Feeling the shock
Sharing data to protect vulnerable consumers

Published 10 October 2022

The potential impact of the cost-of-living crisis has sent out shockwaves, maybe because we are all going to be really hit in the pocket, but have we been limping towards this for years? Have we been unwittingly making people’s situation worse while patting ourselves on the back for talking about vulnerable customers and achieving the right outcomes? There is no master plan to identify those in society who are the most vulnerable nor is there a government champion spearheading the quest to make sure that we are targeting those in the most difficulty, to ensure they have access to the help that is available to them. We have known forever that mental health and financial difficulties are intrinsically linked; we know that there are millions of pounds of unclaimed benefits; we know that ‘thin credit files’ and financial exclusion have been a fact of life for decades; we know that it is almost impossible to justify that the most financially disadvantaged are the ones that have to use pre-payment meters. We can trot out endless facts but what have we really done to address it? We have appointed lots of people who have responsibility for vulnerable customers and we have done plenty of talking. But do these people have the mandate to make changes? Simultaneously, we have made life much more difficult, we have moved people to digital channels who are ill-equipped to deal with them. We have strengthened our authentication processes to meet data protection expectations while rendering it almost impossible for carers to act on someone’s behalf. We have stripped out regulated credit options with the demise of numerous high-cost short-term credit providers and, with them, many people’s first foot on the credit ladder has vanished into the ether. Jargon and terminology have evolved to such a degree that only the most financially capable have a chance of keeping up to speed. Little has been done to identify who needs help, who is vulnerable, who should be targeted for support or who is likely to fall victim to a loan shark or coercion. If a person can navigate their way through complicated websites, manage to hit on the right person to speak to, then maybe they will be lucky in getting help, that is if they are brave enough to put their head above the parapet. Meanwhile, we have people spiralling into debt and becoming increasingly inert because of the stress and stigma attached. We need to share data about vulnerable people centrally. Currently, there are small pots of information held about certain aspects of their circumstances. This needs drawing together to complement the financial status information we can already access so that we can support people in the right way and form a more complete picture. Financial hardship can be coupled with many different factors such as mental health, coercion or addiction. How can we treat people in the right way if we don’t know the facts? How can we lead people to gain the specific support …

Attack of the sludge
Explaining and avoiding sludge practices

Published 10 October 2022

We are sure that by now you are knee deep into the final Consumer Duty and your brain is saturated with new terminology from manufacturers, distributors and Sludge Practices. So, what are Sludge Practices? The FCA defines them as: an excessive friction that hinders consumers from making decisions in their interests, by taking advantage of their behavioural biases. We will set the scene. On Friday at 3.00pm, Mr Smith applies for a loan on your website. The site is simple to use, explanatory and he has completed his application in under ten minutes. You run all your affordability and creditworthiness checks and approve his loan in under an hour. You notify him that his loan will be paid out the same day and Mr Smith receives the funds by the end of the day. Over the weekend, Mr Smith does a bit more shopping around online and sees that he could have got his loan at a cheaper interest rate. He looks at his contract and sees that he can withdraw from the loan and repay it by either calling, emailing, or writing to you but notes there are no bank details for him to repay the money. He first visits the FAQ page of your website to see what is says about withdrawing from the loan. There is no information. He then visits the Contact Us page. His choices are to write a letter, email, live chat or telephone. The live chat is offline so he decides to call. He notes that the lines close at 12.00pm. At 11.30am a recorded message informs him that wait times may be slightly longer than usual due to the bank holiday. At 11.55am he gets cut off. His next step is to send an email, to which he gets an immediate response stating that you anticipate responding within three working days. Mr Smith tries to log into his account but there does not seem to be a ‘Pay Now’ button. By this point, Mr Smith is ready to submit a complaint. He reads your complaints policy and sees that he can only complain by post. He is now well and truly in the sludge as the relative ease of applying for a loan has been countered by the obstacles of withdrawing. The FCA expects you to review your product and practices under Principle 12 and PRIN 2A, including the cross-cutting rules and outcomes. This means you are expected to ensure fairness and continually test and monitor to ensure that the customer is receiving a fair outcome. When creating any Consumer Duty reports, it would be vital that this is listed, and any updates recorded with full root and branch analysis of any changes. Reviews should include every aspect of the customer journey, websites, and all communications. This list is not exhaustive. With this new mindset, sludge is easily spotted. Remember that there are many opportunities in the complete loan process where sludge can be created. ALPH L&C Limited are an Associate CCTA …

