CCTA 2022 Conference
Write-up

Published 20 June 2022

MORNING SESSIONS We held our first conference since before the pandemic, on the 27th April in Liverpool. Here we pick up on some of the themes and discussions from the speeches and panel sessions that made up the agenda. After our Chief Executive Jason Wassell opened the conference, we began our first panel session, A mile in their shoes: understanding the alternative lending customer, sponsored by Lantern. The purpose of this panel was to look at customers and understand how they manage their finances. Panellists told how the pandemic had different impacts on different segments of consumers. It had also driven change in how customers want to interact. Customer engagement is therefore increasingly important via digital channels, but there are some that still prefer face-to-face interaction. After our morning break which included a visit to the exhibition area for many, the keynote session of the day was delivered by Brian Corr, Interim Director of Retail Lending at the FCA. We are very grateful that Brian was able to attend the entire conference and dinner to hear from members. In his speech Brian talked about the role alternative credit can play within the wider market. He also referred to the regulator’s three year strategy document which sets out the importance of reducing and preventing harm, while promoting competition and positive change. Access to credit was also cited as borrowers need to have access to affordable products which meet their needs. Lastly, Brian talked about how the Consumer Duty measures are expected to allow the FCA and lenders to become more adaptive in delivering good customer outcomes. We then moved on to a panel session that looked in more detail at some of the regulatory measures, sponsored by Themis Consultancy. There was a general consensus among the panelists that the financial services industry had reacted quickly during the pandemic and became part of the front line approach. The Consumer Duty was described as the biggest challenge for lenders moving forward and it was suggested that firms would benefit from starting to prepare now. This could include asking ‘do we understand our target market’, reviewing the customer journey and conducting a gap analysis. AFTERNOON SESSIONS After lunch, the third session of the day commenced with a presentation from the Illegal Money Lending Team, delivered by Cath Wohlers. Cath updated the conference on the current state of illegal lending, talking about loan sharks that are increasingly operating online using social media to entice and exploit new victims. She also mentioned the recent report from the Centre of Social Justice that highlighted that one million people are believed to owe money to an illegal lender. It was then time for a panel on technology, looking at new innovations in lending, kindly sponsored by Aryza. While ‘a well-regulated successful credit industry can only be a good thing’, the provision of open banking and digital customer communication have provided more options to the credit industry to explore as part of the customer journey. We heard that the …

Empowering consumers
The use of credit technology

Published 20 June 2022

For UK consumers, the current economic climate continues to create challenges. As the cost of living increase continues to intensify, many are concerned that they will no longer be able to keep up with their regular monthly outgoings. In fact, the Office for Budget Responsibility, predicted that UK household real income in 2022 would contract at the sharpest rate since records began in the 1950s. Recently UK consumer price inflation has risen sharply and significantly impacted the price of food, durables, consumer goods, fuel, and energy. Fuel costs are recognised as one of the biggest contributors to this rising inflation, with average petrol prices increasing by 12.6p per litre between February and March, the largest monthly increase since records began in 1990. The war in Ukraine is also contributing to this uncertainty. For lenders, these unpredictable times are a cause for concern, significantly impacting the consumer’s ability to pay back credit. Creditors are looking for ways to not only mitigate risk, but also support their customers. Before businesses can support struggling consumers, they need to identify them. According to one study, almost a third of businesses admit that they are ineffective at identifying at-risk consumers, while an inability to spot ‘early warning signs’ was a critical challenge for 27 per cent of respondents. By running far more sophisticated affordability checks that factor in a range of credit, open banking and transactional data, lenders will benefit from greater insight around a person’s true financial position, allowing action to be taken immediately. Should any at-risk factors be flagged, lenders then need to be able to proactively monitor these cases on an ongoing basis, regularly engaging with the individual to understand if their circumstances have changed and then taking the most appropriate action. This has been a long-standing challenge for those reliant on legacy technology or manual processes, especially as case volumes increase. Specialist systems can digitally guide consumers through their money management journey, explaining their options in an easy to understand and step by step format. By utilising open banking data and smart software, these systems connect customer accounts, cards, debts, and assets, identifying the most appropriate and helpful offers available. These tools can be applied at all stages from acquisition through to recovery and should provide early warning of a customer struggling with their situation. With the cost of living continuing to spiral, it’s crucial that banks and lenders are taking action to ensure positive financial outcomes for consumers and prevent a tidal wave of debt. For the consumer, knowing that they won’t have to have a difficult conversation over the phone or in-branch will also remove a hurdle that might previously have delayed them from seeking help. To find out more about Aryza’s solutions visit www.aryza.com.

