Back to the drawing board?
Embracing change in a Consumer Duty focussed industry

Published 08 April 2024

In recent weeks, the FCA joined forces with UK Regulators Network (UKRN) issuing statements around debt collection activity. This ‘activity’ relates to all forms of communication to customers in arrears, be it from lenders, creditors or their chosen third party outsourcers. At a time when the cost of living crisis is biting hard, this is likely to go hand in hand with the ongoing campaign spearheaded by Martin Lewis, in relation to placing a cap on the number of communications allowed to be sent to a customer in any given week, including reminders and regulatory notices. This is a rule already in place in other countries. Imagine yourself as a customer with multiple debts, being contacted by multiple creditors, multiple times a week and it’s easy to see why this has been raised, and indeed where it’s heading. In essence what this means, under the umbrella of the Consumer Duty, is that messaging to customers must be fair, transparent and not misleading. This practice, when undertaken in the correct manner and within the spirit of Consumer Duty can actually enable a company to control costs, whilst improving the overall customer journey. It’s about reviewing every single communication and making sure it offers assistance along the way, encouraging customers to engage. Seven years ago, the FCA focused on the business I had joined to understand the market better, and imposed this similar rule. I can recall feeling how unfair that was when competitors were continuing under the old regime. I make it sound simple. It wasn’t. It was painstaking and an absolute commitment was required, however we were repaid ten fold. However, having agreed to abide by the requirement, we found over time that our bottom line improved alongside increasing our brand and reputation. I make it sound simple. It wasn’t. It was painstaking and absolute commitment was required, however we were repaid tenfold. Changing our CRM system was possibly the biggest and toughest part of the process, as we had to create a Single Customer View to ensure we complied with the new requirement, but looking back it was by far the best move we made. We also reviewed all our processes and communications and adapted them to fit our new system. Following that, we asked our partners to do the same. Anything is possible, but it takes commitment to undertake a thorough review and execute a plan to achieve a great outcome. I cannot stress enough how starting with a review of your systems is key to getting this right. To review your operation effectively to allow this (expected) change to work, it’s wise to look to your Consumer Duty Champion (independent of shareholders and management) who Is experienced and well versed on looking at this subjectively, as this will assist the business in become a shining star, raising brand, profits and ensuring customer delight.

DIGITAL LENDING
REVOLUTIONISING FINANCIAL ACCESS AND EFFICIENCY

ARYZA

Published 08 April 2024

In the dynamic landscape of lending, the fusion of technology and financial services is reshaping traditional practices, ushering in an era of digital lending. Historically, the lending sector in the UK has been dominated by traditional financial institutions, however, with the advent of advanced technologies, the industry is experiencing a profound transformation. Today, lending encompasses various categories and forms, ranging from mortgages to personal loans, each catering to diverse borrowing needs and preferences. Amidst this diversity, the shift towards digitalisation and automation is gaining momentum. Financial service providers are actively embracing automated models, propelled by the increasing prevalence of digital interactions, particularly accelerated by the COVID-19 pandemic. The magnitude of outstanding loans underscores the critical role of lending in supporting individuals amidst financial challenges. As borrowers navigate the borrowing cycle, the need for efficient and accessible support becomes more pronounced. Digital lending emerges as a response to these evolving needs, offering a progressive and adaptable framework that aligns with the demands of the digital age. By leveraging technology, digital lending addresses longstanding challenges encountered in traditional lending models. Digital lending is not a trend but a transformative force reshaping the financial landscape. One of the primary advantages of digital lending is its ability to enhance the customer experience. Through apps and online platforms, borrowers can seamlessly access credit facilities from any location, streamlining the application process. Digital lending facilitates quality decision-making by leveraging data analytics to gain insights into individual customers, enabling lenders to make informed decisions regarding credit approvals, income verifications, credit scoring, and loan outcomes. Cost efficiency and effective time management are additional benefits. By integrating digital solutions into their processes, lending companies can optimise operational costs and reduce processing times, thereby enhancing overall efficiency. However, the transition to digital lending also introduces certain risks, particularly in areas such as payments, IT infrastructure, and regulatory compliance. It is imperative for lenders to implement robust risk management strategies to mitigate these risks and ensure the security and integrity of the digital lending ecosystem. The rise of fintech lending is catalysing innovation within the industry. Fintech companies are revolutionising lending processes through the provision of cloud-based software solutions and leveraging technologies such as AI and data analytics to enhance efficiency and security. Digital lending is not a trend but a transformative force reshaping the financial landscape, offering unprecedented opportunities for financial access and efficiency. As we navigate this digital era, embracing innovative solutions and robust risk management strategies will be crucial for ensuring sustainable growth and resilience in lending practices. By championing technology, the industry is poised to meet the evolving needs of borrowers while navigating the complexities of the digital age.

