Retailers battle low consumer confidence at Christmas

Published 20 December 2017

As Christmas consumer spending heads towards its final hurdle, retailers will no doubt be hoping for a continuance of the slight uplift in sales as reported by the Office of National Statistics last week. Earlier this year, the British Retail Consortium (BRC) and KPMG reported like-for-like sales across the sector rose by a “meagre” 0.6% in November compared to the same period last year.[1] However, more recently, the ONS reported that sales volumes, boosted by Black Friday, were up 1.1% in the month, ahead of the 0.4% that City of London analysts had expected. It seems retail customers decided to take advantage of some of the offers available, driven perhaps by the constraints on household finances and a consequential need to reduce the overall cost of the festive period. A more measured consumer approach has therefore meant “household goods stores had a good November, with a number of businesses saying that Black Friday promotions boosted sales,” said Rhian Murphy of the ONS.[2] Generally retail sales account for around 30% of household expenditure, yet it was the purchase of electrical household items which received a particular uplift last month and contibuted to the ONS figures. The story is not quite so positive for food purchases, with the ONS reporting that the quantity of food bought in November fell by 0.1% compared to the same month last year, yet the amount spent increased by 3.5%, reflecting a rise in food prices that has contributed to the increase in inflation[3]. Consumer confidence remains low This is perhaps a more telling picture of low consumer confidence levels. Consumers have taken advantage of the sales in November, rather than those in December, as part of a measured approach to spending, meaning Black Friday sales were an exception. It seems that retailers will continue to face challenging conditions. Indeed it is highly probable that retailers will still face daunting sales figures due to inflation rising to 3.1% in November, the highest it has been for 6 years.[4] High mortgage debt Constrained household finances, stagnant wage growth and rising inflation mean families will continue to feel the squeeze – a view which is supported by a recent study of over 6,000 households for the Bank of England. This showed UK finances dipped following the Brexit vote, with an increase in people reporting high mortgage debt. The survey, carried out by the research firm NMG Consulting on behalf of the Bank in September, also reported the average borrowing on consumer credit was c.£8,000 but warned that the latest survey data did not appear to pick up the continuing trend in the official data – which shows an annual growth rate of almost 10%[5]. Yet as banks have tightened their lending criteria and the fact the cost of living is rising at the fastest rate in five years[6] it comes of little surprise to learn that consumer confidence remains low. Indeed as Close Brothers Retail Finance Managing Director Alex Marsh notes; “The final run up to Christmas may prove …

2018: What’s on the horizon?

Published 06 December 2017

As we approach 2018 – and with it GDPR – we wanted to share the foresight of Mike Bradford from Regulatory Strategies Ltd, who has drawn up what he sees from clients as being ‘front of mind’ and what we consider to be the likely trends for next year. Likely trends and actions in 2018: There will inevitably be increased GDPR awareness and with it the media picking up on enhanced consumer rights, potentially fuelling a rise in subject access requests (SARs) and requests under the new data portability provisions. Organisations need to be prepared for this.   It remains to be seen how tough the ICO and other supervisory authorities (SAs) will be on breaches of the GDPR.  Some early-day examples of non compliance may be set.  Any major breach or GDPR failure will involve more global cooperation between data regulators and the potential for the ‘highest common denominator ‘approach to levels of fines and sanctions.  Individual regulators will not have the same levels of discretion as they do now.   With the GDPR requirements around appointing a Data Protection Officer (DPO), this role should – and will – become far more influential across the business and its executive and Board.  Supplier management i.e. relationships, contracts and due diligence checks in respect of data processors will be even more important to get right.   We are increasingly seeing data protection compliance moving from being seen (by some) as a necessary evil to not only a form of compliance badge but as a real business differentiator, with organisations promoting their compliance status and using it to attract and win business in an increasingly privacy aware consumer marketplace.   One of biggest challenges will be having governance and accountability that is sufficiently robust to meet GDPR requirements but is also sufficiently flexible and dynamic to meet the ever-changing and evolving data world.  At the same time operational aspects of systems must remain compliant and this will be a challenge for organisations with legacy systems.   The world of ‘big data’ will continue to evolve – and GDPR compliance is key to how businesses optimise this opportunity.   More data breaches will come to light post GDPR as reporting obligations come into effect and focus attention on what previously would have been unreported breaches.  Consumers will become even more aware of the need to protect their data and the ramifications of any breach – legally, reputationally and commercially – will be significant.   Both pre and post 25 May, the GDPR will continue to be a compliance and core business challenge.  There is no ‘period of grace’ or transition period.  GDPR compliance is mandatory from 25 May 2018.  We are already seeing clients looking to seize the commercial advantage of GDPR readiness as a key business differentiator and early GDPR compliance i.e. pre 25 May is part of their operational and strategic planning.  Brexit will have no impact on the fundamental requirement to ensure full GDPR compliance by 25 May next year. …