A whole new world
Helping customers who aren’t used to needing help

Published 10 October 2022

We have all talked a lot about the imminent rise in utility bills and the cost-of-living crisis that is happening all around us. We have referred to how we are helping existing customers in arrears, those who have sought advice from debt management companies or who are being managed by specialists like Lantern or Sonex to help identify their vulnerabilities and set them on their way out of problem debt. But what about those customers who have never experienced debt, who still believe it is a bad thing and something which should not be talked about? These are the new types of customers we are likely to see in this whole new world we are about to enter. As humans, we tend to live to our means; secure a promotion at work? Get a better car. Got a new job that pays more? Move to a bigger house. It is commonplace, it is how the world goes round. But now with all the price hikes coming from several directions it is likely that consumers who were once able to live comfortably, and within their means, are now facing financial problems. It may well be that the first changes affect the more ‘luxury items’, meals out, treat trips away, but it is very likely to start impacting the necessities quite quickly, and soon we could be seeing a new type of customer in collections. To support this as an industry we need to be visible. We should all talk about debt to our families, our friends, to the taxi driver bringing us home, in fact anyone who will listen. It is more important than ever that we put a stop to the stigma of debt, to help people feel comfortable seeking support when they find themselves in debt for the first time. Here are some of the things we have done at Lantern to become more visible should we start to see this new kind of customer enter financial difficulties: • Active use of TrustPilot It is a go-to for most of us and, with our score of 4.3 (Excellent), should someone look up debt collection they will see we are a company who they can approach safely and do not need to avoid. • Continued development of our portal and online capability Whilst some people will never want to talk about debt, we can enable them to acknowledge and deal with it by having a slick digital offering. • Make it easy Our Single Customer View ensures customers only have to tell us things once, we then know their circumstances. Whilst it seems like common sense, it’s surprisingly uncommon. So, ask yourself; are you doing everything you can to ensure that when we start to see these new types of customer, they will be encouraged to engage, to deal with their new found situation, enabling them to get our help faster? We all need to adapt to these changes and quickly.

Right help, right time
Connecting customers with debt advice

Published 10 October 2022

Whether it is having that difficult conversation you have been dreading or visiting the dentist the first time you get a tooth ache, addressing a problem earlier tends to lead to a better outcome with most things in life. We feel better once we have just done it, and invariably the outcome is better than our worst fears. The same is true when dealing with our finances, and more importantly our debts. At StepChange, we provide support to people who are in financial difficulty and struggling with debt. Unfortunately, our recent research demonstrated that over 50% of our clients delayed seeking debt advice for over twelve months. This can have devastating consequences, and it is not surprising to see that the same research showed 92% of our clients wished they had sought help sooner. Heading into winter amidst a cost-of-living crisis, more and more people are at risk of falling into debt. Compounding this, many of those who are finding it tough have no experience of financial difficulties, and therefore don’t know where to turn. This is obviously concerning, and it is important that as an industry we continue to address the stigma of money worries and talking about debt. That’s why this autumn, StepChange are working with our partners to encourage anyone who is struggling financially to reach out for help as early as possible. Our ‘Don’t Wait to Get Help’ campaign speaks directly to consumers, encouraging them to ask for help, to get a holistic and objective view of their financial situation, and to access the support they need before their situation and the consequences escalate. It is crucial to recognise the role that creditors can play in identifying customers who are at risk of financial difficulty. As we approach a winter where energy prices and inflation will create significant challenges for millions of households, creditors need to identify and support those customers who might be in danger of falling into debt and direct them to the help they need before their situation gets significantly worse. We are working closely with our partners, including the UK’s largest banks and lenders, to do exactly that, building new tools which enable them to refer their customers more effectively to debt advice across our omni-channel services. These tools include e-learning modules for customer-facing colleagues at creditor firms, and our new digital referral tool, StepChange Direct. StepChange Direct was developed in partnership with a major UK lender to address the issue of consumer disengagement when they were advised by the lender to seek debt advice. It is a digital tool that can be embedded on creditors’ websites, mobile apps, and digital collections journeys for consumers to use. By embedding this in the existing service, StepChange Direct significantly reduces dropouts by keeping the consumer in the native page or app. The tool asks a short series of questions before directing them to the most appropriate solution based on their individual circumstances. The lender observed an eight-fold increase in the number of customers completing …

Comment from Chief Executive Jason Wassell on the death of Queen Elizabeth II

Published 09 September 2022

Like so many, we are sad to hear of the passing of the Her Majesty The Queen. I know that I speak on behalf of CCTA members when I pay tribute to her loyal service to our country and her sense of duty. Our thoughts are with the Royal Family at this difficult time. We have seen six monarchs since we were founded in 1891, and we send our best wishes to King Charles III.