Navigating financial difficulty
A comprehensive guide to customer support strategies

Published 08 April 2024

In the face of escalating living costs, it’s imperative for firms to extend support to customers grappling with financial challenges. The Financial Conduct Authority (FCA) has been proactive in implementing interventions post-pandemic to strengthen frameworks for customer support, aligning with Consumer Duty. Our white paper delves into these dynamics, aiming to aid firms in navigating the complexities of customer collections effectively. ECONOMIC LANDSCAPE The economic terrain post-pandemic has been characterised by soaring inflation rates and escalating domestic expenses. With the Bank of England’s consecutive base rate hikes, reaching 5.25% by November 2023, the affordability of goods and services has diminished, amplifying financial strains for many borrowers. Notably, the FCA’s 2023 Financial Lives Survey revealed a significant surge in missed bill payments, underlining the pressing need for robust customer support mechanisms. REGULATORY EXPECTATIONS In this economic climate, the FCA emphasises fair treatment of borrowers and proactive engagement to resolve payment issues. The implementation of the Consumer Duty underscores the necessity for firms to prioritise customer outcomes throughout the arrears and forbearance journey. However, FCA research indicates that only a fraction of borrowers in financial difficulty receive adequate support, highlighting the gap between regulatory expectations and industry practices. COLLECTIONS BEST PRACTICE & ACTIONABLE INSIGHTS In a recent white paper on Borrowers in Financial Difficulty (BiFD) that Square 4 Partners published, we outline twelve principles encapsulating collections best practices. From proactive customer engagement to transparent fee structures, these principles serve as a roadmap for firms to ensure fair treatment and sustainable solutions for customers in financial distress. Emphasising early intervention, tailored forbearance, and effective staff training, these principles align with regulatory requirements and industry standards. In the face of escalating living costs, it’s imperative for firms to extend support to customers grappling with financial challenges. As firms gear up to tackle the impending “collections iceberg,” proactive measures are paramount. We advocate for strategic initiatives encompassing education, impact assessment, governance enhancement, resource allocation, and talent acquisition. By aligning collections strategies with regulatory mandates and economic forecasts, firms can navigate the challenges ahead and mitigate potential risks effectively. CONCLUSION In a landscape stained by economic uncertainty and regulatory scrutiny, proactive customer support is non-negotiable. By embracing regulatory expectations and implementing robust strategies, firms can safeguard customer interests and foster financial resilience in turbulent times. To dive deeper into this topic, visit our website and download our Borrowers in Financial Difficulty white paper. Our comprehensive paper serves as a guide for firms, offering actionable insights, customer support strategies and best practices to navigate the complexities of collections effectively.

