Is the latest CMA report a game changer for the retail banking industry?

 Is the latest CMA report a game changer for the retail banking industry?

An APR for small businesses seeking funding has been confirmed by the Competition and Markets Authority (CMA.) 

Growth Street CEO, James Sherwin-Smith, spoke to Share Radio live this morning on the latest Competition and Markets Authority (CMA) announcements and how he hopes the outcome with benefit small businesses.

Growth Street asks CMA to expand scope of APR remedy

Growth Street has submitted a consultation response to the CMA on behalf of the APR4SMEs campaign urging the CMA to reconsider the relatively narrow scope of the proposed remedy relating to APR. This follows the publication of the CMA's provisional decision on remedies (PDR) as part of its retail banking market investigation.

"The CMA’s PDR proposes to make the disclosure of APR mandatory on all unsecured loans made to businesses for amounts up to £25,000 in an effort to correct for identified adverse effects on competition (AECs). This is most welcome: greater price transparency within the commercial finance landscape will undoubtedly improve competition and deter businesses from unknowingly entering into high cost finance agreements. 

"We are concerned that the remedy as proposed has been designed for ease of implementation by finance providers, and the scope limited so that is has negligible impact on those that currently benefit from the identified AECs. We urge the CMA to propose a more comprehensive solution that helps SMEs more easily compare the cost of finance."

CMA report delivers first victory for the APR4SMEs campaign

The CMA has published today its provisional decision on remedies as part of its ongoing investigation into the SME banking market.

As part of its proposed remedies, the CMA has “provisionally decided to make an order requiring all lenders that provide unsecured loans and overdrafts to SMEs to display on their websites rates showing the cost of these products up to the value of £25,000. These rates must be displayed in a form used under the existing (personal) consumer credit regime. This includes showing a representative annual percentage rate (APR) for unsecured loans.”

James Sherwin-Smith, CEO of alternative business overdraft provider Growth Street commented:

“Today's report by the CMA is a positive step forward towards the goal of the APR4SMEs campaign, which was started by Growth Street to make the disclosure of APR a mandatory requirement on all forms of commercial finance targeted at SMEs.

“However, the narrow scope of the CMA recommendation on APR is a source of disappointment, as it only covers small, unsecured loans, and website marketing. Therefore it continues to be the case that most finance products used by SMEs do not carry an APR, restricting firms’ ability to shop around and get the best deal, and allowing providers to hide the finance cost businesses ultimately pay via product complexity and related T&Cs.

“While there is more work to be done, today’s announcement by the CMA cannot be underestimated as it represents an important turning point for small businesses.”

May 2016 update and timeline

May 2016 update and timeline

An initial approach to the Asset Based Finance Association (ABFA) to make APR mandatory was rejected. ABFA is an industry body that specifies the code of conduct that covers most major, commercial, finance providers (including the biggest banks in the UK).

We thought ABFA were wrong to reject this for several reasons, and following a meeting with the campaign they have subsequently agreed to raise the matter with their Executive Committee and Professional Standards Council.