Latest FCA guidance on C2W

The Bicycle Association (BA) has set out its latest understanding of how “Consumer Duty” impacts the Government’s Cycle to Work (C2W) tax break scheme based on new guidance obtained from the Financial Conduct Authority (FCA) in July 2024.

The Consumer Duty, overseen by the Financial Conduct Authority (FCA), has been in force since July 2023 and differing interpretations of its impact on the operation of the Cycle to Work (C2W) scheme have raised a number of industry concerns.

In December 2023 the BA collated views from industry stakeholders and set out its interim understanding of the matter, seeking clarification from the FCA in a number of areas. In a letter dated 25 July, the BA was pleased to receive the FCA’s further guidance, which as an initial step it shared immediately with its members in full. The BA has since taken time to analyse the guidance in more detail and now sets out its latest understanding.

The Consumer Duty
From 31st July 2023 a “Consumer Duty” came into force in the UK intended to set higher standards of consumer protection across financial services. Overseen by the Financial Conduct Authority (FCA) it applies wherever a UK business has a role in delivering “good outcomes for retail customers” in relation to regulated consumer finance. Further information can be found on the FCA website.

In the cycle sector it applies across a range of retail finance products including credit facilities, stage payments, hire purchase, and hire and lease services.

Areas of ambiguity for C2W
Across the industry there have been different interpretations of the impact of Consumer Duty including whether it applies to C2W transactions. More detailed questions include, for example, whether the Duty places specific restrictions on retailers in the C2W distribution chain, such as whether it is permissible to exclude on-sale products or add charges to consumers.

New FCA guidance / clarification.
To address such questions the BA sought clarification from the FCA in January 2024. The FCA’s response was set out in a letter dated 25 July 2024 shared with the BA and other interested parties. Not all the questions the BA and others raised have been directly addressed in the letter.

Does “Consumer Duty” apply to C2W?
Usually, yes. The FCA’s letter makes clear that:
“…The Consumer Duty applies to the regulated and ancillary activities of all FCA authorised firms that are carried out with respect to retail customers.”

All firms undertaking “regulated activities” must be FCA authorised. Since the C2W scheme usually involves an arrangement whereby a bike is made available to a consumer via a consumer hire agreement and:
“…entering into a consumer hire agreement is a regulated activity”

then it can be concluded that consumer duty does apply to C2W arrangements structured using consumer hire agreements, and that firms offering such agreements must be FCA authorised. To our knowledge all major C2W scheme providers are authorised by the FCA. (The letter highlights one exception where FCA authorisation is not required, which is when an employer is the owner of the bike, and the total value of the goods does not exceed £1000.)

What about other firms in the distribution chain e.g. cycle retailers supplying C2W
scheme providers? Does Consumer Duty apply?

The new guidance in the FCA letter suggests that it does – either directly or indirectly – as either cycle retailers are carrying out “ancillary activities” in relation to the regulated activity of consumer hire and directly subject to the Duty, or they are part of a distribution chain in which an FCA authorised firm has a responsibility to act to deliver good outcomes for the consumer in line with the Duty.

The FCA Letter makes clear that Consumer Duty applies to all firms:
“…across the distribution chain…that have a material influence over, or determine, retail customer outcomes.”

Where the cycle retailer is already FCA-authorised the letter states that they are:
“…likely to be carrying out an ancillary activity and…subject to the…Duty.”

Where the cycle retailer is not FCA-authorised, whilst the letter states that “it cannot be subject to the Consumer Duty” it goes on to say that the FCA Authorised firm in the distribution chain will still:
“…be responsible for acting to deliver good outcomes in line with the Duty.”

So what does being subject to Consumer Duty mean for cycle retailers in relation to C2W?
In general terms the letter suggests that it simply means retailers, directly, or indirectly, should be acting in a way which delivers good outcomes for consumers, in particular that:
“…the price a consumer pays for a product or service is reasonable, compared to the overall benefits they receive.”

Since C2W allows the consumer to access a bicycle at a substantially reduced cost it seems likely this criterion will be met in C2W transactions. The letter further makes clear that there is nothing in the Duty which prohibits:
“…the payment of commission or the addition of charges to consumers.”

The BA notes this was a key area where there were differing interpretations across the industry. It is the BA’s understanding therefore that the Consumer Duty does not prohibit a cycle retailer from making an additional charge to the consumer. However commercial arrangements that retailers may have entered into within the distribution chain may do.

On this latter point the FCA letter notes:
“…It’s essential that all firms along the distribution chain are working together, with the shared goal of delivering good outcomes for consumers.”

The FCA letter does not specifically address the related issue of whether the Duty prohibits cycle retailers from excluding certain products or services e.g. on-sale products. Logic suggests however that Consumer Duty in itself does not make such prohibitions, as it is focussed on outcomes not specifics. Any restrictions will therefore likely be determined by commercial arrangements agreed within a C2W supply chain. The BA will seek further clarity on this point from the FCA.

BA and C2W – further context and background

• The BA’s purpose is to grow the cycle market and a UK industry sector which already supports 64,000 jobs and contributes £7.5b in economic value. Growing the cycle industry has the potential to create tens of thousands more jobs, and billions in economic, health and environmental value.
• Tackling the multiple issues which currently hold back growth requires an ambitious package of measures from government, supported by industry. Our comprehensive UK Cycle Industry Manifesto sets these out.
• Within such a package, the BA believes the C2W scheme can be a useful tool to bring new people to transport cycling by providing incentive and affordability support. As such it should be safeguarded but it does require the wide support of the industry to work effectively.
• We recognise limitations to the scheme around its complexity and accessibility. For example, it is limited to employees on PAYE within, typically large participating employers.
• The BA will continue to take the message to Government that the C2W scheme could be made less complex and more accessible, and that it is just one part of the comprehensive and ambitious package of measures necessary to secure growth in the UK cycle industry.