A worthwhile puzzle
Deciphering consumer vulnerability in lending

Published 08 April 2024

As we continue to navigate the cost of living crisis, credit markets are seeing an ever growing number of vulnerable consumers. This is against a backdrop of the FCA’s Consumer Duty obligations, ensuring good and fair consumer outcomes. As an industry, we recognise that addressing consumer vulnerability is more than a regulatory requirement, it’s crucial for the health of both the credit market and consumers. Industry responses need to be about more than just compliance. We must build a financial ecosystem that is accessible, equitable, and resilient – ensuring all consumers, especially the vulnerable, get the care and protection they deserve. This underscores a collective industry effort to foster a fairer, more inclusive credit market. At TransUnion we’ve worked with industry to optimise our rich credit data to understand the scale and spectrum of consumer vulnerability, to help the industry identify consumers who need most support. Our immediate insights focused on the financial side of a consumer’s life, specifically understanding the impact of pressure and stress on disposable incomes. Recently, TransUnion have worked with non-financial vulnerability data via the Vulnerability Registration Service (VRS), who capture an array of self-declared non-financial vulnerabilities such as mental health, disability and gambling addiction. Using VRS data, we get an idea of challenges facing the UK industry. Vulnerability is a broad concept – a significant proportion of the population are impacted in some way and classed as vulnerable at some point in their lives. However, not all vulnerabilities lead to harm, the support the consumer needs could be based around service and accessibility rather than intervention. It’s therefore important to understand the consumer’s position on the spectrum of vulnerability, the likelihood of future harm and the best treatment strategies and appropriate services for them. For example, roughly 16m UK consumers live with some form of disability – for many their greatest need is appropriate access to credit, and efforts to ensure their inclusion (i).  When focussing solely on financial vulnerabilities, 31% of UK consumers have at least one indicator, or to be more specific, 11% of UK adults are experiencing financial distress (ii). We must build a financial ecosystem that is accessible, equitable, and resilient – ensuring all consumers, especially the vulnerable, get the care and protection they deserve. TransUnion can also identify income-based vulnerabilities, with 15m working age consumers falling into the low income bracket (where income is approximately 70% of UK median income). Whilst low income doesn’t always indicate vulnerability, the cost of living crisis has resulted in material stresses on customer’s affordability. We’ve found that approximately 10m UK consumers are in severe income distress, spending everything they earn each month (iii). We have observed good practices across the industry – examples include increased access and usage of non-financial vulnerability data; greater focus on predictive analytics, expanding outcome definitions beyond delinquency and profitability; and re-designing servicing capabilities with specific vulnerabilities in mind. Supporting vulnerable consumers is a non-competitive industry imperative, and as such, we need to collaborate and share best practices – to …

Blue sky thinking
The latest innovations in recurring payments for collections

Published 08 April 2024

In the collection landscape, innovative solutions are continually reshaping the way payments are processed and managed. With the emergence of technologies like Apple Pay Recurring, Open Banking payments, and Direct Debit, Debt Collection Agencies and lenders are streamlining processes and enhancing user experiences like never before. APPLE PAY RECURRING Apple Pay Recurring is just one of the ways borrowers are managing their recurring payments. Leveraging the convenience and security of Apple’s ecosystem, customers can use Apple Pay Recurring through gateways such as Acquired.com. Customers sign up for a subscription using Apple Pay and have the recurring payment collected as a normal Continuous Payment Authority (CPA). Apple Pay’s built-in layers of authentication allow transactions to meet all Strong Customer Authentification requirements, as well as offer a frictionless payment experience for borrowers. OPEN BANKING Open Banking payments are another rapidly growing innovation for the collections landscape. Introducing the option to pay via Open Banking from a different bank account than the one linked to their CPA or Direct Debit allows borrowers to make loan repayments from an account of their choice, enabling them to manage their cash flow more effectively. With Open Banking, debt collection becomes more transparent and efficient, benefiting consumers and collectors. These latest innovations in recurring payments are reshaping debt collection and lending practices, offering enhanced convenience, security, and efficiency. DIRECT DEBIT Direct Debit remains a cornerstone in recurring payments, offering reliability and convenience. With Direct Debit, consumers authorise payments to be withdrawn directly from their bank accounts on specified dates, eliminating the need for manual intervention. This automation reduces the risk of missed payments and late fees, providing peace of mind for both borrowers and collectors. Additionally, Direct Debit offers flexibility, allowing consumers to adjust payment schedules as needed, further enhancing convenience. NETWORK TOKENISATION Acquired.com has seen a notable improvement in success rates of recurring payments with the implementation of Network Tokens, with some customers seeing up to a 4% uplift in success rates (Source: The Acquired.com Hub). If a customer’s card is lost, stolen, or expires, Network Tokens remain usable and update with the new card details in real-time. For lenders processing recurring payments, it means enhanced security, better conversion, and the potential for reduced costs. In the UK, these latest innovations in recurring payments are reshaping debt collection and lending practices, offering enhanced convenience, security, and efficiency. With solutions like Apple Pay Recurring, the option of Open Banking payments, and legacy solutions like Direct Debit, the collections industry is better equipped to navigate the complexities of payment processing, while providing a seamless experience for consumers.

