Not out of the woods yet
Consumers fear longer-term financial recovery

Published 14 October 2021

With the relaxation of lockdown, alongside hospitality and travel industries re-opening over the summer, consumers are less likely to think the pandemic has impacted their household income, according to recent research from global information and insights provider TransUnion. In its Consumer Pulse study, which has been tracking the financial impact of the pandemic, TransUnion found that 25% of consumers believe their household income is currently being negatively impacted, down from 38% in Q1. The most dramatic drop-off can be seen among younger consumers, with just 31% of Millennials and 32% of Gen Z saying their overall household finances have been impacted, down from peaks of 44% and 50% respectively earlier in this year. This improvement, especially among the young, comes as little surprise given the return of major employment sectors such as hospitality, events and travel, bringing about more stable employmentconditions. This in turn has seen significant numbers of employees moved off job-support schemes, and the number of furloughed roles drop down to 1.8m, from a peak of nearly 9m. “Right now, consumer resilience appears to be on the rise when it comes to household finances. However, our research reveals real concerns over the longer-term recovery from the pandemic and there are still pockets of hardship,” said Shail Deep, Chief Product Officer at TransUnion in the UK. The study revealed that the number of consumers who said they were optimistic about the future decreased from 61% in Q2 to 54% this quarter. A likely influence is the fact that one in four (24%) consumers expect their household income to decrease in the future, a proportion which has remained consistent since Q2, despite the summer’s perceived stabilising effect on household finances. Shail Deep continues: “Just under a fifth (18%) of consumers expect to be unable to pay at least one of their current bills and loans in full. And one in three (32%) financially impacted consumers believe they won’t be able to pay personal loan commitments – up from a quarter (25%) in Q1. With this in mind, it’s critical that credit providers have the right insights available to make robust affordability assessments when it comes to new applications, as well as being able to predict future payment behaviour as accurately as possible, using a comprehensive picture of the individual’s financial situation.” One in four (24%) consumers still intend on either applying for new credit or refinancing existing arrangements within the next twelve months, with younger spenders again the most buoyant age group. Over a third (34%) of Millennials and 42% of Gen Z plan on making credit applications, with credit cards remaining an important means of finance for younger demographics, despite the dramatic rise of alternatives such as Buy-Now Pay-Later products. Amongst Gen Z planning to apply, more than one in three (38%) are looking to apply for a new credit card in the next year — an increase from 26% in Q2. Read the report or find out more about TransUnion’s TrueVision trended credit data solution, which can help …

Breaking down barriers
Extending access to credit to fund education

Published 14 October 2021

We are always looking for innovation and to keep members updated on how this might generate opportunities. The CCTA was interested to speak to a new company that is looking to extend access to credit to students seeking to fund their education. ProGrad was co-founded by Marco Logiudice and Ethan Fraenkel, two recent graduates. The idea started when they were both looking to get access to funding for their postgraduate degrees. Marco studied Economics and Finance at Cambridge, while Ethan studied Computer Science at UCL. Prior to starting their postgraduate degrees, both of them had a return offer from a company they had interned at, yet could not find access to funding from most lenders and were forced to borrow money at high cost from different sources. This is why they co-founded ProGrad: to pioneer financial inclusion for students and Gen Z. Students and recent graduates find it challenging to access funding from lenders because of two main reasons, a lack of financial past which makes it difficult to credit score them and a lack of significant income, making it hard to assess whether they can afford credit. This means that currently lenders miss out on an annual £8bn worth of lending across students and Gen Z which translates into a £56bn customer lifetime value. ProGrad explains that they created a twofold solution to tackle these issues, an innovative way to credit score young people through open banking (transactional data) which they say allows them to identify patterns in customers’ spending before scoring them with a probability of default. Secondly, to tackle the affordability problem, ProGrad created a solution to predict with high accuracy the earnings of students up to five years post-graduation. The aim being to give lenders a clear picture of a customer’s risk profile in order to underwrite loans in a better way. ProGrad believes that lenders might be able to win profitable market share through a disruptive technology that identifies younger customers’ future earnings. Established lenders can protect and grow their market share, and challengers can bring a differentiated student lending proposition to market. Through its AI-enabled and explainable credit scoring technology, ProGrad goes beyond simple credit history and provides financial institutions with a clear picture of a younger person’s potential. The use of a unique algorithm incorporating future earnings projections aims to enable lenders to underwrite low-cost, sustainable financing. ProGrad joined the 2021 Techstars programme in London to accelerate their growth. They are part of the NatWest Fintech Accelerator programme and also joined the FCA innovation hub. ProGrad recently secured their pre-seed funding round, raising £620K from various angel investors in the UK. Among them: senior people inside Santander, Man Group, HIG, Bain Capital and other successful angel investors. This funding will enable ProGrad to launch in coming months with lending partnerships they recently closed. ProGrad Stakeholder Article

