CCTA View

Like so many, we are sad to hear of the passing of the Her Majesty The Queen. I know that I speak on behalf of CCTA members when I pay tribute to her loyal service to our country and her sense of duty. Our thoughts are with the Royal Family at this difficult time. We have seen six monarchs since we were founded in 1891, and we send our best wishes to King Charles III.

Mark Fiander, CEO of Gain Credit LLC and Consumer Credit Trade Association (CCTA) Council member, has been appointed as the new Chair of the Association. He took up the position having been involved with the CCTA and related associations for several years. The role of the Chair is to provide strategic advice to the Chief Executive and lead the CCTA Council, which meets regularly throughout the year. Commenting on his appointment Mark Fiander, said: “I am delighted to take on this role at such a crucial time. With huge challenges facing UK consumers and new regulation, in particular the Consumer Duty, coming into force, it is vital that the credit industry has a strong, yet considered voice and that best practice is effectively shared. “The CCTA has been fulfilling these roles for well over a hundred years and I look forward to doing my part as it continues to strive to ensure responsible access to credit for all”.  Jason Wassell, Chief Executive of the CCTA said: “It is great news that Mark has accepted the invitation to be Chair of the CCTA. He is already an active member of our Council and has been involved for many years. “His experience includes various areas of financial services alongside an expert understanding of the alternative credit market, which will greatly help with our strategic activity. “I look forward to working with him during a time when credit is going to be more important than ever to those that need to carefully manage their finances”.  Mark Fiander biography Mark is CEO of Gain Credit LLC and an existing council member of the CCTA. He has previously worked across banking, money guidance, insurance and consumer goods.

It is interesting to see the Consumer Duty policy statement and final guidance out. We will be taking a few days to work through all the materials. For some of us, this has been the focus for many months, if not years of discussion. Of course, no one can disagree with the general principles and outcomes that we have arrived at and there were some good decisions about the scope or the right of action. Any non-handbook guidance is welcomed, and that has long been one of our appeals. An early thought from the CCTA, one consistent point we have been pushing throughout is that this can’t be the end of the consultation and discussion around the Duty of Care. If we have learned anything from the last few years of FCA principles-based regulation is that the real work starts now in working out what this means in practice. We have spent a year debating key sentences but now we need the next sentence, the next paragraph, and the next page. That can’t be just one-way. As I have already said, I value every word that the FCA provides. But this is about practical implementation and that needs firms to be involved to raise the questions and give their perspective. This needs to be the end of the beginning rather than the end of this process. We are happy to be part of that process. Jason Wassell CEO

On Tuesday the Financial Ombudsman Service (FOS) released its long-awaited discussion paper on its future funding model. For some time, we have been engaging with the FOS on its funding model and the burden it places on the alternative lending sector. We have been clear that the organisation needs a more sustainable model moving forward. We have seen a series of case fee rises in recent times and a reduction in the number of free cases which have all had an impact on firms, particularly medium and small businesses. This needs to be considered as part of the future model. This is an even worse position when you realise that the FOS has only got the figures to make some sense by dipping into its reserve funds. The paper contains some of the ideas we have already put to the FOS such as the need for Claims Management Companies (CMCs) to pay a fee to bring a case to the FOS to ensure a higher quality of claims. However, while we have forced them to consider this idea, I think it is clear that they are not overly keen. So, we will be working with other organisations to keep the pressure on. I am sure we will be discussing our views on the FOS’s suggestions within this paper at the upcoming Consumer Credit Trade Forum which brings together trade associations and the FOS senior leadership.

“We are disappointed that the FOS has decided to implement the proposals it consulted on earlier this year, despite the feedback it has received. “For some time, we have been talking about the financial pressure our members are under from the current fee structure of the FOS. “The free threshold has been reduced from 25 to just three cases. This will mean that around 20 per cent more firms will now have to pay case fees, which will disproportionately affect smaller businesses. That alone represents a cost of over £16,000 to a firm with 25 cases. “Today’s publication also means a large rise in the compulsory jurisdiction levy paid by firms will go ahead. “There remains little explanation of why the organisation’s cost base will rise by over £40 million for the coming year and is an example of the wider concerns we have had about the financial model of the FOS in recent years. “We need to look in more detail at how the FOS will be sustainably funded in the future. We will be discussing this with the FOS in the coming weeks to outline the industry’s position. We need to ensure the organisation delivers value for money for consumers and firms alike.”  

