Pulling focus
Take a customer-centric approach to avoid regulatory issues

Published 20 July 2021

Through our proactive support of firms and our work as a Skilled Person, we have seen a substantial volume of activity arising from the FCA’s thematic focus within specific sectors of financial services. One recent area of focus has been the payday sector, with the FCA focusing largely on responsible lending and complaint handling. Firms in this sector, as in any other, wish to ensure good outcomes are provided to customers, as per the mission and values they lay down as their reason for doing business. If the desire to consistently improve customer outcomes is the premier consideration, there is certainly also a place on firms’ agendas for operating a technically compliant business – after all, this is essentially what is meant by ‘operating to the letter and the spirit of regulation’. We have recently seen the FCA starting to focus on other sectors of financial services such as guarantor lenders, home collected credit and pawnbrokers, even some initial activity around the motor sector. The focus of attention is still very much on responsible lending and complaint handling, but in addition we are starting to see relending and arrears and collections being an increasing focus. For firms in this sector, who have operated under the jurisdiction of the FCA for a number of years now, there can still be challenges in ensuring that they are sufficiently focused on the outcomes they are providing, rather than looking at compliance from a ‘technical’ perspective. How do firms ensure they are looking at their customers’ outcomes holistically to inform technical compliance, and not the other way round? MANAGING ATTENTION There is no such thing as no attention from the FCA, and neither would we suggest we would want this as an industry. During the early stages of COVID, we witnessed fantastic collaboration between firms and the FCA at the start of an emerging problem. During these early stages, we saw firms proactively influencing the FCA’s decision making through the recounting of their joint experiences, and it ultimately led to good – and consistent – support for customers in a difficult time for many. Proactivity comes into play quite nicely when looking at this issue, as being proactive is an effective means of avoiding unnecessary issues crystallising within your customer base. Being able to demonstrate your proactive approach to looking at customer outcomes can be an effective means of preventing matters from escalating if an unanticipated issue does affect your customer base and attract the attention of the regulator. We look at three areas where firms can do this right now. RESPONSIBLE LENDING Responsible lending was already a major area of concern for the FCA and regularly landed in the FCA’s risk outlook prior to the Coronavirus pandemic. As a result, the FCA clarified and updated its affordability requirements in 2018. The regulator has been unequivocal in its requirements in regards to responsible lending practices. When investigating why poor practice can occur, it is important to look at the guidance currently available to lenders. …

New driver
The future regulation of consumer credit

Published 20 July 2021

The regulation of consumer credit will be changing. That is the only certain thing we know. How regulation changes, or when it changes, are unknowns at this stage. We are certain that there will be changes to the regulation of consumer because: the UK has left the European Union (EU), creating both a need and an opportunity for change in areas of regulation that were driven by EU rules; the Government is working to develop the future regulatory framework (FRF); a new CEO in in place at the Financial Conduct Authority (FCA) and a major transformation programme for the organisation is underway; the recent review of the regulation of unsecured credit (the Woolard Review) made 26 recommendations for change; and there is a longstanding commitment to review the remaining provisions of the Consumer Credit Act (CCA). Following the UK exit from the EU, relevant EU laws and regulation have been ‘onshored’ as a short-term measure. In the longer-term the Government intends to use the UK exit as an opportunity to review and update the regulatory framework for financial services in the UK. A recent consultation from the Treasury set out the Government’s proposed approach to the regulatory framework. The intention is for Parliament to set high-level policy objectives for financial services regulators, with much of the detail of regulation moving from legislation to the regulators’ rule books. Moving regulation from law – both primary legislation and regulations – into regulatory rulebooks will be a mammoth task and will keep Government, Parliament and regulators busy for years to come. It could well be the financial services equivalent of painting the Forth Road Bridge. But there were two glaring omissions from the Treasury consultation – specific regulation of consumer credit and the role of the Financial Ombudsman Service (FOS) in the regulatory framework. Consumer credit touches the lives of the majority of ordinary working people in the UK. Given this, reviewing and updating regulation of consumer credit should be more of a priority for the Government and regulators. Consumer credit regulation is split currently between the CCA and the FCA rulebook, resulting in an uneasy marriage of detailed rules – based on the way consumer credit worked many years ago –  and principles-based regulation by the FCA. This creates a strong case for a comprehensive review of consumer credit regulation – a point we have made to the Government and to the Treasury Select Committee, which is also looking at the future of financial services in the UK. The exclusion of the role of the FOS from the work on the future regulatory framework is both curious and disappointing. The impact of the FOS is significant, across financial services and the role of the FOS really needs to be considered as part of any work reviewing and updating the regulatory framework. In tandem with the Treasury work on looking at the regulatory framework, Christopher Woolard (former interim CEO of the FCA) conducted a review of the regulation of unsecured consumer credit. The …

