CCTA View

In a post-pandemic world, there has been a shift in the way people attend industry events. So, it was great to participate in the CS Lending Summit operated by Credit Strategy. For us, there was interest in how Consumer Duty continues to be a mandatory discussion point and how there is more focus on access to credit. CS Lending Summit has long been a chance to review the lending agenda and look ahead. This was no different as we heard about some of the significant issues. There was a great session on what is happening regarding the use of credit, especially during this period of economic volatility. Consumer Duty is high on today’s agenda. I was delighted to be asked to contribute as a speaker and to chair the Consumer Duty session. Consumer Duty has been a priority for the Consumer Credit Trade Association and our members for the last few years. Discussions about what the Consumer Duty might be in practice, consultations and implementation programmes have been challenging. It was interesting to hear from various firms about how they approached this matter. The examples included considerable changes to credit products alongside increased communication and engagement. Consumer Duty is not just a matter for today’s agenda. We know it will be with us for the foreseeable future. One of the questions I wanted to ask is what the next phase might look like. Everyone can point to issues within their sector that might be reviewed through this new prism. We have already seen the FCA intervene with the banks regarding passing on interest rate rises to savers. There are several other areas where the FCA has started to talk about whether a particular approach might not fit with Consumer Duty. I think that we will see more of this. Will this be a way to pick up on issues the FCA feels are untidy and make changes without specific rules or consultation? Access to credit is always on our agenda. We are always interested in discussions about access to credit. Our founding members formed our association over a century ago to push out new credit products to expand access to communities underserved by mainstream lenders. So it was interesting to hear Steve Brigham of Moneyline talking about their experience as the “lender of last resort”. Many of the issues they face seem very familiar. However, I think it is fair to say that many of our members tend to serve a higher-income grouping. Anyone with a view of what is happening can see that illegal lending is increasing. The research from Fair4All estimates that about three million people have used loan sharks over the last three years. We know that the Centre for Social Justice came up with just over a million people currently involved with illegal lenders. All the panellists picked up on the growth of Buy Now Pay Later. Expanding outside of FCA regulation. By now, we have enough research to suggest that BNPL has filled part of …

We are now well into Talk Money Week 2023 run by the Money and Pensions Service (MaPs) which we are supporting. The purpose of Money Talk Week is to break the taboo of talking about money and encourage individuals to speak about their finances, something we still seem to struggle with here in UK. It is an annual campaign that organisations of all kinds can get involved with. Despite the current spotlight on household finances, talking about money remains a taboo. People find it difficult to open up about money worries, and don’t access the expert advice available to help them find a way forward. This is a shame because the research shows that when people do talk about their finances, they make better and less risky financial decisions, and feel less stressed and anxious. By talking more about money, we can build financial confidence and resilience to face income shocks, life events and whatever the future holds. This year MaPs are encouraging consumers to do one thing that could help improve their financial wellbeing- it could be checking your pension or talking to your child about pocket money. Think about what your one thing could be. It’s no secret that many consumers are currently struggling with the cost-of-living pressures. It keeps coming up in the press and also got a mention in this week’s Kings speech. As we head into the winter months which often come with an increase in spending, lenders will need to think about how they can proactively engage with their customers to support them if required. Part of that is about making sure that individuals know where to turn to for advice. The Money Helper website contains a huge range of information, tools, and guidance about all aspects of money so is a great place to start. Here at the CCTA we are always keen to support external campaigns that fit with the vision of our association. At the heart of the CCTA is a commitment by our members to lend responsibly. It is important that consumers should only borrow when it is in their best interests to do so. This is also part of a wider debate about the need for access to credit. When used appropriately credit is an important tool to help individuals manage their finances. We need to ensure there are range of products that meet the needs of consumers to help them manage their finances effectively.