We welcome this new report and this study into the scale of illegal money lending. Even before the current cost of living crisis, we have talked about the increasing problem of loan sharks and the real pain they cause to families across the UK. It is now estimated that over one million people are relying on illegal lenders. The CCTA has highlighted the sharp decline in the supply of regulated credit in recent years and what this will mean for a group of individuals that struggle to borrow elsewhere. While we agree that Credit Unions and other community schemes need support, experience shows they can’t fill the space left by commercial lenders leaving. Families need access to a blend of commercial and not-for-profit lenders providing financial products that meet their needs. Without this, there will be a growing number of these horror stories of illegal lending.

HM Treasury’s consultation on Buy-Now Pay-Later (BNPL) products has recently closed. Here we share the main points from our response. These are key principles we believe HM Treasury needs to consider when shaping the future regulation of consumer credit. • HMT wants a proportionate regulatory regime for BNPL. However, BNPL is often used as a substitute for other credit products. It is important that there is consistent regulation – and consumer protection – for substitutable products. • Many credit products are already offered in a digital online environment. The online nature of a product does not necessitate a different or lighter-touch regulatory approach. Lenders have made digital products work for customers and firms under the current regulatory regime. • If the provisions of the Consumer Credit Act are not fit-for-purpose for one credit product, it is not fit for-purpose for any credit product. • The customer journey for any credit product needs to be structured in a way that ensures consumers have all the information they require, presented in a clear way, and opportunity to exit the process if they decide it is not the right product for them. • Comprehensive reporting of credit usage and repayment is vital – to protect customers and lenders. • Affordability checks must be required for BNPL in the same way as these checks are required for other credit products. No interest does not necessarily mean lower risk. A BNPL loan can be unaffordable, even if no interest is payable.

“For some time, we have been talking about the financial pressure our members are under from the current fee structure of the FOS. We are disappointed by today’s announcement which includes a large rise in the compulsory jurisdiction levy paid by firms. “While we would welcome the freezing of the case fee after the successive rises of recent years, we are concerned about the reduction in the free cases threshold particularly when, all case fees, win or lose, are shouldered by the firm. “The free threshold has been reduced from 25 to just three cases. This will mean that around 20 per cent more firms will now have to pay case fees, which will disproportionately affect smaller businesses. That alone represents a cost of over £16,000 to a firm with 25 cases. “There is little explanation of why the organisation’s cost base will rise by over £40 million for the coming year and is an example of the wider concerns we have had about the financial model of the FOS in recent years. More needs to be done to ensure the Ombudsman delivers value for money”.  

I spoke last week at an event exploring the FCA’s proposed ‘Consumer Duty’. The Duty is positioned as asking firms to put themselves in the shoes of the customer and consider if they would like to be treated how their firm treats customers. We are concerned that it is a much more radical change in the relationship between consumer and lender and that was my warning. The FCA says the purpose of the proposed Duty is to set clearer and higher expectations for firms’ standards of care towards consumers. These are principles that no one can really disagree with-better product design, value for money, improved communication. They are what we should all strive to do, what we want to deliver. But as an industry, we are concerned about the responsibility the Duty will place on firms that are already struggling. With the next consultation paper, which will include the draft rules, due from the FCA before the end of this year, it’s time to think about the possible unintended consequences for consumers. We have already seen a drop in the supply of credit to many customers. Big companies have left the alternative lending market in recent months, but more worryingly – existing lenders will need to consider what the Duty means for their future. They may want to move away from areas of lending that are at the greatest risk of being challenged under the Duty. Not because they are doing anything wrong, but because future interpretation of their current actions are uncertain. History shows that interpretations of FCA principles shift. And a shift in future interpretation may lay lenders open to possible challenge, back-book review, and retrospective compensation. We worry this will mean access to credit and financial inclusion, will drop further as lenders consider these risks. The principles and indeed the regulation haven’t really altered for years across areas like affordability. However, the supervisors or adjudicators’ interpretation has shifted over the years. We know from our work with our members, that there are decisions taken on a daily basis about what should be included in affordability assessments, levels of verification, permissible data types, definitions of sustainability, the use of third-party tools and many other unwritten rules. Now there is an argument that this is what principles-based regulation is all about. Regulation can adapt to new risks and threats without having to be redrafted. However, this brings new risks of policy being created in isolation behind closed doors; not utilising the best version of the arguments and without reference to other policy objectives (e.g. competition). It is also the retrospective application that seems so unfair. Lenders are happy to adapt, to listen to the regulator and to their customers. Then being asked to apply today’s interpretation on lending that dates back a decade brings additional risks. We all want to see greater protection for consumers, but in creating a duty on the lender it marks a radical shift in responsibility. It lands the risk almost completely on the lender …