Horizon scanning
The latest regulatory issues affecting our industry

Published 05 April 2024

The industry has become increasingly busy with a range of regulatory issues, which I will touch upon later in this article. To begin with though, I would should start by thanking our members for their continued support. MEMBERSHIP RENEWALS Many firms renew their CCTA membership in January. Indeed, about 35% of our fees are due at the start of the year. So, I was delighted when our renewal rate hit 98%. It has been difficult for smaller lenders, and we have seen more leave than join the market in specific sectors. That makes our retention rate even more of a success. CCTA ACADEMY I am delighted to inform readers that our online learning and development platform, CCTA Academy, has been well-received since it’s launch at the end of last year. The FCA has clarified the importance of your team members having a certain level of understanding. CCTA Academy includes those introductory modules and provides that basic information via a range of courses. We are heading towards 300 enrolments across a range of member firms. Keep an eye on our member communications for more learning and development opportunities from the CCTA ACCESS TO CREDIT CAMPAIGN Let’s move back to policy and campaigns. Anyone who has heard me talk about the CCTA knows that we have a history linked with access to credit. Lenders and retailers came together over a hundred years ago because the banks didn’t provide credit to these communities. Increasingly, I am discussing the need for credit and what we have seen in the reduced supply for specific communities. You may have seen the Clear Score report on the non-prime market. This comes on the back of research from Fair4All Finance and more media interest. Anyone who has heard me talk about the CCTA knows that we have a history linked with access to credit. The CCTA team is looking at how to keep the discussion going and float ideas. We are always open to advice and ideas about how the regulator can help. CONSUMER DUTY On to the Consumer Duty. The Duty continues to be the issue in just about every discussion. There is a reason why the panel sessions at our events have been about the Consumer Duty for the last couple of years. Increasingly, we hear informal comments from the FCA about their concern that firms are still not doing enough about the Duty. While we have had some contact from firms seeking help with the Duty, it is less than we expected. That is partly why we are working on two guidance documents. The first will cover implementation and expectations shared by the FCA. The second will look at the requirements around the anniversary of implementation, such as the board report and closed book review. Look out for these via our member emails. CAR  FINANCE COMMISSIONS Many of you will have seen the attention that Martin Lewis has brought to the issue of car finance commissions. We are already at a point where over a …