FCA investigates Moneybarn

Published 05 December 2017

The Times has reported today that the FCA is investigating the car finance division of Provident Financial – Times commentary is below.  This should be a clarion call to all non standard HP providers to double check their credit worthiness and affordability checks. Times commentary: How much worse can it get for embattled shareholders in Provident Financial? In a brief stock exchange announcement this morning the subprime lender has given warning that the Financial Conduct Authority is investigating Moneybarn, its car finance division. The regulator, Provident Financial says, is examining the processes applied to “customer affordability assessments for vehicle finance and the treatment of customers in financial difficulties”. Provident bought Moneybarn for £120 million in 2014. Shares in Provident Financial topped £32.65 in May but have since fallen by 73 per cent after a botched restructuring of its core doorstep lending business triggered two mammoth profit warnings. The shares closed at 880p last night. See the full article here: https://www.thetimes.co.uk/edition/business/financial-conduct-authority-investigates-moneybarn-lj7n98s3z 5th December 2017

Consumer Experiences of Illegal Lending in the UK

Published 01 December 2017

This week the Financial Conduct Authority published a report detailing consumer experiences of illegal lending in the UK. The report highlights some of the experiences of ‘hard-to-reach’ consumers and the effects that illegal lending has had upon them. However, the report notes the difficulty in establishing hard evidence of the number of consumers involved with unregulated lenders, due to the hidden nature of the practice and therefore is unable to assess how widespread and significant illegal lending is. It is also therefore not able to properly assess if the FCA’s regulatory actions within the consumer credit market that reduce access to regulated credit, are adding to the use of illegal lending. What we do know from the FCA’s Financial Lives survey, published last month, is that of those interviewed directly, just under 100,000 had used an unregistered lender[1]. What the report does demonstrate is that those consumers using illegal lenders fall across all demographics and consumer types, including those in employment and from a financial background. The common denominator across all users is an income shortfall and a subsequent desperate need for money urgently. Some were reported as being cut off from credit completely and others avoided mainstream credit for fear of being rejected, or they found it too complicated to use. The report also highlights the lesser known areas in which illegal lenders can operate, where they practice alongside regulated lenders in areas such as, home collected credit, catalogue credit, pawnbrokers and credit brokerage. It also highlights that illegal lenders can also be found in workplaces as well as exploitative landlords who have not applied for FCA authorisation but have carried on their credit business regardless. Many of the stories reflect the plight of vulnerable individuals who were pinpointed by illegal lenders with a view to “put them in their debt and seek to keep them there”[2]. With Christmas just around the corner, FCA Chief Executive Andrew Bailey was right to issue a warning to families on the dangers of using unauthorised lenders, stating; “It leaves those who borrow with no safety net or protection against extortionate amounts of interest or threatening behaviour”[3]. The report is a useful indicator of and warning to consumer groups and regulators about the ease with which unauthorised credit can be obtained and the far-reaching consequences attached to it. However, with no analysis on how far current regulatory actions are increasing the use of illegal lenders, it adds little to what was already known. At CCTA, we continue to lobby the regulator on the effects of FCA regulation on legal lenders and to campaign for access to responsible and affordable credit to support consumers during the peaks and troughs of their financial lives.     [1] https://www.fca.org.uk/publication/research/financial-lives-survey-2017.pdf pg 139     [2] https://www.fca.org.uk/publication/research/illegal-money-lending-research-report.pdf – pg 13   [3] http://www.mirror.co.uk/money/shameless-loan-sharks-lurking-around-11603208    