What politicians should be focusing on at party conference

Published 04 October 2021

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

Plans announced for new UK wide No Interest Loan Scheme pilot

Published 07 September 2021

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

Stronger together
Member knowledge is our greatest asset

Published 23 July 2021

As we move into the second part of this year, I continue to use this column to provide an update on where we are with some of the changes at the Consumer Credit Trade Association as well the challenges we all face as a sector and how you can help us. You will have seen that the association continues to make changes to the way in which we work. CCTA Magazine has altered and will continue to do so with every edition. Elsewhere, communications are also being improved. Our aim has been to return to three missions that drive the Consumer Credit Trade Association and create true value for the members. The first being our focus on advocacy. The CCTA is determined to create a stronger voice for our members. This has always been at the core of our association. We were established 130 years ago to represent our members, just as the regulation around new forms of credit were being developed. It is just as important that lenders have their say on current laws. Similarly, we have always been a source of information. We want to be a source of insight, much of which comes from discussions with officials, regulators, and politicians. Through new channels of communication, we want you to receive helpful insights at the right time. Third. We want to create a network that is helpful to you. This will allow you to share experiences. Recognising that you are competitors, and these conversations need to be carefully handled. That has been harder with the restrictions of Covid-19, but we hope to get back to CCTA events soon. THERE IS MORE NEED THAN EVER FOR THE CCTA Across our broad membership the experience varies but everyone is surely aware of some of the pressures that exist. For some sectors this comes from the unpredictable impact of Covid-19. Those of you that attended our online Summer Summit will have heard about just two of those many impacts, both the economy and the regulatory expectations. The economic issues are apparent, with the complete lock down of many sectors. One issue that has emerged is the polarisation of financial impact. For some, this has been the most difficult of times, for others it has been a time to pay off debt and build up their savings. You will find many financial predictions but there is a great deal of uncertainty. There is a growing consensus that the Government support schemes may have delayed some of the worst consequences. However, everyone seems to be holding their breath to find out what is going to happen next. In our discussions with the FCA they make clear that this will be high on their agenda and that much of their work will continue to look through the pandemic prism. How could it not be? This will ripple out for years to come. For other firms, especially in high-cost credit, there has been regulatory pressure around issues of affordability and relending. This dates to before …