Mark Fiander announced as new Chair of the Consumer Credit Trade Association

Published 25 August 2022

Mark Fiander, CEO of Gain Credit LLC and Consumer Credit Trade Association (CCTA) Council member, has been appointed as the new Chair of the Association. He took up the position having been involved with the CCTA and related associations for several years. The role of the Chair is to provide strategic advice to the Chief Executive and lead the CCTA Council, which meets regularly throughout the year. Commenting on his appointment Mark Fiander, said: “I am delighted to take on this role at such a crucial time. With huge challenges facing UK consumers and new regulation, in particular the Consumer Duty, coming into force, it is vital that the credit industry has a strong, yet considered voice and that best practice is effectively shared. “The CCTA has been fulfilling these roles for well over a hundred years and I look forward to doing my part as it continues to strive to ensure responsible access to credit for all”.  Jason Wassell, Chief Executive of the CCTA said: “It is great news that Mark has accepted the invitation to be Chair of the CCTA. He is already an active member of our Council and has been involved for many years. “His experience includes various areas of financial services alongside an expert understanding of the alternative credit market, which will greatly help with our strategic activity. “I look forward to working with him during a time when credit is going to be more important than ever to those that need to carefully manage their finances”.  Mark Fiander biography Mark is CEO of Gain Credit LLC and an existing council member of the CCTA. He has previously worked across banking, money guidance, insurance and consumer goods.

PS22/9: A new Consumer Duty – CCTA initial response

Published 27 July 2022

It is interesting to see the Consumer Duty policy statement and final guidance out. We will be taking a few days to work through all the materials. For some of us, this has been the focus for many months, if not years of discussion. Of course, no one can disagree with the general principles and outcomes that we have arrived at and there were some good decisions about the scope or the right of action. Any non-handbook guidance is welcomed, and that has long been one of our appeals. An early thought from the CCTA, one consistent point we have been pushing throughout is that this can’t be the end of the consultation and discussion around the Duty of Care. If we have learned anything from the last few years of FCA principles-based regulation is that the real work starts now in working out what this means in practice. We have spent a year debating key sentences but now we need the next sentence, the next paragraph, and the next page. That can’t be just one-way. As I have already said, I value every word that the FCA provides. But this is about practical implementation and that needs firms to be involved to raise the questions and give their perspective. This needs to be the end of the beginning rather than the end of this process. We are happy to be part of that process. Jason Wassell CEO

Crunching numbers
Pre-emptive planning for the crisis ahead

Published 21 June 2022

I’ve written quite a lot recently about the cost of living crisis and how it’s set to impact consumers in general. It was also a common theme running across all the great sessions at the recent CCTA event, so I thought I’d cover some of the work we’re doing at Lantern to help our three million plus customers. We’re not only committed to proactively helping customers navigate these tough times, but at Lantern we know that customers in collections can often be resilient. However, they still require our help and support, to ensure they remain on the road to being debt free. As all outgoings are on the rise, we must ensure customers are taking these increases into account, even if they haven’t impacted them yet. It’s still fairly mild outside so heating isn’t being used as much, but we’re striving to ensure customers are considering those future impacts and making as much preparation as possible, ready for the colder months ahead. We’re encouraging our agents to probe a little more than normal, albeit gently, to ensure that the customer has considered potential future expenditure. One of the areas we’ve reviewed is the last income and expenditure captured across a cohort of customers, to identify any changes (or lack thereof) relating to utility and fuel bills. This allows us to challenge a little more given that we’re all expecting some increase. If there’s been no change in the customers living environment, then we’ll interrogate the allowance they’ve set for food and fuel. For example, are they cutting back or are they not facing facts that the impact will happen? Our aim is to set sustainable plans to clear customers’ accounts over as short a period as possible, allowing the fact that everyday living is getting more expensive. During our engagement with customers, we’re asking additional, quite direct, questions to make sure customers are not risking paying priority bills to accommodate paying down their accounts. A typical question might be “If you’re still able to afford this payment plan, what are you changing in your lifestyle to accommodate this?” It’s important that the answer to these types of questions are not that they are having to choose between either feeding or heating themselves or their families. What is comforting, is that in many cases customers are making changes, such as cutting back on non-essentials, those daily coffees on the commute which soon add up (one customer we spoke to had realised she was saving £150 per month just by making her own!) Some customers are choosing not to eat out as often or they’re walking to destinations they would once have chosen to drive to. One of the most heart-warming changes is where we’ve heard customers altering the activities they undertake with their children. Instead of a visit to the cinema or a theme park which can soon become very expensive, they’re going to parks or museums, still spending time together, but in many ways its more focussed time to chat …