We think the FCA announcement on Buy Now Pay Later (BNPL) activity is interesting for several reasons. First, it is fascinating that over 1 in 4 adults had used BNPL in the second half of last year. This raises some critical questions about the regulation of BNPL. The FCA believes about 14 million people used BNPL in the second half of last year (2022). That is about 27% of the population over six months, compared with 17% in the preceding twelve months. If we want to mess around with the statistics, then that suggests that we are heading towards doubling earlier figures. BNPL increases – meanwhile, credit supply drops I think that points to a tangible need for credit when the credit supply for many communities is withdrawn. We know from our work that we have seen a reduction, especially in working-class communities. Home-collected credit is a product that tens of millions of individuals have used over the last century. Over the last few years, we have seen it drop around 80%-90% in lending. That drop is due to regulatory intervention while demand remains as high as ever. Unfortunately, the consequence of that is the growth of illegal lending. Fair4All did great research in their report, As One Door Closes. They built upon the work of the Centre for Social Justice. In their study, they revealed that an estimated 1.1 million people in England use illegal lenders. Like all credit products, BNPL can deliver significant benefits for UK families. It can help close the gap when appropriately used. We need a more significant discussion about access to credit and supply and demand. The regulation of BNPL Of course, another standout is that the FCA has again used powers under the Consumer Rights Act 2015. That is because BNPL continues to be unregulated like other credit products. A more cynical observer might suggest these concerns around the contract are not the most significant issues when discussing BNPL. There are bigger matters. And for transparency, the Consumer Credit Trade Association does have members that provide BNPL products. It is a small group within our broader membership, but it does mean we hear different perspectives. From that, we know we need to have more certainty about the future of BNPL regulation. That is fair to both the lenders and the borrowers. There has been some public debate about the regulation of BNPL. How will BNPL be regulated? Should it be handled differently from other parts of consumer credit? Suppose we are considering a change of approach to regulating credit for BNPL. If we are thinking of how to control other innovative products. Then, we need to talk about a level regulatory playing field. Unfortunately, the current credit market does not work for many families in the UK.

We are always interested in hearing from Andrew Griffith, Economic Secretary to the Treasury. He is also referred to as the city minister because financial services fall within his area of responsibility. So when he spoke at the Mansion House about Financial Literacy and Inclusion, it was good to hear him talking about the importance of access to credit. It was even better that he recognised the role that the Government and regulators have in the supply of credit. We talk to many investors, especially international ones, concerned about what is happening with UK FS regulation. We agree fully that the best intentions can lead to regulations that will increase financial inclusion. His reference to the problems with affordability is one that we welcome. Affordability was a bad experience for many lenders. Affordability is an excellent example of a regulatory obsession that has gone off track. Unfortunately, arrears and defaults are part of lending, at the core is an understanding of risk. These happen when people encounter the unexpected, the loss of a job, a boiler breaking down an illness without sick pay. No affordability test will prevent these from causing problems for a borrower. Many people live with the cost of credit, adapt to their position, pull back from some expenditures at times, and look for new ways to bring in income like working an additional shift. Over the last few years, we have seen the development of a model that does not take this into consideration. So what we have seen is the exiting of many firms from the market due to regulatory issues, along the lines set out by Mr Griffith. More than a million people use illegal lenders in the UK. This fall in access to credit is not without consequence, elsewhere organisations like the Centre for Social Justice are telling us that over a million people in England are using illegal lenders. We are happy to play our part in attempting to tackle the growth of illegal lending, and it was not that long ago that we sought to create stronger connections between our members and the illegal money lending teams. Including carrying a piece in our CCTA magazine and running a workshop for our members. Later Mr Griffith refers to a return to the concept of “caveat emptor” or buyer beware. That is certainly not the direction the FCA has been moving in recent years. Increasingly the responsibility rests with the lender and away from the borrower. Consumer Duty is the most explicit demonstration of this, as the responsibility for a good outcome sits with the lender. The customer really is a passenger on this journey. We could get into a much longer discussion about “agency”, but that is for another day. But there is agreement. To end on a positive note, everyone agrees that we should do more to increase financial literacy. We need everyone to understand more about the options available to them, the benefits and the consequences if things go wrong. …

We are currently reviewing the FCA Strategy to determine its implications for our members. That is being considered alongside the FCA’s proposed regulatory fees and levies. Too often regulators set rules that work well for the big banks and mega insurance companies. The FCA often fails to recognise the important part played by smaller firms and that increasing regulatory burden needs to be considered. There has been a decline in UK-regulated credit for many as lenders exit. The CCTA has been pointing to the decline in regulated credit as more alternative lenders leave the market. These are lenders that are not easily replaced so families across the UK have fewer options when it comes to credit. The Centre for Social Justice has highlighted the growth of illegal lending in the UK. They travelled the breadth of the country to understand where and how illegal lending takes place; commissioned polling of over 8,000 UK adults; compiled and analysed the largest sample of known victims to date; and heard first-hand the powerful stories of those exploited, often by ‘friends’ who turn out to not be friends at all. More than a million people using illegal lenders in the UK In England today, they estimate that as many as 1.08 million people could be borrowing from an illegal money lender. We believe this is the first independent evidence that shows loan sharks circling as we see regulated supply drop away. There are those that try and create an equivalency, between non-prime and illegal lending. However, there is a chasm in terms of the protections provided by regulated lenders and the threats that often come from organised crime involved in illegal lending. Anyone finding themselves in trouble with an FCA-regulated firm knows that they can rely on consumer protection rules. Ultimately they can turn to the Financial Ombudsman or the courts. Those borrowing from illegal lenders have no such comfort and can become embroiled in further criminal activity. The CCTA will be reporting back on the increasing regulatory burden and other issues at the upcoming Summit on 26th April 2023.  If you are a member, then sign up. CCTA Events Diary