That sinking feeling
Help for those trapped in problem debt

Published 22 July 2021

I don’t imagine any of us has ever been stuck in quicksand in real life. We’ve seen it in TV shows or films; the brave hero or heroine struggling to escape as they’re slowly dragged down to their doom, desperately reaching for a branch or vine to pull themselves free. This is what I imagine being in problem debt can be like, feeling helpless as your struggle to escape only seems to make things worse. As debt solutions go, a debt relief order (DRO) is a pretty sturdy-looking rope. Designed originally for those with low income and minimal assets, it’s a form of insolvency that’s different from bankruptcy, while still offering complete relief from debt. It’s simple, effective, and easy to use. Yet for many, it is a rope that is out of their reach, perhaps because they have too much debt, or they have a car that’s worth ‘too much’. It seems unthinkable that you would choose not to throw someone the rope just because of how deep they were stuck in the sand. Prior to the recent reforms, the income and assets eligibility criteria for a DRO have not changed since it first came into being eleven years ago. It has become clear to us that too many families are missing out on a life-changing chance at debt relief, or being forced to pay hundreds of pounds more to go through bankruptcy. In other words, you’re being forced to pay for a crane to pull you out of that quicksand. It’s pleasing to see that the Insolvency Service has listened to CAP’s campaign, as well as the evidence of many others, and revised the DRO entry criteria. They have agreed to lift the upper debt threshold of £20,000 to £30,000, doubled the asset limit, increased the surplus income threshold by 50%, and provided guidance that protects mobility scooters as an essential vehicle. As a result of these changes, the Insolvency Service predicts an additional 13,200 people will be able to access a DRO each year. From CAP’s perspective, we estimate that a further 8% of the people helped through our debt service will be saved from having to pay £680 in fees to go bankrupt. There will, however, come a point where the newly revised eligibility criteria will need to be reviewed even further, giving particular attention to those the DRO was designed to help, after all, this is the most significant review in eleven years. With a promised government study of the personal insolvency landscape on the horizon, it would be expected that further reviews may well be scheduled. Following the Insolvency Service’s changes, the most significant remaining barrier to many people accessing a DRO is financial. Anyone seeking relief from their problem debt through this solution must pay a £90 fee. In the context of the people CAP help, 37% are sacrificing meals, 31% cannot afford basic toiletries, and 44% are unable to afford adequate clothing for themselves or their families. For this group of people, …

Message received
Fostering positive relationships with the media

Published 22 July 2021

In the last edition of the magazine, I wrote about our political engagement. We explored why it is important to engage with the different groups and individuals that fall within that segment. While that work continues with meetings at HM Treasury and correspondence with the Financial Services Minister, this time I want to share some of our recent work around engaging with the media, another one of our key stakeholder groups. Unsurprisingly, there are a range of media outlets (online and in print) with a mixture of paid and freelance writers publishing stories. Some have a negative view of our sector, that is unlikely to change. Briefs change quickly and journalists cover a wide range of topics, making it more difficult to build relationships and get your stories and views into the right hands. Despite this, the media is still an area where we can share our strategic campaigns such as our work to protect access to credit. We can also engage on our priority issues, the Financial Ombudsman Service (FOS) and Claims Management Companies for example, depending on the interests of different journalists. In recent months, we have been working hard to develop our relationships with the media. This has been through a mixture of briefings, sharing statements and comment, and responding to journalists that have written about the market. We have also gently pushed back on pieces that include misconceptions about the sector to make sure the information out there is up to date and based on fact. Much like our other engagement, you need to take time to build relationships, make the story relevant to their aims and ensure that you can provide timely information when it is needed. They need to know where to come to. Good relationships in the media are useful to us for many reasons. It helps build the profile of the association and its members, with the ultimate aim to become the recognised home for and authority on alternative credit. It is also an excellent channel to use to promote and amplify our campaign to protect access to responsible credit. It also acts as a vehicle to deliver those messages to other stakeholders. Though we want good relationships with journalists we are ultimately trying to get these pieces (and the information included) to those that we need to influence and educate. There has been growing media attention in recent months, in some part driven by the departure of Provident from the home-collected market and the uncertainty over the future of Amigo Loans. This has drawn interest from across the media, keen to get an up-to-date picture of what is happening in the sector. Business journalists are interested in the ups and downs of big companies, particularly those with shareholders, while those with consumer briefs are keen to know about the customer and how they use the product. And of course, at the moment everyone is interested in the impact of Covid-19 and what this has meant for family finances and lending. When …