This week is Talk Money Week run by the Money and Pensions Service (MaPS). Set up by government, MaPS exists to ensure every person feels more in control of their finances throughout their lives. Talk Money Week is a campaign designed to increase people’s sense of financial wellbeing by encouraging them to open up about personal finance. People in the UK don’t talk about their money enough. Despite the COVID-19 crisis affecting our finances, 9 in 10 UK adults don’t find it any easier to talk about money, or don’t even discuss it at all. Research shows that people who talk about money: make better and less risky financial decisions have stronger personal relationships help their children form good money habits for life feel less stressed or anxious and more in control. Building money conversations into our everyday lives also helps us build financial confidence and resilience to face income shocks, life events and whatever the future throws at us. MaPS have put together a number of guides to help you start to talk about money here. These cover talking to a partner or your children about money, amongst others. Learn more about Talk Money Week here.

“Unfortunately, the FOS has missed out on an opportunity to deal with the backlog of complaints it faces”. “At such an early stage, where the decision still rests with the customer, ask the lender to take one more look. The customer can accept an improved offer, with the comfort that if they have any concerns, they can carry on with the FOS investigation. This could have been the simplest of systems”. “However, this new process includes a check on the offer made by the lender, bringing with it delay as the FOS carries out a review. There will be a new administration system as we count these cases. There will also be the application of a £750 case fee each time, no matter what happens”. “From the engagement we have had with members, some lenders are surprised that the FOS seems to have rejected a simpler process. There is less surprise that the FOS are keen to continue charging a full case fee”.

We are being told that there is a rise in the ‘cost of living’ but what does this mean? Simply that the necessary costs we all face are going up, but what is driving this rise now? September saw a slight drop in inflation, but economists predict this is likely to only be a temporary dip before the rate continues to rise into next year. A rise in the level of inflation means the costs of goods and services have gone up, and this translates into a struggle for many as they try to manage their family finances, especially if wage growth cannot keep up. We have all read about increases in the price of fuel, food, and other costs in recent weeks. Some of us will also have struggled to fill up at the pumps or find everything we want at the supermarket. These shortages and rising prices will translate into bigger household bills for many as we look towards Christmas. This comes at the same time as many of the Covid-19 support schemes are being withdrawn. The Bank of England (BoE) has said it will have to act soon on rising inflation. This means that an imminent rise in interest rates is likely, with the hope of the reducing the price of goods – but this will mean higher costs for borrowing across many credit products. For CCTA members, the higher costs of living will need to be factored into lending decisions. They will need to think about what this means for affordability assessments. For some, these additional costs will mean that credit is no longer affordable. Undoubtedly, the effect of the pandemic is at play here, along with some of the supply chain issues caused by Brexit. Rishi Sunak will deliver his Autumn budget later this week, where he will try and address some of the pressures on households. We have already seen that the National Living Wage is to rise. The BoE rate setting committee is next due to meet in early November. Only then will we get a truer picture of how this will play out. It remains to be seen if this is simply how we move out of the pandemic and beyond the teething problems of Brexit, or if tougher economic times are here to stay.