Dear CEO
Are you doing enough?

Published 20 June 2022

A ‘Dear CEO’ letter is fast becoming the choice instrument of communicating with regulated firms. Such letters serve to focus the attention of a firms’ CEO and accountable senior managers on crucial issues for the FCA. On this occasion, the FCA issued a Dear CEO letter on 6th May 2022 to consumer credit firms demanding immediate action to ensure firms’ financial promotions are clear, fair and not misleading. While this letter was aimed specifically at credit brokers and firms providing high-cost lending products, this warning letter should also be a reminder to regulated consumer credit firms of the FCA’s expectations in respect of financial promotions. ENVIRONMENTAL CONTEXT Driven by the cost-of-living crisis, the FCA expects an increased consumer demand for such products and does not want to see regulated firms exploiting this economic environment by promoting and subsequently advancing unsuitable, unaffordable and unsustainable loans. It has committed to keep the sector under close review by carrying out proactive surveillance and monitoring online credit advertising to check that firms are complying. What firms need to do in response to this Dear CEO letter: REVISIT THE REQUIREMENTS Ensure all relevant staff involved understand the regulatory requirements, including what constitutes a financial promotion, and the basic rules set out in CONC, the Advertising Standards Authority’s Cap Code and associated advice, the Consumer Protection from Unfair Trading Regulations and the relevant data protection regulations governing the provision of opt-out. IMMEDIATE REVIEW Undertake a risk-based review of your financial promotions in use and re-assess against the CONC and CAP Code requirements, prioritising those that drive the highest proportion of customers to apply for credit through your firm; ASSESSMENT OF SYSC Assess your systems and controls around the design and approval of financial promotions are fit for purpose, including but not limited to a financial promotions policy and procedure, staff training, financial promotions register, an approval form, first and second line of defence checks, etc. BOARD AWARENESS Ensure your Board is aware of this letter and the actions to be taken so that sufficient challenge can be raised, and evidence documented. CONSEQUENCES OF IGNORING THIS LETTER In the event the FCA identifies shortcomings in a firm’s financial promotion(s), they will consider what further action may be appropriate to take. They have the power under section 137S of FSMA to direct a firm to withdraw an advert (or its approval of an advert), or to prevent it from being used in the first place. More broadly, non-compliant financial promotions can quite often prompt the regulator to apply more scrutiny to firms, as shortcomings in financial promotions may serve as an indicator of wider deficiencies such as a lack of effective systems and controls, poor governance and/or a weakness in staff competency, capability and sufficient knowledge of the regulatory requirements. Furthermore, the imminent Consumer Duty will bring an added dimension, resulting in a greater expectation on firms to demonstrate their communications enable customers to fully understand the features, benefits and limitations of the products and services they offer.

Navigating the maze
The importance of credit and the Consumer Duty

Published 20 June 2022

Inflation is biting. Food, petrol and energy bills – the essentials for many are rising at rates not seen for a generation. Many households are struggling and will continue to have to make some difficult choices through these challenging times. The demand for credit is therefore likely to rise, as is the support that existing borrowers are likely to require. As a result, the focus on the consumer credit sector from the FCA will be a key priority. This was the key message from Brian Corr, Interim Director of Retail Lending at his recent speech at the Credit Summit 2022, where he emphasised the focus of the FCA on ensuring firms are delivering the right outcomes for consumers who use credit products and ensuring that borrowers get the right help and support from their providers when they get into financial difficulty. As a result, the regulator is focusing on key outcomes and raising the bar through the implementation of the new Consumer Duty. As part of this article, we will look at the key read across to the sector for the Consumer Duty. WHAT IS THE NEW CONSUMER DUTY? The new duty is a package of measures that consists of a new principle, rules, and guidance. There are three key elements which underpin the proposed duty, which are as follows: 1. THE CONSUMER PRINCIPLE This is designed to improve overall standards of behaviour and the current wording which is under consultation is as follows: ‘a firm must act in the best interests of retail clients’ or ‘a firm must act to deliver good outcomes for retail clients’. 2. EVIDENCING SPECIFIC BEHAVIOURS The regulator wishes to see three key behaviours from firms: a. taking all reasonable steps to avoid foreseeable harm to customers b. taking all reasonable steps to enable customers to pursue their financial objectives c. and to act in good faith; 3. FOCUS ON FOUR OUTCOMES The duty is expected to set more detailed expectations around four specific outcomes: communications, products and services, customer service and price and value. In brief, under these proposals, firms will have a duty to make sure their customers are receiving fair value and fair products, that they understand how to use their products/services and receive the support they need to do so. Firms will have to consider the needs of their customers (including those in vulnerable circumstance) and how they behave, at every stage of the product/service life cycle, extending their focus beyond ensuring narrow compliance with specific rules, to also focus on delivering good outcomes for customers. Whilst some firms may already be meeting some or all of the expectations above, a key challenge for many firms ahead of any rules being finalised will be how to evidence the steps taken. The broad nature of the consumer principle alongside a requirement to evidence ‘outcomes’ will put further emphasis on the firm’s culture, governance, management information and recording keeping. FCA EXPECTATION OF FIRMS The FCA has consulted twice on the proposals and expects …