Vulnerability must remain a central focus

Published 26 March 2024

We have written a few posts in recent months exploring the cost-of-living crisis, and the impact it is having on different consumers. Money worries continue to get a lot of coverage in the media, but we are also told about the recovering economic health of the country. It is difficult to assess how individuals are coping as it is dependent on their own unique circumstances. That said many are still struggling or could easily be affected by an unexpected shock to their income. Though financial difficulty is not the same as vulnerability, the two are inextricably linked, especially in the eyes of the regulator. The FCA has the issue of vulnerability firmly in its sights and it wants to ensure regulated firms are doing the same. Of course, someone could be considered vulnerable for nothing to do with their financial situation – they may have a disability or have suffered a significant life event. Firms should know they need to consider all possible angles. Only last week the regulator announced a review of firms’ treatment of customers in vulnerable circumstances. In its 2022 Financial Lives Survey, the FCA found that over 27M adults in the UK showed at least one characteristic of vulnerability. That is a significant proportion of the population. It is easy to see why the regulator is maintaining such a focus on vulnerable customers. The FCA’s review will look at firms’ understanding of consumer needs, the skills and capability of staff, product and service design, communications, and customer service, and whether these support the fair treatment of customers in vulnerable circumstances. It will also look at the outcomes consumers in vulnerable circumstances receive and whether they’re as good as the outcomes of other consumers.  As part of the review, the FCA will conduct consumer research as well as gathering information from firms and consumer representatives to make this assessment. Firms can be expected to be contacted and be asked to evidence their policies and procedures. This week a “Dear CEO letter” was also issued by the FCA to much of the consumer credit sector further underlining the need to consider vulnerable customers. The letter covered the entire lending cycle but urged lenders to lend responsibly and sustainably. They pointed to the fact the vulnerability is increasing while financial resilience decreases. With that in mind firms should ensure they are following the regulator’s guidance on fair treatment of vulnerable consumers. The introduction of the Consumer Duty should also help firms assess how they are dealing with vulnerable customers. It is about being proactive, stepping in when you can to help and support the customer. “Doing the right thing” for the customer might sound cheesy but a lot of this is common sense. Are you treating the customer like you would want your family to be treated? Are staff alert to the signs of vulnerability? Do you have systems in place to support customers that need it? These are the sort of questions firms should be asking themselves and …

 The Budget – Do the sums add up for UK families?

Published 07 March 2024

Yesterday the Chancellor delivered the Spring Budget in Parliament. The purpose of the budget is to update Parliament on the state of the economy and to outline the Government’s proposals for changes to the tax system. This was arguably the last big economic event we will see from this Conservative government. The Prime Minister has told us to expect an election by the end of this year, so it is unlikely we would see another statement before then. It goes without saying that there was a lot riding on this budget. The Conservatives will be hoping that the measures announced start to move the dial on their current ratings in the polls. Labour still maintains a significant lead. This was about appealing to potential voters. There were numerous mentions of the Conservatives being the party of lower taxation, trying to drum the message home. The big headline announcement was a further cut to national insurance. Someone earning £25,000 a year will save another £249 a year from the latest drop. This will be a welcome change for the average earners across the country, following the previous cut last November. But Sunak (when Chancellor) had previously pledged to take a penny off income tax by 2024, which hasn’t happened, so represents another broken promise. A further welcome announcement was the plan to extend child benefit to more families by raising the income level at which people start being charged for receiving the benefit. The budget included very little mention of pensions so did appear like the Government was trying to appeal to the working-age section of society. During the delivery, Jeremy Hunt said the economy was improving, having “turned a corner on inflation”. That said, there were still a range of pledges to help struggling families. These included the extension of the Household Support Fund for six months, and a longer repayment period for budgeting loans which can be used for essential items like furniture or white goods for those eligible. These proposals will help those hit hardest by the cost-of-living crisis, but no further long-term support was announced. Though the Chancellor did state that he was removing the charge on Debt Relief Orders. A welcome step for those trying to repay debts that they are struggling with. Fuel duty was frozen again, recognising the importance of not increasing the costs of keeping a vehicle running, a lifeline for many families in terms of getting to work, school and keeping businesses moving. Another welcome step was the announcement that vehicle leasing companies will benefit from full expensing with draft legislation expected soon for full expensing to apply to leased assets, representing a significant tax break. We also saw a commitment to green investment with a fund of £120m for green energy projects. Overall, a mixed bag of announcements. The Chancellor was keen to appeal voters, and historically the last budget of a government promises the most in real term gains. He may also be thinking about his own political legacy. Whatever happens at …

Is the cost-of-living crisis over?

