (information re-sent annually). Those opted in customers were also to be asked whether they wanted to continue with the ROP and reminded how to opt-out. Finally, Vanquis was required to put forward proposals to the FCA as to how the ROP was to be sold in the future.
The FCA determined that Vanquis had breached Principles 6 and 7 of the FCA Principles for Businesses (paying due regard to the interests of customers and providing adequate information that is clear, fair and not misleading). In terms of sanction, the FCA awarded both restitution and a penalty.
The FCA required restitution related to the period 1 April 2014 (when the FCA took responsibility for consumer credit) to 30 days after 19 April 2016 (the date of the Vanquis communication with opted-in customers). The methodology was (in summary) to return opted-in customers interest payments on the cost of the ROP. In addition to the FCA required restitution, Vanquis agreed to voluntarily apply the same restitution methodology to the period from June 2003 (when the ROP was introduced) to 31 March 2014.
The penalty imposed on Vanquis was £1.97m, reduced from £2.8m because of early settlement. The penalty was calculated on the basis of 10% of the revenue attributable to the ROP between 1 April 2014 and 19 April 2016. This reflected the view of the FCA that the breach was at level 3 (out of 5 on the scale of seriousness).
The FCA's view that no explanation in the written terms and conditions sent after the sales call could adequately redress the failures on the scripted calls is an important but familiar message. In this case, no doubt influenced in part by the customer demographic, the FCA emphasised the importance of the sales call as the primary means of information communication.
Vanquis' decision to offer significant voluntary restitution is unusual and noteworthy. Whether it is the product of customer, regulatory or public relations pressure (or a combination) is unclear. However, the FCA can rightly view the overall outcome with some satisfaction and the voluntary aspect will no doubt serve to reduce the reputational damage for Vanquis.