Restoring stability
Using data and insights to support vulnerable customers in the cost-of-living crisis

Published 08 March 2023

Consumers in the UK are facing increasing financial pressure amidst the rising cost of living. Inflation hit 10.1% in the twelve months to January 2022, whilst the Bank of England raising base rates to 4.0% has significantly increased the cost of borrowing money. Unsurprisingly, people are feeling the impact, with our latest Consumer Pulse study showing three quarters of UK consumers are reducing spending to help them cope, whilst nearly four in ten (39%) are building up savings to safeguard themselves. In the face of economic uncertainty, it’s crucial for credit providers to be able to better identify and serve financially vulnerable customers. And with new regulation from the FCA coming into effect this year in the form of the Consumer Duty, which aims to set higher standards of consumer protection across financial services, affordability assessments based on a robust and holistic picture of an individual’s financial situation can play a major role in helping to deliver the right outcomes. IDENTIFYING VULNERABLE CUSTOMERS Our analysis here at TransUnion suggests that 12 million consumers now spend everything they earn (with £0 disposable income at the end of the month) up from 8 million in December 2021. So, to help protect consumers and manage their customer base better, credit providers need to be taking a proactive approach to identifying financially vulnerable customers and implementing appropriate affordability checks. The view on cost of living is crucial when undertaking an affordability assessment. It’s important that affordability screening reveals not a general trend but an individual-level susceptibility to stress and economic changes, such as steeply increasing energy prices or a fixed rate mortgage ending – which will likely have a significant impact on consumers in the current financial climate. It’s also paramount that the cost of living view includes different expenditure categories, such as council tax, energy, water, media services, home insurance, car insurance, commuting and food. This can help lenders get detailed insights into a consumer’s financial position and make more informed and sustainable decisions. EMPOWERING CONSUMERS In addition, by accessing an individual’s bank account directly via Open Banking – subject to the consumer’s consent – credit providers can obtain a granular picture of income and expenditure, complementing the traditional credit reference data. This helps finance providers to make lending decisions that are tailored to the needs of each individual, whilst also simplifying the process for the consumer and reducing the need for manually providing bank statements and other documentation. Open Banking can also help with stress testing and identifying where consumers may experience an unexpected drop in income that could have a significant impact on their financial stability and ability to make repayments on their loans or credit agreements. Credit education tools, underpinned by Open Banking technology, that help consumers to understand their credit information and how it’s being used by lenders, are also a valuable support. These tools empower people to monitor and manage their financial standing and we’ve seen, with TransUnion’s solution which is used by many leading banks, that this …

Joining the dots
Considering the price and value outcome

Published 07 March 2023

The price and value of regulated financial services products has long been in the FCA’s spotlight. The Consumer Duty is strengthening the FCA’s focus in this area. While the FCA already has powers to regulate certain aspects of pricing for financial products and services, its primary focus has been around consumer protection and market integrity. With its concurrent competition objective and with its view and interpretation of consumer protection arguably widening as part of the Duty, the price and value outcome is raising the stakes. It’s clear that many within the financial services sector are struggling to gain traction with evidencing both the rationale and justification of their pricing and value strategies. Our most recent webinar in February 2023 highlighted that 60% of respondents found that the price and value outcome was the single most difficult outcome to effectively evidence. This isn’t a surprise given just how difficult it can be to firstly, define fair value and secondly, to connect all of the dots together to paint a picture as to what fair value means, given it will be a component of both financial and non-financial measures and metrics. So what do firms need to do to evaluate price and value in a Consumer Duty world? LOOKING BACK TO LOOK FORWARDS According to the FCA, price is the amount that consumers pay for a financial product or service, while value is what consumers get in return for that price. The FCA believes that many firms already consider price throughout their day-to-day business decisions, but firms have not always considered the customer as being at the heart of this ‘value’ equation. The FCA ultimately believes that financial products and services should be priced in a way that reflects their value to consumers, and that consumers should be able to understand the costs and charges associated with these products and services. The regulator has, already on several occasions stepped in to regulate on price. This has occurred, for example, where the FCA felt that market dynamics and competition were not working for particular groups of customers. For instance, within the General Insurance market, existing customers often paid a higher renewal premium compared to new customers. Furthermore, within the High-Cost Short Term credit marketplace, the FCA viewed that historic pricing was ‘excessive’, not in the best interests of customers (many of whom were potentially vulnerable), and on occasion, argued that competition was not working for customers. Looking further back, many are often quick to point to the inherent issues with PPI as a product (for example, the limited ability to claim), but the excessive commission levels (often above the 50% tipping point outlined within Plevin) and the excessive erosion of value through an elongated distribution chain all combined to force the regulators hand to action and intervention. By looking at previous precedents, we can gain an understanding as to what the regulator wishes to avoid. So, what should firms be looking to evidence to demonstrate ‘good value’? PRICE AND VALUE: THE MOST DIFFICULT …