Changing times
Creating a new CCTA – building on strong foundations

Published 20 July 2021

I am pleased to add my welcome to this edition of our relaunched magazine. I am delighted to write as the new Chief Executive of the Consumer Credit Trade Association. My first step is to thank my predecessor, Greg Stevens, who retired at the close of 2020. As many of you know, he stepped in as Chief Executive back when the CCTA was going through some testing times. Over the years, he brought the organisation back to good health and its prominent position. He has steered the ship, continuing to avoid the reefs and shallows through some difficult times for consumer credit. Over the last few years, he has been working on moving to the next chapter for the CCTA. And I know we will also wish him well with his own personal story as he steps back. CREATING A NEW CCTA It is now no secret that during 2020 we entered into discussions about how this might be the catalyst for a series of changes to the association. Both Greg and I felt that the pandemic was another reason for action, but longer-term trends were already in place before then. There were regulatory pressures across the consumer credit sector—both increased regulation and more uncertainty on critical issues like affordability. We both felt that there were concerns about the lack of understanding of our members’ customers. That a set of regulators educated and trained in bank-lending often found it hard to understand the nature of the financial need and the benefits of the services provided. At the same time, changes to the market were placing pressure on all trade associations. In our discussions, we could see the opportunity to develop a single voice for alternative consumer credit that can engage with key stakeholders – regulators, Government, and other influencers. This was the chance to ensure that the model was fit for the purpose. Leaner and more agile.Our aim was, and is, to develop a natural home for lenders and supporting companies. Always allowing members to decide their level of engagement. Following positive talks, made more difficult because of Covid-19, the directors came to their decision. Taking up my role on the 1st January, I had my first opportunity to introduce myself to you at our CCTA Spring Summit just a few weeks ago. If you did hear that presentation, then much of what I say in this article will be familiar. Much has changed over the years, but the association’s mission remains close to what it has always been. ADVOCACY One thing that has not changed from the times of our foundation is the need to work together. There has never been a more critical time for strong advocacy. We recognise that we need to have allies and good relationships for us to be effective. Sometimes our role as an association is to explain what our part is in terms of society. This is why you will hear us talking about our vision of a well-regulated market, providing responsible credit …

CCTA Response to the Treasury Select Committee Report on the Future Regulatory Framework of Financial Services

Published 06 July 2021

The Treasury Select Committee has today published its report on the Future Regulatory Framework of Financial Services. It is good to see that the committee has recommended that the Treasury consider how the decision-making processes of the Financial Ombudsman Service (FOS) would interact with the future regulatory framework for the FCA, something we called for in our written evidence to the committee. The HM Treasury consultation currently makes no mention of the FOS. The CCTA does not believe there is any sense in looking at the regulatory framework and not including the role of the FOS in that. The potential impact of the FOS is significant, across financial services. We believe there is a strong case to review the role and accountability of the FOS, to ensure it works as part of the regulatory framework rather than working against it.

