Separation of Brands and Lenders - what is going on?

Recently something rather odd has been happening in finance and even we are not sure what the reasons for it are. Just why is there now a trend in finance to separate brands and lenders.

Background

For the last 5-6 months, we have become increasingly aware of some big names in finance running adverts on tv and radio with the caveat that they are brokers and that xxx is the exclusive lenders. A couple of these are Capital One and Ocean Finance. It seemed odd because we know that Capital One is a direct lender and so are Ocean, they aren’t brokers, they have their own cash.

Then we think back to their ads and think “exclusive lenders”, what does that mean in reality? It basically means they are selling applications to their own lending business.

It would not be unusual if it was just Ocean and Capital One that were doing this, but there are now others like Citroen Finance. When numerous separate entities start doing the same strange thing, there must be a reason behind it. In our view, there no such thing as a coincidence, certainly not when it is on this scale.

Follow the Money

As with everything involving money, it’s often good to keep this saying in mind. In our experience, it’s almost always wholly accurate. 

What could be in it for lenders to separate from their brands?

On the face of it, it isn’t easy to see any reason. In fact, after thinking long and hard about it there is one reason that we can see. It would be massively beneficial if the valuable brand part was separated from the lending part should a mis-selling scandal ever happen again. The lending side could carry the fines and the brand continues without penalty.

For an example, look at the Cheque Centre in Scotland. They basically threw up their arms recently and said they could not continue due to their past liabilities. Reading between the lines, we think they basically said they would find it cheaper to start again under another name than pay off all the historic liabilities.

Now here is the key bit, their brand and their lending operations were tied together so the whole ship sank as one. If they had set up in a way that separated the brand from their lending operations in a way that replicated what is happening now. They could have just scuttled their lending side and continued with their brand with almost zero downtime. This may have left tens of thousands without any kind of redress for their mis-sold products.

If Wonga would have followed this current setup from the start, they could have avoided massive fines, liquidated their lending side and continued with the brand. It could have saved them hundreds of millions in fines and money they paid back to borrowers.

Is this really what is happening?

We don’t know, honestly, we don’t, but it is suspiciously fitting the pattern. It is the only thing we can come up with to explain it. Products that are being sold legally with the full knowledge of the FCA today might be found to be illegal in a years’ time resulting in huge fines.

If lenders are taking action to structure their companies in a way that protects them from the schizophrenic type of regulation that we are all experiencing from the FCA these days, or more probably – Politicians who are virtue signaling. We aren’t going to blame them. 

Wouldn't it be strange if finance bodies entities are now structuring themselves like terrorist cells to survive?