Ahead of the curve
Impending changes for Buy-Now Pay-Later providers

Published 22 July 2021

BUY NOW PAY LATER: WHAT IMPENDING REGULATION MEANS FOR FINANCE PROVIDERS AND CONSUMERS The buy now, pay later (BNPL) sector has been firmly in the spotlight since February this year when the Woolard Review, commissioned by the Financial Conduct Authority (FCA), highlighted the need for increased regulation in this space, to protect consumers from taking on too much debt. Accelerated growth was propelled by the pandemic and unregulated BNPL nearly quadrupled last year, with five million customers having used this kind of payment since March 2020. TransUnion data shows 37% of UK consumers have used a BNPL product at least once within the last 12 months and the expectation is that growth will continue, with this sector globally anticipated to increase by 10 to 15 times its current size by 2025. And it’s not confined to the retail industry. Consumers can spread the cost of purchases with interest-free, short-term credit across all manner of goods and services, even for holidays which now offer ‘fly now, pay later’ options. Credit innovations such as BNPL have proved timely for consumers that have seen their buying power diminished by the pandemic, with TransUnion’s Consumer Pulse study which has been tracking the financial impact of COVID-19 showing that nearly a third (32%) of UK householdsiv are currently negatively impacted. UPCOMING REGULATION Buy now, pay later, or deferred payment credit as the FCA is expected to refer to it, spans several different types of products. Some of these do not currently appear on a consumer’s credit report, and no affordability checks are required to take out the finance, which has given rise to concerns that unregulated BNPL threatens to create a new generation of debtors. The aim of new regulation will be to support finance providers in ensuring payment plans are affordable and sustainable, whilst protecting consumers from the risk of overextending themselves financially. BNPL providers will have access to shared credit report data when making credit risk and affordability decisions, while non-BNPL lenders will be able to view the full extent of a consumer’s financial exposure, helping to guide more accurate assessments. The likely regulation would also bring about a route to support consumers with thin credit files in demonstrating their ability to make timely payments. This will be welcome at a time when economic turbulence means access to borrowing may be crucial for some. GETTING AHEAD OF REGULATORY CHANGES While legislation is not yet in place, with the government and FCA still to consult with stakeholders on this topic, BNPL providers have a responsibility to recognise the roadmap of change ahead and prepare accordingly. The Woolard Review urged the FCA to act “without delay” and, as such, providers are expecting change and should be thinking proactively about their role, putting consumer protection firmly at the forefront and looking to adapt their business models and growth strategies as required. In anticipation of what lies ahead, the Steering Committee on Reciprocity – a cross industry forum made up of representatives from credit industry trade associations, …

Access denied
Customers at risk of being blocked from credit

Published 22 July 2021

THE JOURNEY TO THE FCA’S NEW CONSUMER DUTY Thankfully we are now heading towards the end game of the Covid Epidemic fall out, as the vast majority of UK citizens will have had their two vaccinations by the end of August. At that stage the Government and business alike can take stock and evaluate the new world and whether economic and business models need tweaking, or potential wholesale change. Within the last eighteen months we have seen massive changes to consumers buying and payment methods which will have a far reaching impact going forward. Government, consumer groups and the industry should be working together to ensure that the services and delivery are appropriate, and perfectly fit the consumers’ needs as the momentum to change gathers more speed. The ever constant in this process of post Covid is the consumer who, despite technology, age, and information remains fallible with regard to ‘wants and needs’, especially in an environment that is bombarding potential consumers with wall-to-wall advertising twenty four hours a day. Like it or not, the United Kingdom has an economy built on consumer spending supported by the financial services sector. Enhanced affordability regulations and harsher credit scoring have increased the danger of no access to necessary regulated credit for many consumers. The incessant move to a cashless society, the changes that are occurring to credit cut-off rates, an increased APR, or reduced credit card limits will bring additional stresses and strains to the system. There has been a debate for some time whether financial services firms should be subject to a special duty of care. This is despite the fact that financial services has had tough unrelenting regulatory changes imposed on the market. The FCA has stated that they are under considerable pressure to introduce one. The regulator released a consultation paper in May, CP21/13 ‘A New Consumer Duty’ that would set clearer, higher standards impacting on firm’s culture and conduct. The proposals are far reaching and require the attention of Directors and Senior Managers during the current consultation round, and after implementation. The proposals reflect the approach that the FCA has increasingly taken in enforcing its powers recently, building on Treating Customers Fairly (TCF), which all CCTA members will be very familiar with. Company culture is a subject that exercises the minds of boards across the world, both large and small, as the common rhetoric is that what is measurable is manageable. The CCTA will be responding to the consultation paper and especially in regards to how the FCA plans on measuring culture across such a broad span of companies, and specifically for the proposed measurement processes. The FCA has said the Consumer Duty would not remove consumer responsibility for any decision-making or prevent consumers making decisions not in their best interests or apply retrospectively to past business. We will be asking for clarification from the FCA on what exactly this means. As all members will be aware, the CCTA has been a leader in the Access to Responsible …