This note is a readout from a meeting we recently attended with the FCA. This will interest CCTA members who are involved in Consumer Duty implementation. INTRODUCTION As part of our policy and advocacy work, we attend the FCA’s regular roundtable meetings on Consumer Duty. These meetings, which are held specifically for Trade Associations, are a chance for the FCA to provide further detail. They could also provide insight into their expectations of firms with respect to Consumer Duty. This is an opportunity for us to put forward key questions and challenges that our members face in implementing the requirements of the duty. I attended the latest roundtable, which was held virtually, on 23rd February.  The meeting focused on the FCA’s recent review of implementation plans. They also talked about their communication and engagement activity and an update from the Financial Ombudsman Service. IMPLEMENTATION PLAN REVIEW The FCA provided an overview of their findings from the review of implementation plans for larger firms. Their findings were published on 25th January on their website. The overview they provided was effectively a summary of their published findings, where they found evidence of both good practices and areas for improvement in areas. This included Governance and oversight, Culture and people, Deliverability, Third parties, the Four Outcomes and Data strategies. They also re-iterated that where firms are falling behind on their consumer duty implementation plans, they expect firms to ensure they are continuing to focus on prioritising areas of greatest impact on consumer outcomes. Firms need to make changes to ensure consumers receive communications they understand. As well as products and services that meet their needs. They pointed out the need to work with other firms in the distribution chain to ensure all parties are delivering good outcomes. Whilst this review focused on larger firms, it is important to inform our members that the FCA will shortly be sending out a survey for smaller firms. This will be focused on their implementation plans. This is likely to be sent out “in the next couple of weeks” and will ask firms to provide responses to questions about their implementation journey. COMMUNICATION AND ENGAGEMENT The FCA was keen to highlight the work they have done with respect to industry-wide communication and engagement. They pointed to the progress made here and made reference to their Consumer Duty webpage for firms. This included sectorial webinars, and a series of podcasts focusing on each consumer outcome. As well as their sector-specific portfolio letters. It was good to hear that the communication and engagement activity will continue. They will be continuing engagement with trade associations and wider stakeholders and producing more webinars and podcasts. Two important areas for our members are that the FCA has advised they aim to issue guidance communications around the April deadline for the exchange of information between manufacturers and the distribution chain. FINANCIAL OMBUDSMAN SERVICE Richard West, the Director of Casework Policy at FOS. gave a short update. He was keen to highlight that they are …

Nice to be invited to the Finance and Leasing Associations dinner tomorrow, always a remarkable event. More important than the invitation to dinner is the strong collaboration between credit associations on issues that are of importance to our members. One of the common areas of work is the promotion of the value of credit to UK families and businesses. So, I was pleased to see the work being carried out by the FLA on the use of credit and especially the future of credit. I recently took part in the launch of some of their research entitled The Future of Credit. For those involved in this world, much of what it says rings a bell in terms of why people perceive, choose, and use credit. It was good to hear about what consumers want to see in the future of credit. Once again there are some familiar themes – greater personalisation, flexibility, control, and education. The research showed that most people feel that credit is working, but they could identify areas where it could be improved. There was a call for a deeper relationship with more engagement and deeper contacts, and it should be less transactional about applications and payments. That raises some interesting questions about whether a longer-term deeper relationship would be seen by the regulator as building a dependency rather than improving service. Credit is part of everyone’s lives. I also wonder whether some of these experiences and views may alter depending on your circumstances. For some, there are many products available. Others have fewer options. I believe that will mean that the relationship with credit may be very different. Lots to discuss. I know that the FLA is continuing to do more with this research, and I think it is an area where trade associations can work together.