CCTA thoughts on the FOS Annual Complaints data

Published 26 May 2021

The FOS has released its annual complaints data today. From a quick glance, what jumps out is the high upload rates for complaints about home credit and guarantor loans. Uphold rates for both of these are currently over 80%, compared with the average uphold rate of 31% across all products. However, there is more to this when the detail is explored. On home credit complaints, the uphold rate jumped from 39% to 84% in one year, while the number of complaints remained stable. How could there be such a dramatic change in how lenders were dealing with complaints? This shows there must have been a change in approach from the FOS around how these complaints were dealt with. Firms were trying to understand what had driven this change, keep up with interpretations from the FOS and work out how to best deal with future complaints. In the year following the jump in uphold rate for home credit, complaints rose from around 1,500 to over 22,500. The picture is very similar on guarantor loans. With the current FOS case fee of £750, it is easy to see how this number of complaints becomes untenable for firms. There is a clear connection between FOS uphold rates increasing and a sharp rise in complaint volumes soon afterwards. This is likely to have been caused by the “claims culture” being driven by CMCs, looking for other sectors to exploit after PPI. The actions of the FOS have effectively encouraged more complaints, some of which are purely speculative. We will continue to raise the concerns of our members around a constantly evolving approach from the organisation and their lack of action to push back on CMC poor practice.

Friends and Family can’t pick up the slack

Published 20 May 2021

It has been a busy time period for alternative lending sector. In recent years it has faced many challenges including a constantly changing approach from the Financial Ombudsman Service and the impact of the ‘claims culture’ driven by Claims Management Companies. Many firms have already left the market. Since 2016 the number of firms offering HCSTC has more than halved. To add to this there has been much media speculation about the future of various companies in wider sector in recent weeks. We await news about the future of Amigo loans, but it has been confirmed that Provident is to leave the sector, shutting down its home credit business that has been operating for over 130 years. For some this will be seen as a victory, another firm gone. But we know that when supply is affected, the demand remains. Provident served over 300,000 customers at the end of 2020 which now must look elsewhere. These are individuals and communities that have been left behind by mainstream lenders. Whenever market exit is mentioned, there is often the misconception from the FCA that borrowing from friends and family can move in to fill the space left behind. In reality, things are not so simple. There must be money available to lend out, which is not the case for many. We know that a large number of households in the UK have little or no savings to help deal with financial shocks themselves, never mind supporting friends and family. The Covid-19 pandemic will also have had a negative impact on the financial situation of many households. Borrowing from friends and family can also quickly turn toxic, damaging relationships and causing them to breakdown. There is a fine line between ‘friend’ and illegal lender. The Woolard Review noted the recent change and innovation within illegal lending. It is becoming more sophisticated. The Illegal Money Lending Team in England has also expressed their concerns over the growing use of social media platforms to manipulate and blackmail victims. They are also concerned about the impact the Covid-19 pandemic will have on finances at a time when legal credit continues to dry up. Stakeholders need to be alert to consequences of the decreased availability of credit. To do this they need to understand the alternative lending consumer and why they use these forms of credit. Regulators in particular need to understand how the market operates. The FCA should take a holistic approach to regulation, looking at the entire lifecycle of a credit product and the associated customer outcomes to avoid negative consequences.

CCTA CEO comments on Provident Financial decision to close down home-collected credit and Satsuma brands