CCTA Comment on FOS future funding discussion paper

Published 16 June 2022

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

CCTA response to the Financial Ombudsman Service (FOS) final plans and budget for 2022/23

Published 30 March 2022

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

CCTA comment on CSJ report on tackling illegal money lending in England

Published 21 March 2022

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

THE fraud epidemic
Booming levels of identity fraud

Published 09 February 2022

Fraud in the UK has reached epidemic levels. It’s estimated that there were 3.8 million fraud offences in England and Wales in the year ending June 2019, the scale of which was experienced by Cifas members. The National Fraud Database, which Cifas operates, received a case of fraudulent conduct committed against a member organisation every two minutes on average in 2020. Three in five of these cases related to identity fraud, whereby a criminal impersonated an innocent party, or created a synthetic identity, to open a new account. Identity fraud is a growing issue in the UK largely because of the role it can play in facilitating further crimes, and every individual in the UK (regardless of age, gender or wealth) is a potential target. Recent technological innovations in the payments industry have created a better customer experience for genuine customers. However, the likes of increased automation, quicker processing and faster payments make the industry attractive to criminals searching for ways to bypass measures put in place to detect fraud. For example, by using stolen personal details obtained through the likes of phishing scams, data breaches or a business insider, criminals can commit identity fraud to impersonate an individual and apply for loans and other products. One of the greatest control measures loan providers use to protect against this risk is bank account verification checks, which confirms the destination account for the loan belongs to the individual applying for the loan. Criminals are aware of this, and Cifas members have reported criminals combining the identity fraud with other fraudulent activities to transfer the funds out of the account. One example of this is authorised push payment (APP) scams, losses from which increased by 71% in the first six months of 2021 according to UK Finance. In the era of fast payments, fraudsters can have the funds from the identity fraud deposited into an account and transferred to another account within a matter of hours. One recent example of an APP scam impacting Cifas members was a text message claiming to come from a bank’s fraud department. In this message, recipients were told that a loan had been applied for in their name, and this was followed up by a phone call advising the recipient that once the funds had been received, they should be forwarded on to a ‘safe’ account. Another example reported by a Cifas member saw a fraudster utilising screen-sharing technology to alter a victim’s online banking. By hashing the webpage, the online banking screen showed the fraudulent loan had been paid into the victim’s account by a government department. By convincing the victim that they were calling from that department and the money had been sent in error, the victim forwarded the funds on to another account controlled by the fraudster. In whichever way criminals disappear with the funds from the fraudulent loan, it’s typically the loan provider who takes the financial hit from the identity fraud as they write-off the loan as a fraud loss. Not …