I am very pleased to hear that I have been shortlisted for Business Leader of the Year in Alternative Finance award held during Credit Week. These are always interesting awards reflecting credit leadership across a range of sectors. Organised by Credit Strategy every year we watch our members do well across the sectors. Every year we post our congratulations to others in the days after. It was a pleasant surprise when asked if I was happy for my name to go forward and to be a finalist is just the cherry on top. It is all about the great team at the CCTA. Up against some great other leaders, we are so happy that we have received this recognition. This seems like a good opportunity to say how I work with a great team that keeps the CCTA moving. Our small team are specialists in their function areas – across policy, membership and communication. Campaigning hard for our members, providing our members with advice and building a network of lenders, brokers and associates. More than that, the team are willing and able to step in and help each other. Of course, the CCTA would be nothing without volunteers who serve on our Council, giving up their time to help direct the organisation. We are also helped by a small band of members who take part in our discussions. They are willing to share their experiences and insights. It is that knowledge and experience that allows us to bring focus to our work. Credit leadership We will continue to be strong advocates for alternative lenders; be a source of insight and facilitators of a network of lenders and associates. My congratulations to everyone else nominated for The Leadership Awards, taking place on 16 March 2023, as part of Credit Week.

It was good to talk to the Financial Ombudsman Service earlier in the week. We raised some concerns that our members had during the FOS discussion. However, we also welcomed their commitment to more engagement with the consumer credit industry. One of the issues that we are particularly keen to raise in our FOS discussion is their approach to Consumer Duty. The risk that people have mentioned to me is whether we will see differences in approach between the Financial Conduct Authority and the FOS. Unfortunately, there is a belief that sometimes there is a disjoint between the two organisations. I know that they would push back strongly on that suggestion. However, there have been a number of times when it seems that there are differences. From what we heard, the FOS are well aware of this concern and are trying to mitigate this risk by working closer to the FCA. There was an interesting FOS discussion about good outcomes. Looking at how this is implemented across different sectors and products. Remember if you are a CCTA member then please keep talking to us. Raise any issues you have with us. I am always happy to provide more information about our work. If you are not a member of the CCTA but are involved in non-bank lending, then please consider joining. More information can be found here.

In the last edition of our magazine, I spoke about some exciting CCTA plans to further develop our services as a trade association. This edition presents a good opportunity for me to update our members. Both long-standing members and those who have joined us recently. In short, it has been a busy period for the CCTA team but our plans have progressed well. Last time, I spoke about CCTA introducing more workshops and guidance papers on key regulatory topics. Consumer Duty dominates our work As many of you will know, we delivered the first of those workshops in August. This covered the Consumer Duty and the key considerations for our members. It was a hugely successful workshop. It was attended by over 100 members and we received a lot of positive feedback. Following the workshop, we published our Consumer Duty Guidance Paper. This supported and guided our members in not only understanding the Duty but also the key implementation and operational considerations. We continued with in-depth discussions around the requirements and expectations of the Duty at our recent Autumn Summit. But our work on Consumer Duty does not stop there. We know it remains a key regulatory topic. Not just during the implementation phase, but for years to come. We are now working on delivering the next set of workshops and guidance papers. Before the end of the year, and going into early 2023, we will be covering key topics such as illegal money lending, online and social media financial promotions, commission disclosures, complaint handling and MI in light of the Consumer Duty and Statutory Debt Repayment Plan (SDRP) scheme, to name a few. In fact, members will have seen the recent release of our second guidance paper on the FCA’s improvements to the Appointed Representative (AR) regime. This is a must-read for our members who have or plan to have, appointed representatives. Similarly, we previously spoke about a review of all our core regulated and non-regulated agreements and statutory documents. A lot of members use these. Recognising the Consumer Duty, we have improved readability, layout, and accessibility. Key financial information, as well as terms and conditions, are clearer and aid consumer understanding. We are now at the latter stages of final review and approval and aim to release the new versions towards the end of the year. Plans for an online training platform for CCTA members We are starting discussions with some potential online training platforms and software providers. We previously mentioned our intentions to introduce training and CPD for our members. Although our discussions are at very early stages, we intend to launch compliance training as soon as practicable. Our plans are to make available training modules that will cover many of the key legal and regulatory topics in our sector. These include (but are not limited to) complaints, financial promotions, CONC, the Consumer Credit Act, treating customers fairly, vulnerable customers, anti-money laundering, anti-bribery, Consumer Duty, whistleblowing, data protection/GDPR and SM&CR. CCTA Planning for 2023 As we approach …