Grasping the nettle
Identifying and supporting vulnerable customers

Published 06 March 2023

Vulnerability Registration Service (VRS) produced our Vulnerable Customer Exclusion report at the end of last year and it showed some frightening but not surprising statistics. We know from the FCA that around a quarter of the population consider themselves to be vulnerable and our report underlined that, but 10% of people deem themselves to be at risk of homelessness, eviction or repossession and 2% of people are having to turn to loan sharks. Our findings were collated before the cost-of-living crisis had hit. One of the most worrying things we’ve learnt while building VRS is how many of us are on the precipice – a risk of spiralling into unmanageable debt with no obvious route out, falling prey to unregulated lending, becoming so overwhelmed that we are unable to reach out or find the support that may be available. CCTA members already play a massive role in providing part of the safety net that sits between financial inclusion and enabling people to remain in control, rather than being caught up in a tidal wave of debt collection, enforcement, mental health impact, prepayment meters and seemingly no way out. I think many lenders are still bruised from adverse publicity five or more years ago. Headlines like ‘legal loan sharks’ and ‘toxic lending practices’ still resonate and understandably make us defensive. Are we exploiting vulnerable customers by lending to them? The reality is that vulnerable people come in many shapes and sizes and in many cases it is more than appropriate to lend to them. The alternative is to increasingly limit their options and remove that safety net. There is a big opportunity for lenders to grasp the nettle when it comes to managing vulnerable customers and, as obvious as it may sound, the key to do doing so is to accept that some of our customers are indeed vulnerable, to understand the challenges and then start to manage them. We are still a long way off from doing so and that is not sector specific. Virtually every organisation I speak to, in every sector, is grappling with (if indeed it’s high enough on their radar) how to tune their customer journey to extend the right support to their customer base. But nobody is going to come up with a magic solution – there is no master plan from government, regulators or stakeholders to address this. We need to just get on and do it because there will be regulator action, there will ultimately be fines and there will be increasing amounts of negative press and media focus. Most of all, it’s the right thing to do. We need to just get on and do it because there will be regulatory action, there will ultimately be fines and there will be increasing amounts of negative press and media focus. Most of all, it’s the right thing to do. The first step is to identify vulnerability. That is not limited to financial hardship or indebtedness – a tick in the box by doing …

FCA roundtable on Consumer Duty implementation

Published 28 February 2023

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

‘The Future of Credit’ research – comments by CCTA CEO

Published 22 February 2023

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

CCTA Chief Executive announced as Credit Week Leadership Awards finalist

Published 14 February 2023

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

FOS discussion update

Published 09 February 2023

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

Path to Success: an update on membership services

Published 24 October 2022

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

Up in the Air: When is it appropriate to lend to those with CCJs?