Published 20 February 2024

Over the last few weeks, we have seen a lot of news pieces and data released about the country’s financial health and the associated impact on households. Inflation, recession, borrowing, spending, they have all been mentioned. Another phrase we have heard a lot in recent times is the ‘cost-of-living crisis’. We have been told we are in a cost-of-living crisis. A global pandemic that changed the employment status of many and war in Ukraine, causing energy prices to go sky high, resulted in many people struggling to manage their finances. To ease the burden, the Government offered support with the cost of energy, and others also qualified for separate cost-of-living payments to get through a hard winter. It’s unlikely the Government would have provided this level of support if it didn’t expect people to hit crisis point. Last week the final cost-of-living payment was paid to millions. The Prime Minister used it as an opportunity to say that the pressures were starting to ease, due to falling inflation and tax cuts. No further payments of this kind have been scheduled. Inflation might be starting to come down but it stalled at 4% in the most recent figures. It doesn’t yet feel like the economy is improving at any great scale. Last week it was also reported that the country just dipped into recession in 2023, blamed on people spending less – though apparently the figures suggest it won’t last for long, it does appear that there is very low growth. There was some good news however, as food prices have started to fall. Where does this leave family finances? There are some green shoots of good news like wages starting to rise, but at the same time debt advice providers are reporting high numbers of individuals that use their services are really struggling. New research published by Citizens Advice claims that politicians are burying their heads in the sand as five million people now find themselves in a negative budget situation. A significant proportion of society still doesn’t have enough money to make it through the month. It feels like there are now conflicting views on whether the worst is over for many, or that there is still more pain to come as individuals move off fixed rate mortgage deals and expected rises in council tax. Interest rates remain high in the hope that inflation will drop. It’s no surprise politically that the Government is telling us that things are getting better. It will be interesting to see what the Spring Budget entails early next month especially as election looms in the not-too-distant future. The Covid-19 pandemic and the introduction of the FCA’s Consumer Duty have shown that the regulator expects firms to really understand the financial position of their customers. At time when some families are struggling more than others, it demonstrates, more than ever, the need for an individual approach. It is fair to say that while things are starting to improve for some, times remain hard for …

Next steps on the Consumer Duty

Published 09 February 2024

We are now into the seventh month since the implementation of the Consumer Duty. We know that many firms continue with their efforts and focus on meeting the requirements of the Duty and achieving improved consumer outcomes. No doubt firms will agree that it has been an intensive journey thus far. It was always meant to be about delivering continuous improvement in customer outcomes, but now is also an appropriate time to remind firms of the upcoming requirements as to the next steps in that journey. We specifically refer to two requirements which should be addressed by 31st July 2024. The first year of the Consumer Duty implementation focused primarily on new and existing products/services that financial services firms offer to retail customers. Closed products (i.e. products/services that are no longer marketed or sold, but active arrangements still exist) were due to be brought into scope a year later than new and existing products. That deadline is 31st July 2024. Some firms will have already progressed work in this area and will be well on their way to complying with the requirements for closed products, when they are brought into scope. However, for those firms that still need to carry out additional work in respect of their closed products, there is still time to ensure that you have addressed the requirements by the end of July. The next requirement is in relation to firms’ annual board reports. The FCA’s Policy Statement also sets requirements for firms to produce annual board reports for the board (or governance body) enabling the board/body to assess their compliance with the requirements of the Duty and whether they are achieving good consumer outcomes. Annual board reports should comprise of data and insights (MI) from all areas of the business (i.e. product design/development, marketing, sales, customer service, complaints etc) to provide an overall view of the firm’s compliance with the requirements of the Duty. Reports should also enable the board/governance body to identify where good/intended outcomes are not being achieved, allowing it to act to address any harm (or potential harm) being caused to consumers. Evidently, thorough, in-depth MI is key to developing an annual board report that will serve sufficient purpose for the board/governing body to meet its requirement to assess compliance and address harm. Many will have made sufficient progress in the data and MI they have collated over the course of their implementation journey, but firms should now be thinking about compiling the collective MI aspects into a board report fit for purpose. Remember, annual board reports and any actions on the back of each annual report need to be documented and retained for evidence. The FCA has previously stated that such evidence should be readily available, if the regulator feels the need to request it.

What’s happening with motor finance commissions?

