CCTA View

CCTA commenting on HM Treasury consultation on the regulation of BNPL said: “The consultation on BNPL is welcome, but it highlights that the current regulation of consumer credit is complex and unwieldy. These products should already be regulated by the FCA, but the system takes too long to change.” “We support BNPL regulation, including checks on a customer’s ability to repay if they are taking instalment plans. We also need increased visibility of this form of borrowing on credit records. BNPL use is currently invisible and means other lenders are making decisions without seeing the whole picture”. “Consumers using BNPL who fall into financial difficulty should receive the same protection as users of other consumer credit products. They should also be able to use the Financial Ombudsman Service as an independent method of dispute resolution.”

This week the Conservative Party Conference is taking place in Manchester. This will bring this year’s major conference season to an end, following the Labour Party Conference in Brighton last week. Both parties seem to be facing big questions about the unity of membership. Keir Starmer’s first conference speech as Labour was well received but there is still a clear division in the party between Corbyn supporters on the left and Starmer’s supporters closer to the central ground. Boris is fighting his own battles. A driver shortage followed by a petrol crisis has meant that he needs to demonstrate that he has a plan to deal with the impact of Brexit and show that it really was worth it. All this comes at a time when there is a sharp focus on family finances and living standards. Times are difficult for many households. The more alarmist papers have drawn comparisons to the 70s and the three-day week, but could there be some truth in their claims as we face energy shortages and higher levels of employment? Brexit combined with the impact of Covid-19 makes for uncertain times. In the last few weeks alone several energy firms have gone bust, and the furlough scheme has come to an end. It has been estimated that a million workers remained on furlough at the end of September. The end of scheme will force tough conversations for employers and the Bank of England is expecting a rise in unemployment. The Government announcement of a new scheme to help families struggling with the cost of living is welcome, but it will only plug the gaps that have been left by the withdrawal of other support. Politicians need to understand that the pandemic has accelerated change in how we live our lives, the labour market has evolved, and so have housing and travel requirements. What does this mean for alternative credit, a sector relied on by those who struggle to borrow elsewhere? The need for this form of borrowing will remain and is likely to grow as more people face variable incomes or uncertainty about their future finances. There is a call from the alternative lending sector to understand how people choose to manage their finances. This market was shrinking before the pandemic hit and we continue to see major players leaving the market due to regulatory challenges. The Government too needs to better understand the impact of the pandemic on the supply and demand of credit. Politicians continue to work on ‘affordable products’ with a pilot of a No Interest Loan Scheme and the expansion of credit unions. In reality millions of pounds of taxpayer money has been spent on trying to grow these alternatives, with very little to show in the way of success. Alternative lending companies exist because of need. They are well placed to help a group of consumers manage their finances to match their individual situations. Now is the time to ensure that access to credit is preserved when the future …

Local and national partners sought to deliver No Interest Loan Scheme pilot with Fair4All Finance, Toynbee Hall and Fair by Design Pilot will test whether this scheme can be scaled to make resources go further to improve financial wellbeing for customers in vulnerable circumstances Millions more people have become financially vulnerable during Covid, requiring urgent support – the pilot will target such individuals Fair4All Finance is teaming up with Toynbee Hall and Fair By Design to deliver a No Interest Loan Scheme (NILS) pilot, the first of its scale across the UK, with £3.8m in funding from HM Treasury and up to £1m of lending capital from each devolved administration, matched in England by Fair4All Finance. The loans will provide a vital financial cushion for people unable to access or afford existing forms of credit, but who can afford to repay small sums, by offering a way to spread essential or emergency costs. The scheme will kick off with proof of concept loans in Autumn 2021, followed by a wider two year pilot in up to six areas of higher deprivation starting in Autumn 2022. Fair4All Finance, Toynbee Hall and Fair By Design will design and deliver the pilot in collaboration with HM Treasury and the governments in Northern Ireland, Scotland and Wales. They will work with credit unions, Community Development Finance Institutions (CDFIs) and other regulated lenders, who will be able to apply to administer the loans through a formal procurement process starting in November. Local councils, housing associations and charities will be encouraged to form partnerships with lenders and provide co-funding to help increase the amount of people the pilot can reach. These partnerships are key to the success of the scheme. The NILS pilot aims to test the benefits to customers, society and the economy and show whether a permanent nationwide NILS can be delivered in a sustainable way. There will be a period of market engagement for the wider pilot over the next few months to gather further feedback on the scheme design and match local partners. Interested organisations are invited to attend two upcoming webinars to find out more: The first webinar on Tuesday 21 September will provide more detail on the pilot and strategy behind it, with a few words from John Glen, Economic Secretary to the Treasury. CLICK HERE TO REGISTER The second webinar on Tuesday 28 September will focus on the wider pilot procurement, contracting, co-funding, pricing and delivery. This will also cover the opportunities to pilot other unrelated products with Fair4All Finance which makes for a much larger scale and duration of contract. CLICK HERE TO REGISTER John Glen, Economic Secretary to the Treasury said: ‘Backed by a £3.8m boost at Budget 2021, our No-Interest Loans Scheme pilot is making good progress and it’s excellent to have Fair4All Finance on board. I now want to see lenders and organisations committed to financial inclusion supporting this innovative new scheme, which could make a vital difference for people right across the UK who …