Published 24 October 2022

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

Changing Track: What the new government means for the industry

Published 24 October 2022

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

Breaking the silence
It’s time to talk about illegal lending

Published 10 October 2022

Illegal money lending has a devastating, traumatic and long-lasting impact on victims, families and wider communities. This is driven by the predatory behaviour of loan sharks, which involves significant levels of harassment, intimidation and violence. Ruthless loan sharks exploit people in desperate need of quick cash. They charge extortionate rates of interest and trap their victims in a cycle of debt that can last for years and even decades. A report published by the Centre for Social Justice estimated 1.08 million people in England could be borrowing from an illegal money lender – more commonly known as a loan shark. This figure has more than trebled since 2010. Tens of thousands of people are ensnared by loan sharks each year and their debt can easily spiral out of control. These unscrupulous lenders befriend their victims and seek only to exploit people’s financial vulnerabilities. They often charge exorbitant interest rates and apply threats, fear or force to ensure repayment of loans. Almost two thirds (64%) of loan shark victims in England were introduced to the lender by friends or family, and over half (56%) had considered the loan shark a friend before borrowing from them. Predatory lenders can come in many different guises, which can make it difficult to identify them. The England Illegal Money Lending Team’s (IMLT) latest campaign, #LetsTalkLoanSharks, aims to raise awareness about these predatory practices and how you as a professional can help identify them. With price increases on everything from fuel to food making it increasingly tough for households to make ends meet, unlicensed lenders are stepping in, offering loans to the desperate at astronomical interest rates. Illegal money lending is on the rise, but it’s still a crime that remains largely underreported. By raising awareness in your community and encouraging clients to speak out, you can help fight this scourge and bring criminals to justice. Loan sharks are often seen as a last resort for people who have no other option for obtaining credit, including those with poor credit histories who are rejected by mainstream lenders. When you really need money but have a negative rating, an unexpected bill can be a critical moment that threatens to lead you down a dangerous path. The psychological impact of loan sharks is huge. These criminals are skilled at instilling fear into victims and their families, causing them to feel trapped, helpless and afraid. This often leads to the breakdown of relationships with family and friends, job loss and depression. The IMLT ran its national Stop Loan Sharks Week campaign from the 26 September to 2 October 2022 to highlight the help available to those who have been targeted by loan sharks, as well as increase awareness of this hidden crime in communities. This year’s campaign focused on reaching people who may not realise they are being exploited by loan sharks, as well as raising awareness of the support available to those who have already come into contact with an illegal lender. The #LetsTalkLoanSharks campaign aims to remove …

Changing track
What the new government means for the industry

Published 10 October 2022

Following Boris Johnson’s somewhat forced resignation in July, a new leadership contest for the Conservative party took place over the summer. Due to the current political system and the ways in which leaders are elected, this inevitably meant a change of Prime Minster and a new Government. Liz Truss MP, winner of the leadership contest became Prime Minister shortly after. Truss, viewed as the favourite for most of the campaign, was elected as an MP in 2010 and has served as part of the Cabinet since 2014. Most recently holding the role of Foreign Secretary. Truss, recognised as being on the right of the Conservative Party, campaigned on a platform of the need to deliver economic growth and tax cuts. We have already started to see this action being taken as part of the mini budget at the end of September, with the planned rise in National Insurance being reversed, and a series of tax cuts. A change in policy direction has also been coupled with changes to other major roles in government. Very few remain from the Johnson administration. This has been seen at HM Treasury with the appointment of Kwasi Kwarteng as Chancellor and a new ministerial team. The structure of the team has also been amended. Previously it was the Economic Secretary that held responsibility for financial services regulation, the FCA and access to affordable credit. These have now become the responsibility of the Financial Secretary. Andrew Griffith MP was appointed to this position on the 8th of September. Griffith is a relatively new MP, elected in 2019. Prior to this he worked in private business for most of his career but not much is known yet about his stance on consumer credit. We have written to the new Minster to introduce the CCTA and the issues currently facing the alternative lending market. Aside from this we continue to have regular meetings with policy officials at HM Treasury as these remain in post despite changes in government. Other government departments have also seen changes. At the time of writing, we are waiting for some responsibilities to filter through on issues we are concerned about such as small businesses and financial inclusion. These should become clear in the coming weeks. Access to credit remains central to our messaging, particularly the role for commercial credit within the market. In recent times we have tried to draw political attention to the sharp reduction in the supply of regulated credit for consumers who are unable to access the ‘prime’ credit market. A report from the Centre for Social Justice (CSJ) in March found that over 1.1 million people are now having to use illegal lenders in England (up from the previous estimate of 300K). We believe there are now more people using loan sharks than regulated high-cost credit, something the Government should be concerned about. In the last three years the FCA has presided over the departure of more than 100 non-bank lenders serving these consumers; and in the same period …