In the picture
Know your customers circumstances

Published 22 July 2021

The fair treatment of vulnerable customers is a key issue for the financial services industry. The coronavirus pandemic has moved customer vulnerability further up the priority list with the Financial Conduct Authority’s guidance in the UK bringing some welcome clarity and structure to a foggy issue. So how can organisations ensure they’re treating customers fairly and dealing with every customer according to their individual needs? IDENTIFY ANY ISSUES The number one priority for firms is to ascertain exactly what their customers need. Some customers may not be aware that they have any specific requirements, while others may not wish to disclose any needs, with some actively try to hide their situation. It’s vital that front-line employees have the skills and tools at their disposal to identify any undisclosed or hidden needs and record these needs accurately. This includes picking up particular verbal clues or behaviors, listening for background noise which might indiciate a specific need and recognizing a customer’s inability to understand certain information. Seemingly insignificant details can reveal hidden insight, making it imperative that all potentially useful information is logged accurately. ROBUST RECORD KEEPING How data is logged is vitally important. Disparate systems and silos of information can deliver an incomplete picture of the customer. It’s possible to build up a comprehensive picture of the customer with a centralized complaint management system that captures every customer interaction across multiple communications channels. The result is a single version of the truth for every future interaction, ensuring employees have access to a holistic view of the customer at any one time. This record of all interactions can uncover further specific needs with patterns of behavior helping to identify any issues that need to be considered when dealing with a particular customer. Accurate and consistent recordkeeping has been particularly useful this year. The pandemic caused many consumers’ situations to change almost overnight. Those who may not have had any specific needs or requirements are now in a completely different situation. This is crucial for businesses to understand and record so they can tailor responses and behavior accordingly, looking at past and present interactions to provide a fair service representative of changing circumstances. PUT IT INTO PRACTICE How can businesses ensure it’s used once information is logged? A comprehensive picture of a customer’s specific needs isn’t useful unless it’s put to good use. Using data to inform all interactions is key. The right complaints management system puts necessary workflows in place to ensure certain measures are adhered to. Some customers may need written correspondence communicated to them verbally as well or others may require a larger font size. Some consumers may be eligible for payment breaks or additional financial support, while others could require the help of a specialist department to deal with their current situation. By embedding policies and key considerations into organizational frameworks and case management lifecycles, it keeps the issue of fair treatment at the forefront at all times. QUALITY CONTROL Mistakes can still be made and customers still slip …

Undisclosed commission
A source of relief?

