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 Street http://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