From this week, UK firms using this form of finance can complain to an independent ombudsman if they feel they have been poorly treated. Customers of the unregulated industry, which is made up of banks and independent finance houses, had often felt they had nowhere to turn if something went wrong with their facility.
The Asset Based Finance Association, the trade body behind the initiative, also launched a Professional Standards Council to help monitor lenders’ behaviour and oversee the new complaints process. It has the power to recommend sanctions against ABFA members as well as advise on compensation for complainants.
A “code of conduct” for lenders will accompany the new processes, with ABFA warning that its members could face expulsion for breaches of the rules, reports The Telegraph.
John Onslow, chairman of ABFA, said that the trade body wasn’t concerned about losing membership fees as a result of the new policies.
“The reputation of the industry is much more important than any one, two or even three members. My business [Centric Commercial Finance] would be happy to pay a higher fee if it protected the reputation of the industry. Make no mistake, if we find things being done that we don’t think are appropriate we will take action.”
Lucy Armstrong, chair of the PSC, said the industry had been working towards self-regulation for two years. However, she admitted it had been “encouraged” to speed up the process by a Telegraph investigation which highlighted allegations of abuses of the administration process and other poor practices by the industry’s lenders.
Small businesses secure around £17bn in credit by using asset based finance, typically by having cash advanced against their invoices.
The complaints service will only be open to businesses with annual sales of less than £6.5m borrowing from ABFA members, although the trade body covers most of the industry. The new rules do not cover the industry’s controversial relationship with the insolvency profession, or the practice of sharing so-called “termination fees” when companies fail with brokers.
In a recent report on SME lending, Russel Griggs, the former head of the CBI small business council, said the “misdemeanours” of some of the industry’s lenders may be one of the reasons that the numbers of businesses using this form of finance is “still incredibly small”.
Michael Fallon, the Business Minister, said “the sector is showing its ambition to make the step up and play a much greater role in the economy” through self-regulation.
However, Brian Moore, a former business owner who is leading a campaign for the sector to be formally regulated, claimed the new system is “a dog’s dinner” because it is “not addressing the real issues”.
“This is like asking the British Bankers’ Association to regulate banks,” he added. Mr Moore is due to meet shadow Treasury and Business Department ministers today to discuss concerns that abuses of the insolvency process by lenders are leaving the taxpayer and other creditors out of pocket.
He is also talking to Bully Banks, which represents victims of the interest rate swap mis-selling scandal, about a potential partnership to help him develop his campaign.