Treasury Select Committee Announces Inquiry into Household Finances

Published 10 November 2017

Followers of Treasury Select Committee Chair, Nicky Morgan MP will have anticipated the announcement on 8th November that the TSC has launched a formal inquiry into household finances, honing in on income, savings and debt. The inquiry aims to consider the state of UK household balance sheets, including whether households are saving adequately in the current economic environment, problematic and over-indebtedness, inter-generational issues, lifetime financial planning and the effectiveness of the market in financing solutions and products to low income households. Announcing the inquiry, Nicky Morgan described debt as a “huge emotional burden” and advised the Committee will examine what policies can support households to achieve suitable savings, while also looking at ‘the sustainability of the UK’s household debt and consumer credit.’” The inquiry comes amid growing concerns over the nation’s rising debt levels and increased use of unsecured consumer credit. Last week, the Bank of England reported a rise in credit card lending increasing by 9.2% on the same month a year earlier – up from 8.9% in August[3]. This also reflects the concerns expressed by FCA Chief Executive, Andrew Bailey in September when he highlighted the number of people needing loans to make ends meet. As the banks tighten their lending criteria and the effects of the recent interest rate starts to impact households that are already impinged by stagnant wage growth, the need for responsible credit is taking on an even greater significance. It is unsurprising that the provision of consumer credit is very much a current area of focus for the regulator and it is therefore timely that the Treasury Select Committee has opened its inquiry into household debt. The TSC’s first evidence session is scheduled to take place on 14th November when evidence will be taken from Ashwin Kumar (Chief Economist, Rowntree Foundation), Michael Johnson (Research Fellow, Centre for Policy Studies), and Torsten Bell (Resolution Foundation). During the course of the inquiry, questions to be addressed include; the scale of and trend in problematic debt; whether there is a need for new credit products for the more variable household; what the regulators are doing to monitor the issues of problematic debt; the provision of credit products for low income households and what interventions can the Government make, including “breathing space” schemes. The issues surrounding debt and the need for responsible credit are unlikely to dissipate any time soon. As Brexit looms and the interest rate rise takes effect, we, at CCTA, will continue to keep you appraised of the developments of the TSC inquiry. We will also continue to work on your behalf with parliamentarians, stakeholders and the regulatory bodies providing input and comment to ensure that the interests of your business and your customers are truly represented. There has never been a more pertinent and essential time for your Trade Association to represent your interests through strong public affairs campaigning. Rest assured that we will ensure your voice is

Our Pre-Conference Podcast — an early sighting (hearing) of the debates we’ll be having in Nottingham

Published 31 October 2017

As a curtain-raiser for CCTA Conference week, I was joined in the studio by two experts from the worlds of consumer advocacy and the law: Mick McAteer of The Financial Inclusion Centre and Nikki Worden of the law firm, Osborne Clarke. Nikki is a specialist in the regulation of financial services having previously worked at Addleshaw Goddard and in-house at MBNA for eleven years.  Mick has been a leading consumer campaigner for the last two decades, and it’s fair to say one of the credit industry’s fiercest critics. Who better to get the juices running as we gear up for conference? In a wide-ranging discussion, we touch on Breathing Space, the seriousness of borrowing levels, the rise of PCP, the future of credit cards, creditworthiness and one of the key themes for this year’s Conference — Leadership, Tone and Culture. Disagreement guaranteed! I look forward to taking up the discussion with you in person at Conference. Greg Stevens Chief Executive

Where the Power Really Lies

Published 10 October 2017

On the credit card announcement, what was especially noticeable was that the substantive response came from the FCA, rather than Government Ministers.  Chief Secretary to the Treasury, Liz Truss MP, offered a few brief sentences off the back of McDonnell’s speech, but it was left to the FCA’s Andrew Bailey to give us the true indication of what ‘the Government’ response would be. On the same day as the announcement, Bailey told Reuters: “We are not there at the moment” on caps.  He said the FCA has been doing “a lot of work” on credit cards and was finalising measures following public consultation. “Our general approach is, look, we would rather like to see what the effect of those measures is” (sic). He followed up these comments in his Mansion House speech of 4 October.  This speech was significant for the same reason — it revealed where the power really lies when it comes to policy making. He used the occasion to speak about the FCA’s expanded role in public policy.  In doing so, he confirmed what many of us have realised for some time —that the FCA is the main policy setting body, not simply an implementer and overseer of policy set by the politicians.  Thus, it is Bailey who responds substantively to McDonnell, not Treasury Ministers. This is a fundamental change from the old Consumer Credit Act / OFT regime. It is politically advantageous for the Government because ministers no longer have to answer difficult questions about high APRs: they simply defer to the regulator.  But it also raises very serious questions about accountability and scrutiny.  If ministers hive off their responsibilities to technocratic regulators with powers to right new rules at the drop of a hat, at what point does a democratic deficit begin to open up? The FCA is of course answerable to Parliament but this places a big demand on parliamentary capacity; and with Brexit looming, Parliamentary is going to be slightly busy with other matters! In this environment, the roles of industry representatives become more important. It falls to the CCTA and others to keep a close watch on the regulator, and to raise the alarm with the legislators if there are issues or actions that require scrutiny.