The Treasury Select Committee has today published its report on the Future Regulatory Framework of Financial Services. It is good to see that the committee has recommended that the Treasury consider how the decision-making processes of the Financial Ombudsman Service (FOS) would interact with the future regulatory framework for the FCA, something we called for in our written evidence to the committee. The HM Treasury consultation currently makes no mention of the FOS. The CCTA does not believe there is any sense in looking at the regulatory framework and not including the role of the FOS in that. The potential impact of the FOS is significant, across financial services. We believe there is a strong case to review the role and accountability of the FOS, to ensure it works as part of the regulatory framework rather than working against it.

The FOS has released its annual complaints data today. From a quick glance, what jumps out is the high upload rates for complaints about home credit and guarantor loans. Uphold rates for both of these are currently over 80%, compared with the average uphold rate of 31% across all products. However, there is more to this when the detail is explored. On home credit complaints, the uphold rate jumped from 39% to 84% in one year, while the number of complaints remained stable. How could there be such a dramatic change in how lenders were dealing with complaints? This shows there must have been a change in approach from the FOS around how these complaints were dealt with. Firms were trying to understand what had driven this change, keep up with interpretations from the FOS and work out how to best deal with future complaints. In the year following the jump in uphold rate for home credit, complaints rose from around 1,500 to over 22,500. The picture is very similar on guarantor loans. With the current FOS case fee of £750, it is easy to see how this number of complaints becomes untenable for firms. There is a clear connection between FOS uphold rates increasing and a sharp rise in complaint volumes soon afterwards. This is likely to have been caused by the “claims culture” being driven by CMCs, looking for other sectors to exploit after PPI. The actions of the FOS have effectively encouraged more complaints, some of which are purely speculative. We will continue to raise the concerns of our members around a constantly evolving approach from the organisation and their lack of action to push back on CMC poor practice.

It has been a busy time period for alternative lending sector. In recent years it has faced many challenges including a constantly changing approach from the Financial Ombudsman Service and the impact of the ‘claims culture’ driven by Claims Management Companies. Many firms have already left the market. Since 2016 the number of firms offering HCSTC has more than halved. To add to this there has been much media speculation about the future of various companies in wider sector in recent weeks. We await news about the future of Amigo loans, but it has been confirmed that Provident is to leave the sector, shutting down its home credit business that has been operating for over 130 years. For some this will be seen as a victory, another firm gone. But we know that when supply is affected, the demand remains. Provident served over 300,000 customers at the end of 2020 which now must look elsewhere. These are individuals and communities that have been left behind by mainstream lenders. Whenever market exit is mentioned, there is often the misconception from the FCA that borrowing from friends and family can move in to fill the space left behind. In reality, things are not so simple. There must be money available to lend out, which is not the case for many. We know that a large number of households in the UK have little or no savings to help deal with financial shocks themselves, never mind supporting friends and family. The Covid-19 pandemic will also have had a negative impact on the financial situation of many households. Borrowing from friends and family can also quickly turn toxic, damaging relationships and causing them to breakdown. There is a fine line between ‘friend’ and illegal lender. The Woolard Review noted the recent change and innovation within illegal lending. It is becoming more sophisticated. The Illegal Money Lending Team in England has also expressed their concerns over the growing use of social media platforms to manipulate and blackmail victims. They are also concerned about the impact the Covid-19 pandemic will have on finances at a time when legal credit continues to dry up. Stakeholders need to be alert to consequences of the decreased availability of credit. To do this they need to understand the alternative lending consumer and why they use these forms of credit. Regulators in particular need to understand how the market operates. The FCA should take a holistic approach to regulation, looking at the entire lifecycle of a credit product and the associated customer outcomes to avoid negative consequences.