The driving factor
A new direction for consumer credit

Published 21 June 2022

Dear Chief Technology Officer, Did you see what I did there? Have I got your attention? This is not a letter from a regulator, but it is a call to arms and, perhaps, offers regulation of a different kind. Some Chief Technology Officers (CTOs) reading this may truly feel they work in innovative industries. After all, the CCTA has a diverse membership and alternative lending is naturally a hotbed of creativity. New products and forms of lending are created and presented to market by alternative lenders. This often leads to new sectors where their innovation is replicated. Other member CTOs may recognise the staleness of their industries where, despite transforming businesses to enable operation in an increasingly digital age, the industry practices, products, and processes have not evolved since the 1970s. Is this necessarily a bad thing? If it’s not broken, why fix it? Increasingly consumers, especially younger consumers, are expecting their products to be different and also the means by which they acquire and consume them. This presents a problem in industries where the incumbents have an unconscious bias towards inertia and maintaining the status quo. The steps to change are too steep, the powerful too entrenched and the whole market becomes arrested, without necessarily realising it. In my industry, consumer motor finance, all the parties need to communicate and interoperate digitally. The customer, the dealer selling the car, the broker arranging the finance and the lender underwriting the loan application all need to seamlessly interact. The customer journey is much talked about and the goal of the industry and its regulator is to ensure that customers achieve good outcomes. This reliance on a working network of actors is anathema to innovation as, in order to exist, you must conform. Any innovation, however well received, is dependent on the whole industry adopting the technology. This could take years, be badly or partially implemented or even ignored. Established technology such as Open Banking is a case in point. Despite being around in concept form since 2015, it is still not widely adopted as an effective tool in the assessment of affordability. Some intermediaries see it is a disruption to the customer journey and lean towards lenders who do not require or have not adopted it. So we conform to survive, but even then we complicate matters. The need for interoperability means that all lenders offer Application Programming Interfaces (APIs) to enable their services. Unfortunately, they all use different methods of transport, methodology and have no common format. For a car dealer, broker or IT platform provider, these differences make each lender integration unique, and therefore time-consuming and costly to implement. This is a barrier to adoption even if they conform to the industry status quo. The obvious solution is a common platform, an open standard, for creating API suites between all firms in our industries. The standard needs to provide a framework that is future proof and does not limit or stifle future innovation. Where such standards have been created, …

Rising to the occasion
A summary of development plans for CCTA

Published 20 June 2022

Hello to all our members and associates. I hope you are enjoying the latest edition of CCTA Magazine. As many of you will know, I am the new Head of Policy and Advice at the CCTA. I had the pleasure of meeting many of our members and associates for the first time during our annual conference in Liverpool in April. The publication of this magazine presents a good opportunity for me to introduce myself and to highlight the services that fall under my remit. I joined the CCTA in April this year, making a move from Compliance Consultancy where I advised and supported many consumer credit firms in legal and regulatory compliance. As Head of Policy and Advice at the CCTA, I now manage some of the key services we provide to you as a trade association. From a policy aspect, it is within my remit to monitor key regulatory and legislative developments within the alternative lending sector, ensuring, where appropriate, we represent the position of our sector within consultation and discussion papers. Together with the wider CCTA team, we work proactively to influence policymakers to address the key issues our members face. Much of this behind-the-scenes work involves regular constructive dialogue with key strategic contacts at the FCA, FOS, HM Treasury and wider industry stakeholders. Such dialogue and engagement at different levels is vital to ensure we retain appropriate insight of both current and emerging regulatory matters. This, in turn allows us to keep our members informed and represent our sector where required. Within my advice and guidance remit, I also oversee some of the key services our members use. Working with my colleagues, we are further developing our communications services, including our Weekly News emails and quarterly publications, CCTA Inform and CCTA Magazine. This will ensure that members are kept informed of industry and sector-specific developments. We will soon also be introducing an annual member survey as we are keen to engage with members to develop and improve our services further. We’d love to hear your thoughts and suggestions. We are currently undertaking a review of all our credit agreements and statutory documents that many of our members use, to ensure they continue to remain up to date and relevant. The changes will also improve the usability and readability of our documents. It would also be a good time to mention that we will be resuming CCTA Workshops, starting with a Consumer Duty Workshop scheduled for Q3. The exact date for this is to be confirmed but it will be closer to the release of the Policy Statement, so keep an eye out for the details. We also have longer term plans for expanding member benefits such as re- introducing training & CPD and providing Guidance Papers on key regulatory topics. I’d like to point out that I now oversee our Advice Line service too. The service allows our members to seek guidance and support from the CCTA team on all matters , so I encourage members to …