Solving the puzzle
Bringing all the pieces together

Published 09 February 2022

As 2022 gets properly gets underway, I am celebrating my first year completed in the role of Chief Executive of the CCTA. It has been an unusual year with the pandemic, but I am pleased to say that the numbers have remained strong, and we have managed to introduce a series of changes. So, I should start by thanking our small but perfectly formed team – Lucy, Phill and Brian. Without them I wouldn’t have been able to make any progress. Through them, we have undertaken a review of many of our systems and processes. Just as we closed the year, we saw the departure of Helen McCarthy who had been our Head of Policy. I worked with Helen for a number of years, and she had a specialism in alternative lending that helped us considerably. I know that she also provided advice to some members. I am pleased to say that we have a new Head of Policy and Advice, ready to join us once they have completed their notice period. I will provide more information when it is appropriate. We were keen to move forward with some changes to the way we engage our members. With such a spread of members, it is never going to be perfect, but we have had some ideas about how we might improve the flow. The objective is to set in place some regular communications and then supplement with more targeted information. In this way we can work across the sectors, sharing experience from different elements of consumer credit but also ensure that you have insights that are more specific to your needs. Our CCTA events are important channels for this communication. The plan is that we create a pattern of four all-member events every year – three Summits and an Annual Conference. It was great to use the opportunity in between lockdowns to have our first physical meeting since 2019. We had a great response, and the content was informative and insightful. So, I take the opportunity to thank our panellists Paul Smith, Peter Reynolds, and Denise Crossley. I know from your response, that many of you enjoyed the chance to ask questions and raise issues. Of course, Covid-19 has made this much more difficult than we had expected. However, the experience of operating during a pandemic has also shown us that we can use online facilities. I think you will see more online events during this year, including workshops and roundtable events. Our most important physical event will be our Annual Conference in late April. As you can tell, the pandemic made us stop and think about the venue as well as the timing. We moved away from some traditions that had served us well, but that we wanted to now change. We have already had a good response. You will read elsewhere of the support that we have had from a number of firms in the form of sponsorships. Returning to our mission. A way in which CCTA members …

Year of the squeeze
Increasing strain on household incomes

Published 09 February 2022

Owing to the strains anticipated on households this coming year, 2022 has been named “the Year of the Squeeze” by the Resolution Foundation (an independent think-tank focused on improving living standards for those on low to middle incomes). This comes as no surprise as the new social care levy is applied to national insurance contributions, personal tax allowances are frozen and inflation is high. These together with soaring energy prices, with some predicting annual household energy bills rising to above £2000, is likely to mean that many borrowers, and more specifically those who are vulnerable, may be impacted. As we all know, February doesn’t just see the review of the energy price cap, it also marks the one-year anniversary of the FCA’s Guidance for firms on the fair treatment of vulnerable customers FG21/1 (“the Guidance”). “WARNING” FROM THE FCA It is assumed most lenders will have given the Guidance the priority it deserves, not least because of the FCA’s “warning” at paragraph 1.8 where the FCA states, “This [vulnerability] Guidance is issued under section 139A of the Financial Services and Markets Act 2000 as guidance on our Principles for Businesses (the Principles). It sets out our view of what firms should do to comply with their obligations under the Principles and ensure they treat vulnerable customers fairly.” The message here is very clear – if you don’t follow the Guidance, you will be in breach of the Principles. This reference to the Principles re-affirms the importance we all know the FCA places on conduct more broadly. So what does that mean for firms and their senior managers? SM&CR The Senior Mangers & Certification Regime unquestionably seeks to improve conduct and governance via clear accountability. Therefore, senior managers whose statements of responsibility include vulnerability (and who therefore have of a duty of responsibility to take reasonable steps to prevent or stop breaches from occurring) need to satisfy themselves they have reviewed the Guidance and are confident that their firm is complying with the obligations set out within it. In the event the accountable senior manager cannot evidence they acted in accordance with the Guidance, it may be open to the FCA (on whom the burden of proof lies) to conclude that there has been a breach of the Principles, and/or that the senior manager did not take steps to avoid the misconduct occurring or continuing. EVALUATION ON FIRMS IN 2023/2024 The FCA’s Feedback Statement FS21/4 published in February 2021 sets out the FCA’s intention to evaluate firms against the Guidance during the period 2023-24. The FCA states that it will look to see what action firms have taken and to establish whether there have been improvements in the outcomes experienced by vulnerable consumers. It is likely that this may start with the FCA simply requesting a copy of the firm’s vulnerability policy to assess when it was last reviewed and updated. That isn’t to say that this is all firms need to do. Depending on the risk perceived by the FCA, …