Published 22 July 2021

The failure by a broker to disclose to a borrower that the lender will be paying commission to the broker can in certain circumstances enable the borrower to unwind the loan, without having to pay interest and the lender having to pay the commission to the broker. In March 2021, the Court of Appeal lowered the bar for borrowers seeking such relief. COURT OF APPEAL’S JUDGEMENT The appeal raised three issues: (i) Is a fiduciary relationship between borrower and broker a necessary pre-condition for the grant of relief against the lender? (ii) Did a fiduciary relationship exist between the borrower and the broker? (iii) Are the commissions that were paid ‘half-secret commissions’ (i.e. where the borrower knows that a commission may be paid but not the amount)? FIDUCIARY RELATIONSHIP? The CoA confirmed that it is not necessary to establish a fiduciary relationship where the broker is under a duty to provide information, advice or recommendation on an impartial or ‎disinterested ‎basis. BROKER’S DUTY? On the broker’s terms and conditions and the court’s findings of fact, the broker “…was under a duty to make a disinterested selection of product to put to its clients in each case”. SECRET COMMISSION? ‎The borrowers knew, or would have known, had they read the broker’s terms of business, that the broker might be paid fees by the lender. The borrowers were not told the amounts. Where commission is half-secret, the court has a discretion to award the most appropriate remedy, which could (but would not necessarily mean) unwinding the loan. The broker’s terms and conditions stated the broker “may” receive fees from lenders and the broker “will” tell the borrower of any such amount. The Court concluded that these terms “…imposed an unqualified obligation on the broker to inform the borrower, before a mortgage was taken out, of the amount of the fee”. The court held that, absent the required notification, the borrowers did not know that commission might be paid and were entitled to conclude that no commission was to be paid. SUMMARY This decision is a reminder to lenders of the need to ensure that any commission payable to a broker is adequately disclosed to the borrower. If a broker is under a duty to provide information, advice or recommendations on an impartial or disinterested ‎basis and fails to adequately disclose commission payable by a lender, a court may unwind the loan with the result that: (i) the borrower will have to repay the loan to the lender (without interest); (ii) the lender will have to repay any payments made by the borrower together with the commission paid by the lender to the broker. Lenders should: (i) review their process to ensure that any commission payable to a broker is adequately disclosed to the borrower; and (ii) consider whether their trading agreements with brokers afford adequate protection (e.g. by way of an indemnity) should a borrower claim rescission following a broker’s failure to disclose. The decision related to a secured loan but applies …

Please mind the gap
Broker oversight

Published 22 July 2021

Lenders’ being subject to regulatory obligations for oversighting their credit brokers are nothing new – the OFT “Credit brokers and intermediaries guidance” in 2011 set out the expectation for lenders to take responsibility for the actions or omissions of their brokers and take reasonable steps to satisfy themselves that business associates (including brokers) weren’t engaging in unfair business practices or acting unlawfully. Since the FCA became responsible for regulating consumer credit in April 2014, lenders have had obligations under CONC to oversight their brokers and ensure they have the correct permissions. Broker oversight has therefore been a key regulatory focus for some time, but never has it been a hotter topic or indeed more apparent that there is a gap between what lenders are doing in practice and what the FCA expects of them. To stretch the public transport theme of this article’s title – we have waited some time for a communication from the FCA on what their expectations are for oversighting credit brokers and where they see issues in the market, and now lots have arrived at once. FCA LETTERS AND BROKER SURVEY The FCA’s Dear CEO letter to Third Party Finance Providers and their Credit Broker Portfolio Letter both give an insight into where the FCA sees potential problems for lenders and their brokers. In life monitoring and controls, ongoing training of intermediary staff, broker involvement in the customer journey and clear customer communications are particularly prevalent themes. In addition, the FCA has recently kicked off their credit broker survey, which it appears will be used to gather information to help the FCA understand to what extent brokers hold the incorrect credit broking permission or in fact hold unnecessary permissions. REGULATORY CHANGE Sitting alongside this direct intervention and communication with the market are a number of other regulatory initiatives with implications for credit brokers. One outcome of the Woolard Review will be the bringing of exempt buy now pay later lending within the regulatory perimeter, which it is anticipated will lead to up to 60,000 new firms carrying out the regulated activity of credit broking. A large proportion of those firms will be retailers, some of whom will have very little historic or sophisticated understanding of what operating in a regulated space entails. When the FCA finalises its approach to the new Consumer Duty in 2022 we may also see a widening of the broker oversight regulatory “gap” for some firms, as the FCA’s current proposals are broad enough to re-inforce the obligation on lenders to take responsibility for their intermediaries and the way they interact with customers. COMMISSION DISCLOSURE Finally, the FCA’s new rules in CONC earlier this year imposed additional commission disclosure requirements on credit brokers. Lenders and brokers alike have been grappling with how best to comply with those requirements. That has been further complicated by the recent Wood & Pengelly Court of Appeal judgment on commission disclosure. That follows a long line of previous commission disclosure cases, but it has really served to …