In the latest issue of CCTA Magazine, we asked Lex Jones of the Registry Trust to talk a little more about the importance of the work that they do on county court judgments (CCJs). The CCTA is a strong supporter of their Get Satisfaction campaign. It is vital to ensure judgments are kept up to date. When CCJs are satisfied it is important that there is a record. This should be a win-win for both the customer and lenders. Consumer Duty focuses on good outcomes. The Consumer Duty makes clear that a lender should deliver the best outcome for a customer. That includes making sure information is passed along about a CCJ. Looking into the future, surely this is a useful indication. Especially if the customer has corrected their position. Especially if they have taken steps to put things right. Surely this is an indication that they may be a suitable customer in the future. From a behavioural perspective, in terms of credit risk, a lender might view favourably someone who has not just let time run down on their CCJ. Should CCJs prevent future lending? However, this is only relevant if the regulator doesn’t close lending to those with CCJs. This was one of the issues that emerged from industry discussions held with CCTA members earlier in the year. It became a concern that the FCA seemed to be questioning whether it was right to lend to people who had CCJs. This was an issue that emerged from an informal conversation among members. We said at the time that we would pursue this further with the FCA. For us, the concern was that this looked like a misunderstanding of the nature of the market that many high-cost lenders serve. We believe that, especially in subprime, customers may well have had a CCJ. FCA provides clarification. In a statement that we were told we could share with the membership, we were assured that the FCA’s position is not that you cannot lend to a customer with a CCJ. They said to us, “A firm should have regard to any information of which it is aware of at the time the creditworthiness assessment is carried out that may indicate that the customer is in, has recently experienced, or is likely to experience, financial difficulties. The fact that a customer has a CCJ is likely to be relevant to this assessment.” Hopefully, that provides some assurance that there is no outright ban. They went on, “The extent and scope of the creditworthiness assessment, and the steps that the firm must take to satisfy the requirement that the assessment is a reasonable one, based on sufficient information, are dependent upon, and proportionate to, the individual circumstances of each case. The presence of a CCJ may be a factor suggesting that a more rigorous affordability assessment is necessary.” The quicker amongst you may realise that this is also not an endorsement of this lending. There is enough in that explanation, with a mention of …

Following Boris Johnson’s somewhat forced resignation in July, a new leadership contest for the Conservative Party took place over the summer. This meant a change of Prime Minister and a new Government. Truss emerges as Prime Minister. Liz Truss MP, winner of the leadership contest became Prime Minister shortly after. Truss, viewed as the favourite for most of the campaign, was elected as an MP in 2010 and has served as part of the Cabinet since 2014. Most recently holding the post of Foreign Secretary. Truss, recognised as being on the right of the Conservative Party, campaigned on a platform of the need to deliver economic growth and tax cuts. We have already started to see this action being taken as part of the mini-budget at the end of September, with the planned rise in National Insurance being reversed, and a series of tax cuts. A change in policy direction has also been coupled with changes to other major roles in government. Very few remain from the Johnson administration. This has been seen at HM Treasury with the appointment of Kwasi Kwarteng as Chancellor and a new ministerial team. The Treasury makes changes. The structure of the team has also been amended. Previously it was the Economic Secretary that held responsibility for financial services regulation, the FCA and access to affordable credit. These have now become the responsibility of the Financial Secretary. Andrew Griffith MP was appointed to this position on the 8th of September. Griffith is a relatively new MP, elected in 2019. Prior to this, he worked in private business for most of his career but not much is known yet about his stance on consumer credit. We have written to the new Minster to introduce the CCTA and the issues currently facing the alternative lending market. Aside from this, we continue to have regular meetings with policy officials at HM Treasury as these remain in post despite changes in government. Other government departments have also seen changes. At the time of writing, we are waiting for some responsibilities to filter through on issues we are concerned about such as small businesses and financial inclusion. These should become clear in the coming weeks. Access to Credit as over 1 million use illegal lenders Access to credit remains central to our messaging, particularly the role of commercial credit within the market. In recent times we have tried to draw political attention to the sharp reduction in the supply of regulated credit for consumers who are unable to access the ‘prime’ credit market. A report from the Centre for Social Justice (CSJ) in March found that over 1.1 million people are now having to use illegal lenders in England (up from the previous estimate of 300K). We believe there are now more people using loan sharks than regulated high-cost credit, something the Government should be concerned about. The FCA has played a part in the demise of regulated credit In the last three years, the FCA has presided over the …