The odd one out
What’s being said on Buy-Now Pay-Later

Published 09 February 2022

The Treasury’s consultation on Buy-Now Pay-Later (BNPL) has recently closed. This consultation sought opinions about the Treasury’s plans to bring the product into regulation, following the findings from the Woolard Review, which highlighted the risk of consumer detriment. It included different policy options on how best to achieve ‘a proportionate approach to regulation of BNPL’. While the Treasury considers the responses it has received, it is interesting to see the views across different parties as they share their submissions. The CCTA has responded, but we can now see what other trade associations and consumer groups like StepChange and Money Advice Trust have said on the matter. Unsurprisingly, some views differ across the wider credit industry and consumer groups, but there were also areas of agreement which throw up bigger questions about the future of consumer credit regulation. Firstly, it is worth noting the speed at which the use of BNPL has grown. Last month it was reported that 42% of 16–24-year-olds had used it in the last twelve months. Very quickly it has become an accepted method of payment. The rapid growth demonstrates the need for the Financial Conduct Authority (FCA) to be able to act more quickly. It takes too long for the regulator to be able to step in and act on new and emerging products. Over a year ago the Woolard Review found consumer detriment, but we are still at the stage of considering responses to the proposals for how to regulate the product. There can be no doubt that a proportion of the lending to BNPL (and salary finance schemes) has replaced loans that would otherwise have been made by FCA-regulated lenders in both the mainstream and non-standard consumer finance sectors. Many agree that the government and the FCA should be able to act more quickly to address new products, but also to not delay the introduction of new rules. The Money Advice Trust were one of these organisations, saying they were “concerned that there could be a substantial delay before the new regulations are put in place. The government and the FCA should act to put the protections proposed in this consultation in place as soon as possible, to reduce harm to vulnerable groups”. The treasury has also suggested that some areas of the consumer credit act no longer seem to make sense, so shouldn’t be applied to BNPL. In particular, the consultation refers to section 55 of the Consumer Credit Act (which deals with the disclosure of information) as being inflexible. This is true but, if it is the Government’s view, the approach should be to review and amend the requirements of that section for all consumer credit products. Such a review could help ensure the requirements for pre-contractual information in all cases, better reflect the product and meet the needs of consumers. StepChange were also supportive of this idea, commenting that: “BNPL exemplifies the reasons the CCA communications framework is in need of updating for the modern, digital credit market; ideally the framework …

The vision
Helping everyone achieve financial welllbeing

Published 09 February 2022

Wellbeing has long been a focus for many organisations in the financial sector. Wellbeing hubs can offer employees and customers a wide range of helpful support and services from exercise and nutrition to sleep and mental wellbeing. Often though, organisations have not given as much consideration to a critical piece of the jigsaw, Financial Wellbeing. At some stage, most of us will have encountered someone saying (or even said it ourselves) how life would be that much easier if we just had ‘a little bit more money’. But Financial Wellbeing is less about how much money people have and more about how they use what they have. It’s about people’s ability to get to grips with their money, their confidence in dealing with key financial decisions such as credit and debt options. It’s about being open and honest with our income and expenditure, while knowing how to balance these in good times and bad. It’s about being enabled to make well-informed financial decisions focused both on short-term needs and longer-term goals. It’s about developing the skills and knowledge to manage our money well, but also having the self-awareness to understand our attitudes and behaviours when it comes to our finances Because ultimately, our financial lives play a foundational role in our overall wellbeing. Numerous statistics make for tough reading regarding the UK’s relationship with its money. The Financial Conduct Authority (FCA) reported in 2020 that 28% of UK adults had low confidence in managing their money, while 14.2 million adults (27%) had “low financial resilience”, defined by the FCA as having problem debt, low or erratic income, or low savings. Finding positive ways forward can be challenging, especially when so many still view talking about money as taboo. The Money and Pensions Service found that 29 million adults (52%) say they do not feel comfortable talking about money. This discomfort can be particularly acute for employees working in the finance and credit sector, with assumptions easily made that working with money automatically equates with personal confidence and capability in managing money. Organisations similarly struggle, with CIPD/Close Brothers reporting that over half of large UK organisations do not yet have a Financial Wellbeing strategy in place, which likely can be seen played out by the 67% of UK employees reporting that they don’t feel their employer places importance on their financial health. With the link between mental and financial health becoming ever clearer, especially highlighted in the current situation with employees feeling more anxious than ever, this is a real concern. Many organisations rightly seek to address these issues by helping and supporting people who get into financial difficulties. But The Money Charity sets its sights further back, aiming to equip people of all ages and at all stages with what they need to hopefully never get into those situations. In other words, prevention rather than cure. The Money Charity’s vision is that everyone achieves Financial Wellbeing by managing their money well. For over 25 years, we have been helping people …