Weathering the storm
Credit in a cost-of-living crisis

Published 20 June 2022

This winter will be hard. We can say that with certainty. Rising costs will impact everyone. The ‘middle classes’ may have some disposable income, and perhaps some savings. However, those already financially vulnerable will really struggle. Some will turn to credit, but will credit be there? THE (RATHER LIMITED) GOOD NEWS Data suggests average pay rises in the last year were higher for those on lower incomes, both compared to the previous few years, and other groups. Whilst these will not fully counter rampant inflation, it does perhaps point to some consumers being able to retrench, at least in part, to weather some of the storm. THE BAD NEWS That said, clearly many will struggle, and credit may not be there to help. The focus on affordability will make this downturn different to those in the past. Historically many firms focused on managing risk. Prime lenders would tighten lending criteria and consumers would flow down to near-prime or sub-prime. who traded higher risk with higher interest rates. This time, with a heightened focus on proving affordability, those consumers won’t qualify for lending full stop. Whether they would have been able to cut back in order to afford a loan won’t be visible from historical banking data. Higher interest charges mean higher repayments which will be even further out of reach for those ‘falling from prime’. There will be real challenges for this group. Government doesn’t have enough money in the coffers to help, and charities will potentially be overrun. MAKING AFFORDABLE LENDING DECISIONS Knowing costs are going up, firms need to think about their affordability checks. Many rely on consumer declarations of expenses, yet consumers will naturally think about today, not six months time. Firms may ‘floor’ expenses using data, for example from the Office for National Statistics. Again, this data is based on the past, not where we are heading. Knowing what is coming, truly consumer-focused firms will build inflation into their approach, perhaps looking at particular categories, such as utilities, and factoring in forthcoming price increases to consumers declared expenses. This will, of course, impact lending volumes, but also protect consumers and firms in the long run. SUPPORTING CUSTOMERS Just like in the pandemic, once again the industry must play its part. With consumer confidence at an all-time low, we should expect customers to be more concerned about their money, want to better understand their situation, and engage more frequently. Firms should be planning now for increases in contact rates. We know from research done by the Money and Mental Health Policy Institute that the phone is the most stressful channel for consumers, even more so for those who may be vulnerable. Digital services, done well, can facilitate engagement, in particular with those who have never felt the strain of financial difficulties before. It can reduce feelings of shame and empower people to help themselves through self-serve processes. With increasingly complex requests now being handled through digital, at high volume, it can be a win for both parties. …

Turning over a new leaf
ESG – Why is it important?

Published 20 June 2022

Increasingly members will have heard more about the importance of thinking about ESG – Environment, Social, and Governance issues. The CCTA was delighted to take part in Credit Strategy’s recent Car Finance Conference and to meet some of our members. I was asked to join some of the panel sessions and the debates. One of which was the discussion about how lenders approach ESG. Some of you may already be thinking that it is time to move on to the next article. However, even if you believe that this is not an issue of personal interest, there is one good reason why you should keep reading. These ESG issues are of increasing interest to people that are important to firms. It is a truth that drives much of our work, that our success or failure, depends on our relations with others – customers, investors, suppliers, and regulators. One of my fellow panel members pointed out that in a recent discussion with investors, the second question was focused on what the firm’s approach was to ESG. These concepts are not new. Go back fifty years and there was discussion about the impact of industry on the environment. At one stage we were all very focused on corporate social responsibility. You can trace it back to social pioneers like Robert Owen, who built New Lanark just a few miles from where I live. But in the business schools and board rooms, the ideas of Milton Friedman were very popular. He proposed that the primary responsibility of a company is to the shareholders. For many years that idea was king. Now, our regulators increasingly place a focus on social issues. We have seen a push towards more diversity amongst leadership and the directors of companies. They want to hear more about how we treat staff and also how we allow people to be more authentic. I recently read a piece by Equiniti saying that almost half of borrowers think that green credentials are important. There is support for lenders to think about who they lend to, and even whether they give better rates to those with sustainable aims. The question that was being discussed at the Conference is how do lenders approach this world of ESG? This was especially interesting when thinking about the car industry, which poses questions about environmental impact. There is a temptation to sign up for audits and checklists that have been developed elsewhere. Of course, that might be helpful, but we are at risk of not thinking this through for ourselves. There are a number of traps or misconceptions that I have seen with other firms. Simplifications of what diversity is. Or accepting current wisdom around environmental impacts. For example, in the used car world, running second-hand cars will probably be less green, and less environmentally friendly than running a new car, but what are the costs of building a new car? What are the environmental impacts of mining those components? We are increasingly using more precious metals …