Commenting on the decision by Provident Financial to close down their home-collected credit and Satsuma brands, Jason Wassell, Chief Executive of the CCTA said: “This news is shocking and yet not a surprise to those watching alternative lending. We have long been concerned that the current regulatory framework does not work for the market, or its customers. The result in this case is that access to credit will be reduced for hundreds of thousands of people. “These are individuals and communities that have been left behind by banks and mainstream lenders. They access the non-standard market for reasons such as major life events, variable income, or a lack of credit history. They are often seeking small amounts to manage their finances in a flexible way. “The constantly changing approach by the FOS, along with the increasing claims culture being driven by Claims Management Companies, is making it difficult for firms to operate and attract investment. These factors together led to major market exit in the high-cost short-term credit sector, and it has now spread to home credit. “Market exit is likely to continue across the sector if these problems are not addressed. The outcome will be that access to credit is reduced for a group of consumers who will struggle to borrow elsewhere.” About the CCTA The Consumer Credit Trade Association (CCTA) is one of the oldest trade associations in the UK. Established in 1891, we have a long and influential history. Our objective is to support and develop an effectively regulated alternative lending market. We seek to provide responsible access to credit for all. Our members are often described as alternative lenders, developing alternative credit products, serving customers often ignored by mainstream financial services. Member firms include: car finance; guarantor lenders; home-collected credit; short and medium-term lenders; and smaller businesses working in niche lending sectors. About Provident Financial Provident Financial plc (‘the Group’ or ‘PFG’) is the leading provider of credit products to consumers who are underserved by mainstream lenders. They serve 2.3 million people through credit cards, vehicle finance and personal loans. PFG current employs 4,865 colleagues across the UK. They are not a member of the CCTA.

We are now more than a year into the Covid-19 pandemic, and I think it is safe to say that none of us predicted the impact it would still be having on our lives. With lockdown easing in the UK, on the back of the vaccine rollout, we are all starting to think about making plans about how we move beyond the pandemic. If things go to plan life could be back to some kind of ‘normal’ by the end of June in terms of restrictions. But it is becoming clear that there will be a long-term impact on the financial situation of many individuals and firms alike. In recent weeks there have been the publications from both the Financial Conduct Authority (FCA) and the Money Advice Trust (MAT) looking at the impact of Covid-19 on finances and the assistance customers will need moving forward. The MAT research showed that a third of adults in Britain (31%) now report being financially worse off as a direct result of the pandemic. Additionally, over 10m adults are worried that their finances will not recover from the impact of Covid-19. Unemployment is now at its highest point since the start of 2016. We know that a large number of households in the UK have little or no savings to help deal with financial shocks. For many that have lost their employment, or suffered a change in circumstances, things will take longer to recover than a few more months, possibly years. Recently, the FCA reviewed the implementation of its tailored support guidance for Covid-19 and the readiness of firms to help customers in financial difficulty. This included customers who had come to their end of their payment deferral, as well as those that had not used one. The FCA’s research found that customers were generally able to access additional support at the end of a payment deferral, with firms allocating additional resource to this. The FCA did note that there been an increase in inexperienced staff assisting customers, which may lead to an increased risk of harm. Firms were reminded of the outcomes of the tailored support guidance, particularly that: customers receive appropriate forbearance that is in their interests after consideration of their individual circumstances; and that firms support their customers through a period of payment difficulties and uncertainty, including by considering their other debts and essential living costs. The call was for senior managers to consider every aspect of support for customers. That by this stage, the expectation is that there would be a carefully considered process rather than the rapid reaction required early on in the pandemic. By now, and as we move to more tailored support, the FCA expects an approach that has been considered at the firm’s highest levels and understood on the frontline. The test used by regulators is to see evidence of discussion and to ensure that it can be explained by everyone involved. The FCA mentioned that there should also be quality management to ensure that everything …

“We are particularly concerned about the changes surrounding the case fee announced in today’s publication. We do not believe any justification has been provided for a further rise in the case fee, following the increase introduced just last year. This has now increased by a third over the last two years. “Not only are the FOS bringing in an increase in the case fee, but they are also applying this to all cases already in queue. Based on the reported backlog of cases, this stands to net the FOS nearly an additional £16m. This effectively rewards the FOS for inefficiency in not dealing with cases faster. “We believe this year’s budget is indicative of the concerns we have had about the financial model of the FOS in recent years. With the Chief Executive due to leave in the coming weeks we believe this represents an opportunity for the Treasury to review the management of the organisation”.