The Dog that Finally Barked

Published 10 October 2017

One of the convenient things about having a Neo-Marxist opposition is that it makes the business of policy prediction a whole lot easier.  With New Labour, you could never be quite sure where its ‘triangulation’ would lead.  It mostly served up policies that were ‘Thatcher-lite’ in nature, whether on the economy or law or order and even foreign policy.  Only occasionally would it proffer a policy that was unmistakably Labour, for instance the ban on fox hunting; and when it did, it did so through the gritted teeth of the ever-smiling, but clearly reluctant, Tony Blair. No such disorientation with Jeremy Corbyn and John McDonnell — public good, private bad; soak the rich, champion every underdog.  So it is surprising that it has taken them so long to get onto the topic of price controls. Many of us expected a series of new caps on different kinds of lending to be included in the Party’s June election manifesto.  But nothing appeared.  Indeed, it was Theresa May’s Conservatives who made the running on caps with a promise to limit our energy bills, a commitment she seemed to drop in the election’s catastrophic aftermath but then picked up again during her equally catastrophic speech to conference in Manchester last week. But, finally, the dog has barked.  At the Labour Party’s annual conference in Brighton, Shadow Chancellor John McDonnell delighted delegates in the hall — and shadow delegates at the Momentum conference across the road — with a commitment to limit the amount of interest and fees credit card companies can charge their customers.  Under Labour’s proposals, credit cards will not be able to charge more than the amount lent. Leaving aside the motivations for the policy, it is undoubtedly well targeted.  It was announced alongside commitments to renationalise previously privatised industries and to take all PFI deals ‘back in-house’.  These have been calculated to hit areas of maximum public frustration with market-provided services (notably rail and the utilities), and to scapegoat areas of public provision that have been outsourced to private companies (i.e. PFI). Labour’s arguments are difficult to argue with not because they’re right necessarily, but because it’s impossible to prove the counterfactual (i.e. that energy prices are actually lower, or rail efficiency higher, than they would have been had they remained in public ownership). This now becomes the Conservatives’ job and an unenviable one it is, particularly for a demoralised party. Coming back to credit, Labour’s efforts to inflict damage on the Government over personal and household debt will be made more effective by a new-found state of unity between the Corbynite and moderate wings of the parliamentary party. Old enmities have been put aside, or at least muted, in the interests of political potency. Thus, McDonnell’s assault on credit cards coincided with a joint call from the Labour chairs of two heavy-wright select committees for an ‘independent public inquiry’ into household debt levels. They are unlikely to get a public inquiry.  But in the run up to the next election, which …

PCP: Are We Heading for a Major Crash?

Published 26 September 2017

Opinion and forecasts for the PCP market are proliferating at the moment as we hear from MP’s, consumer groups and the like, about the potential impact that the ‘debt crisis’ could have on the PCP market – especially as affordability criteria is tightened and interest rates are set to rise. Reports in the press are focussing on the overwhelming increase in private car sales fuelled by PCP financing deals which account for over 80% of new car credit sales. In broad terms, the PCP product is relatively new and the industry continues to accumulate credit risk, predicated on the belief that used car values will remain robust. However, banks and finance houses are beginning to tighten lending criteria and this will affect PCP consumers at the end of their agreement. Access to funding for firms will also become more problematical and a double-edge sword that cuts into the consumers’ plans for a further PCP deal. The PCP is very good for the majority. However, I believe that many consumers will struggle to be granted a new arrangement when they come to the end of their PCP deal as a result of reduced access to credit – and this also presents a further risk to the credit scores of Just About Managing customers if the product goes wrong. In addition, the PCP market is also facing an FCA investigation as it considers whether firms are taking the right steps to ensure that they lend responsibly. Problems will emerge as the regulator tightens its grip and the squeeze is felt by the consumer. At CCTA, we are aware of the issues that the PCP market is facing. We continue to lobby on your behalf on access to credit and access to funding to ensure the regulator takes heed of the warning signs. We are also seeking to provide our Members with guidance as the FCA begins to circle the product. Greg Stevens CEO, CCTA 26th September 2017    

Setting Leadership, Tone and Culture Standards for the Financial Services Industry

