The back-and-forth over the publishing of representative APRs in the small business lending space continues.
We first caught wind of the “APR4SMEs” campaign in December, when Brian Moore – spokesperson for The Campaign for Regulation of Asset Based Finance (RABF) – wrote an open letter to Jeff Longhurst (CEO of the Asset Based Finance Association (ABFA)), calling for members of the organisation to publish APRs alongside financial products. The ABFA’s membership is comprised of a few dozen banks and traditional invoice finance providers.
We published a few excerpts from the letter at the time, leading to a lively discussion between Mr. Moore and Mr. Longhurst in the comments section of the article. Mr. Longhurst alluded to the technical difficulties that arise when attempting to attach an APR to certain forms of asset-based finance. The ABFA CEO pointed out that asset based finance will generally be provided on the basis of debt purchase, meaning that it is distinct from lending and interest is not charged. He argued that it would therefore be misleading and “potentially illegal” to publish interest rates or APRs. Further complications arise given the fact that – for facilities – the option to draw down funds (and how much to draw down) lies with the borrower, making the annualised cost of borrowing difficult to ascertain. However, Mr. Longhurst also stated the following:
“… what we are actually talking about is transparency about the overall costs of finance to businesses and that is something the ABFA fully supports.”
A recent exchange between two of the lead actors – Mr. Longhurst and Growth Street CEO James Sherwin-Smith – in the “APR4SMEs” debate would suggest that the campaign is now beginning to make some headway. Mr. Sherwin-Smith has been a driving force in the APR4SMEs campaign since its inception. He and Mr. Longhurst met recently to discuss the usage of APRs as a standard measurement for calculating the cost of all finance facilities.
The two parties remain at odds with one another over a number of technical issues. Mr. Longhurst and the ABFA continue to harbour concerns over the effectiveness of APRs as a means of comparison between financial products, and over the fair and comparable computation of APRs. However, the ABFA boss has committed to raising the issue of introducing APRs with the association's membership – first through its Executive Committee, and subsequently with its Professional Standards Council. Mr. Longhurst has advised that it is the latter of these two parties that will ultimately hold responsibility for making recommendations on such issues, in consultation with the membership.
We don’t expect changes in the short-term, but this is certainly an interesting development for a campaign that has been applying a lot of pressure and until now made little headway. Mr. Sherwin-Smith was enthused by the news, but is anxious to the see the dialogue continue. He wrote:
“I remain concerned that there are a number of bad actors that are not sufficiently focused on customer outcomes, and in some cases mis-sell SMEs when it comes to the cost of the finance they provide.”
These developments came to light on the same day that banker-turned-author Philip Augar appeared on BBC Radio 4’s Today Programme to discuss mis-selling by the banks. Mr. Augar told presenter Tanya Beckett:
“It's because of [the] free banking model that the temptation exists to think of new ways to get round the rules and effectively fleece their customers.”
Yesterday also saw Tracey McDermott, interim FCA boss, appear before the Public Accounts Select Committee in order to defend her decision to put a stop to the FCA’s planned review of banking culture. She argued that the inquiry would not have added "sufficient value" to the regulator's ability to police the banks. Mr. Sherwin-Smith again weighed in:
“Tracey McDermott, interim Chief Executive of the FCA, used today’s session to reaffirm that the regulator has a duty of care to promote competition in the interests of consumers, yet commercial finance remains an unregulated area, which can sometimes lead to serious consumer detriment for the purchasers of commercial financial products."
“Growth Street is calling for more regulation of the commercial finance market and has launched a campaign calling for APR information to be clearly displayed on financial solutions targeted at SME customers. If McDermott’s commitment shared in today’s session is to hold true, we must create a market that is transparent and cost effective for small businesses, which only more regulation will provide.”
Commenting on the debate, Jeff Longhurst said:
"The ABFA supports transparency about the costs of finance, and the independent Standards Framework which covers the ABFA’s Members both requires and enforces it."
"By their very nature, invoice finance and asset based lending are dynamic facilities which necessarily incorporate a significant service element. The funding they provide is flexible, enabling them to meet the client business’s requirements in a range of different circumstances. In a very real sense, they provide more than finance. We do not believe that they are interchangeable with loans, overdraft, mortgage, peer-to-peer lending or credit cards."
"So it is fair to say that the ABFA has concerns whether a single metric transposed from the consumer space could provide a valid and useful comparison between dynamic and service-orientated facilities for businesses, and particularly between different types of financial service. We are concerned too that such an approach should not be seen as a substitute for providing accessible information about how different products work and particularly when and for whom they might be appropriate."
"That said, the ABFA and also the independent Professional Standards Council which oversees the Framework will consider any initiatives that support transparency, enable the provision of helpful information and will help the ABF industry support more businesses. So we are pleased to continue to engage on this issue and will continue to do so."