We held our first summit of 2021 this week for our members. It was great to have such good attendance from across all the different areas of the association’s membership. Though, we would prefer to be able to bring members together in a face-to-face environment, we must continue to meet virtually for at least the next few months. We want to offer members the opportunity to hear from industry stakeholders on a range of issues at our events. On this occasion we were joined by Gareth McNab, Director of External Affairs at Christians Against Poverty (CAP). He presented to members on the new statutory Breathing Space scheme that goes live in May. Gareth was able to explain the policy intent behind the scheme, but also how firms can implement it to deliver the best outcomes for consumers. There were lots of questions, and many members were keen to learn more both about the scheme and the work of CAP. Through the session we were also able to provide more detail on the CCTA’s plans for the year. The association will be working to build relationships with external stakeholders. We will use these meetings to provide knowledge and insights back to the members. We also want to facilitate members to be able share information and their experiences with others. The number of common issues facing the membership continues to rise. There are some priority issues we intend to focus in on. Unsurprisingly FOS and complaints appears here. Along with areas that the FCA has highlighted including affordability and vulnerability. The impact of the Covid-19 pandemic is another area that we must continue to keep a close eye on. There also remains our campaign on protecting access to responsible credit. This has long been a focus of the CCTA, and this will continue on as we work to demonstrate the importance of having access to credit for consumers and the negative impacts caused when it is not available. We are keen to hear from members on any feedback they have on the summit and the content that was shared. We are planning more events for year, including some more interactive sessions on specific issues. We will be in touch with more details soon.

“It is no secret that we have long been concerned about the management of the Financial Ombudsman Service (FOS). Our most recent concerns have been about the organisation’s finances- both the funding model and runaway spending. “Just as important is that we tackle Claims Management Companies’ (CMCs) activities. Regulators have identified cases of fraudulent activity, the misrepresentation of individuals and the misuse of their data. Yet, the FOS seems happy to encourage them and give them the benefit of the doubt. “As we look ahead, the next Chief Executive must ensure that the Ombudsman provides an impartial service that works for consumers and firms. The FOS needs to help tackle bad practice by CMCs and ensure that customer data is protected and not misused. For firms, there needs to be consistency of approach and better understanding of consumers, products and the challenges facing firms”.

At around lunchtime today Rishi Sunak will deliver his budget for the coming year. Arguably the biggest day of year for any Chancellor, this is a budget like never before as we will learn the true impact of the Covid-19 pandemic on the economy. There is a lot of speculation about tax rises, possible changes to Universal Credit and further support for the industries most affected by the pandemic. With government borrowing at a record high, we expect much of the budget will be focused on recovery and how to get the economy moving again. At the CCTA we are interested in the impact on family finances and believe that the members we represent have an important role to play here. For many families, credit – particularly from non-bank lenders – is an important tool in balancing their own budget. The demand for this form of credit exists because it meets the needs of a group of customers. It may be that a small amount of credit is required for a relatively short period of time, or that a customer with a thin credit file cannot get credit from a bank. For many customers, credit is about making sure the car can get you to work or getting a higher-than-average electricity bill paid, the alternative being unable to work or a default on their credit file. Mainstream lenders are likely to tighten their risk appetite in the coming months as it becomes more difficult to assess the true financial situation of the borrower. This will mean that a segment of customers will find it more difficult to access credit. We know that when supply falls the need is still there, so consumers look elsewhere. Often at less desirable alternatives. There needs to be a real conversation about how credit is used and why it remains vital to so many. The pandemic has damaged that economy in ways no one could have predicted but the use of credit is not only valuable to individuals, but society in general and the economy. Credit fuels economic recovery which is so desperately needed now. Within the budget, a business minded government should recognise the important contribution made by the consumer credit market. A period of stability will allow our section of the credit market to continue to serve customers while also contributing to growing the economy once more.