Published 26 September 2017

The consumer credit industry has a legacy that goes back for decades. As a dynamic industry, it has stood the test of time, weathering the storm of changing markets; embracing new legislation; complying with changing regulations, and adapting to the changing requirements of consumers over time. Today, the industry faces some of its most challenging times yet as commentators and government look for someone to blame for the latest ‘debt crisis’. Consumer credit is an obvious target, however, we know that the regulator will soon learn that it is not possible to further ‘protect’ the vulnerable without increasing costs. Inevitably this will reduce access to credit for those that need it most. Now is the time that the industry must display leadership across the sector; we must set out our path and go forth, determined and resolute. We must set the Tone and Culture that all others in the wider financial services market will follow. Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations – recently gave a speech to the City. In his speech, Davidson talked about culture and conduct in financial services – resonating with the CCTA’s messages over the past 12 months. Davidson quite rightly defines culture as being the mindsets and behaviours that are typical for staff in each firm. He notes how the Accountability Regime is directly targeted at the culture of firms and discusses a ‘potential cultural transformation of the financial services industry.’ Going forward, the FCA will not only be presiding over a firms’ accountability – it will also be managing its ‘culture.’ I have set out Davidson’s speech below in full as I believe its content is essential reading for all firms as we embark on a new era, wedded to Tone, Culture, Ethics and above all, exceptional Leadership. More news about this will be available from CCTA and our seasoned Leadership and Culture experts at our CCTA Conference in November. But for now, it’s over to Davidson….  Greg Stevens CEO, CCTA 26th September 2017   Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations – City and Financial speech   Introduction Thank you. I’m here today to talk about culture and conduct in financial services through the lens of the Senior Managers and Certification Regime or, as I like to call it, the Accountability Regime. The first phase of the Accountability Regime was introduced for about 900 banks and deposit takers in March 2016. Now we are consulting on how to extend the Accountability Regime to over 47,000 other firms. I was actually here a year ago and made a speech about culture in financial services. In that speech, I set out a definition of culture as being the mindsets and behaviours that are typical for staff in each firm. These tiny, everyday acts by individuals are what make up the overarching culture of the firm in which they take place. A year has gone by so I first want to talk to you about the progress we have …

The FCA’s HCC Review and Affordability Proposals under the Microscope

Published 18 September 2017

These two dossiers will have long lasting impacts on all credit businesses, but particularly CCTA members. In this month’s podcast, Greg Stevens is joined by two regulatory experts to assess the effects and ask what can be done, if anything, to offset the more damaging aspects. Click the ‘play’ button on the media player below and enjoy! Greg Stevens CCTA Chief Executive

Access to Credit and Funding

Published 18 September 2017

A key theme for the CCTA in 2017-18 will be ‘Access to Credit and Funding’.  It will be a central theme of our conference in November and our engagement with the regulator and policy makers throughout the autumn and into 2018. Put very simply, unless ‘access’ is maintained and safeguarded, the regulator will have failed — consumers will have lost a vital ‘coping mechanism’ that helps them keep their personal and household budgets afloat; and businesses will quickly go under, particularly SMEs for whom access to cost-efficient finance is a lifeline. Happily, the Head of the FCA, Andrew Bailey, agrees — certainly as far as consumers are concerned.  And he said so explicitly at a BBA conferences in June: “There is an issue around access to credit, which for me is at the heart of our interest in high-cost credit.  Put simply, it would not be an acceptable outcome to cut consumers off from access to credit when they have a justifiable need for credit, for instance to smooth erratic or lumpy income.” Mr Bailey’s comments are important because they put down a marker and enable us to hold the regulator to account.  And this is precisely what CCTA sought to do at two important events last week, both of which had ‘access’ at their heart. The first was a meeting of the Parliamentary Group on Alternative Lending in the House of Commons on Tuesday 12 September.  CCTA is a founder member of the Group and was instrumental in its establishment.  Chaired by former BBC personal finance correspondent, Julian Knight MP, the Group provides a forum for the CCTA and the wider credit industry to engage policy makers and share concerns about regulatory and policy issues. The topic of the meeting was the FCA’s latest response on the High Cost Credit Review, and the long-awaited consultation paper on Affordability and Creditworthiness, both of which were was published on 31 July. At a combined length of 1,000 pages, these documents have kept the CCTA busy over the summer. There is an awful lot to digest but a clear picture is emerging. On High Cost Credit, there are very significant challenges for businesses in the home credit, rent-to-own and catalogue lending industries.  The FCA’s proposals presage fundamental changes to these business’ lending models. The impact is potentially worst for home credit businesses, who face the prospect of limits on refinancing and imposed ‘time gaps’ between loans.  As anyone familiar with the product will know, home credit customers use it as a safe and dependable ‘smoothing mechanism’ to absorb additional costs at four key times of the year — Easter, summer holidays, back-to-school and Christmas.  Customers have been doing this for years; and they won’t necessarily appreciate the FCA telling them when they can and cannot borrow. The proposals on rent-to-own are perhaps less worrisome — many of the changes the FCA wanted to see have been introduced as a part of the authorisation process, and its prescriptions therefore focus on promoting competition …