Published 01 February 2024

The issue of disclosure commission complaints is something we have been following in recent times as part of our work on motor finance. On the 11th January the Financial Conduct Authority (FCA) announced that it would be undertaking work in the motor finance market – but on a different area- discretionary commission arrangements. The regulator banned these arrangements in 2021 but it was starting to see a high number of complaints from customers to motor finance firms, claiming compensation for commission arrangements prior to the ban. The FCA found that many of these complaints were being rejected because firms do not think they acted unfairly. As a result, the regulator is using its powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms. They have told us in the interest of time they will appoint the skilled person to carry out the review. Firms that are part of the s166 project should have been contacted by now. There is likely to be a wider sample of firms that are contacted for some details as the FCA is keen to understand what has happened across the entire sector. The FCA should be in touch with these firms before the end of April. While the FCA carries out its investigation it has also paused the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will last until late September. Firms need to alter their processes to ensure the pause is in place and that complainants know what is happening. That includes ensuring all communication about the new deadlines and time limits is clear. There is some useful information for firms on the FCA website. The investigation is in its early stages, but possible outcomes may include customer redress schemes as well as new guidance for the sector. The FCA has asked firms to save relevant information in case of future complaints or redress schemes. The Financial Ombudsman Service also recently investigated some complaints that had been rejected by firms. It found in favour of the complainants in two recent decisions which can be viewed here and here. It’s worth firms taking the time to read these to get a sense of the approach the Ombudsman is likely to take in the future. There is no doubt that they will be involved in the project. It’s clear that there is a lot going on in the motor finance sector and there will be some uncertainty until we see the results of the FCA’s investigation. Experience from other sectors tells us the firms should make sure they are communicating with affected customers by explaining the current changes. Though much of the investigation will relate to historic cases, firms should be focusing on doing the right thing for their customers, particularly against the backdrop of the Consumer Duty. We will continue to engage with the FCA while the investigation is ongoing. If you have …

Changes in Home Credit

Published 22 January 2024

Back in the early noughties, the home credit market was under intense scrutiny for a lack of competition which led to the then Competition Commission investigating the sector. It was thought that it was difficult for consumers to compare products or switch between providers to find the best price. Following the investigation an order was passed that placed various conditions on the sector. Fast forward to last week and we were pleased to hear that the Competition and Markets Authority, the successor to the Competition Commission, has suspended parts of the original home credit order and published an invitation to comment on a proposed review of the order. For some there may be no surprise that just one of the six original larger lenders active in the market remains today. We have seen the home credit market drop away under regulatory pressure and the activities of claims management companies driving complaints. Independent research suggests this might be as much as a 90% reduction. That generates questions and concerns about what happens when regulated credit is stripped away. There is growing evidence that this has led to the growth of illegal lending throughout the UK. Unfortunately, this more significant issue is not getting the focus it deserves. We continue to raise these concerns with both the FCA and HM Treasury. One of the drivers of the original inquiry was down to home credit customers having a lack of other borrowing options. This problem hasn’t gone away. Recent customers will face the same challenges. Many are likely to have turned to family and friends or loan sharks. And we know the lines between these two groups can become blurred quickly. This review covers the “Lenders Compared” price comparison website set up following the order. All lenders were required to list their products on the site, which was to be funded by the larger firms within the market. As larger firms like Provident, Non-Standard Finance and Morses Club have left the market, this is now unsustainable. There is also a question as to whether a price comparison site remains useful to consumers in this area of credit. There is likely to be more relevant information and advice that could be shared with these individuals. We all want consumers to be given clear information about their options for borrowing and the cost of loans, but there has been immense regulatory change in recent years. Regulation now sits with the FCA and lenders in this sector must comply. The introduction of the Consumer Duty is also redefining how firms and their customers interact. The market has changed dramatically since 2007, and parts of the order no longer make sense. The CCTA will call for the review to go ahead and question whether parts of the order need to be updated, given the current state of the market, nearly 20 years on. We will constantly push for more focus on the more significant access to credit questions. As always, if you have views to share, then …