Published 10 May 2021

Commenting on the decision by Provident Financial to close down their home-collected credit and Satsuma brands, Jason Wassell, Chief Executive of the CCTA said: “This news is shocking and yet not a surprise to those watching alternative lending. We have long been concerned that the current regulatory framework does not work for the market, or its customers. The result in this case is that access to credit will be reduced for hundreds of thousands of people. “These are individuals and communities that have been left behind by banks and mainstream lenders. They access the non-standard market for reasons such as major life events, variable income, or a lack of credit history. They are often seeking small amounts to manage their finances in a flexible way. “The constantly changing approach by the FOS, along with the increasing claims culture being driven by Claims Management Companies, is making it difficult for firms to operate and attract investment. These factors together led to major market exit in the high-cost short-term credit sector, and it has now spread to home credit. “Market exit is likely to continue across the sector if these problems are not addressed. The outcome will be that access to credit is reduced for a group of consumers who will struggle to borrow elsewhere.” About the CCTA The Consumer Credit Trade Association (CCTA) is one of the oldest trade associations in the UK. Established in 1891, we have a long and influential history. Our objective is to support and develop an effectively regulated alternative lending market. We seek to provide responsible access to credit for all. Our members are often described as alternative lenders, developing alternative credit products, serving customers often ignored by mainstream financial services. Member firms include: car finance; guarantor lenders; home-collected credit; short and medium-term lenders; and smaller businesses working in niche lending sectors. About Provident Financial Provident Financial plc (‘the Group’ or ‘PFG’) is the leading provider of credit products to consumers who are underserved by mainstream lenders. They serve 2.3 million people through credit cards, vehicle finance and personal loans. PFG current employs 4,865 colleagues across the UK. They are not a member of the CCTA.

Coronavirus- the lasting financial impact

Published 15 April 2021

We are now more than a year into the Covid-19 pandemic, and I think it is safe to say that none of us predicted the impact it would still be having on our lives. With lockdown easing in the UK, on the back of the vaccine rollout, we are all starting to think about making plans about how we move beyond the pandemic. If things go to plan life could be back to some kind of ‘normal’ by the end of June in terms of restrictions. But it is becoming clear that there will be a long-term impact on the financial situation of many individuals and firms alike. In recent weeks there have been the publications from both the Financial Conduct Authority (FCA) and the Money Advice Trust (MAT) looking at the impact of Covid-19 on finances and the assistance customers will need moving forward. The MAT research showed that a third of adults in Britain (31%) now report being financially worse off as a direct result of the pandemic. Additionally, over 10m adults are worried that their finances will not recover from the impact of Covid-19. Unemployment is now at its highest point since the start of 2016. We know that a large number of households in the UK have little or no savings to help deal with financial shocks. For many that have lost their employment, or suffered a change in circumstances, things will take longer to recover than a few more months, possibly years. Recently, the FCA reviewed the implementation of its tailored support guidance for Covid-19 and the readiness of firms to help customers in financial difficulty. This included customers who had come to their end of their payment deferral, as well as those that had not used one. The FCA’s research found that customers were generally able to access additional support at the end of a payment deferral, with firms allocating additional resource to this. The FCA did note that there been an increase in inexperienced staff assisting customers, which may lead to an increased risk of harm. Firms were reminded of the outcomes of the tailored support guidance, particularly that: customers receive appropriate forbearance that is in their interests after consideration of their individual circumstances; and that firms support their customers through a period of payment difficulties and uncertainty, including by considering their other debts and essential living costs. The call was for senior managers to consider every aspect of support for customers. That by this stage, the expectation is that there would be a carefully considered process rather than the rapid reaction required early on in the pandemic. By now, and as we move to more tailored support, the FCA expects an approach that has been considered at the firm’s highest levels and understood on the frontline. The test used by regulators is to see evidence of discussion and to ensure that it can be explained by everyone involved. The FCA mentioned that there should also be quality management to ensure that everything …

CCTA comment on the publication of the FOS plans and budget 2021/22

Published 31 March 2021

“We are particularly concerned about the changes surrounding the case fee announced in today’s publication. We do not believe any justification has been provided for a further rise in the case fee, following the increase introduced just last year. This has now increased by a third over the last two years. “Not only are the FOS bringing in an increase in the case fee, but they are also applying this to all cases already in queue. Based on the reported backlog of cases, this stands to net the FOS nearly an additional £16m. This effectively rewards the FOS for inefficiency in not dealing with cases faster. “We believe this year’s budget is indicative of the concerns we have had about the financial model of the FOS in recent years. With the Chief Executive due to leave in the coming weeks we believe this represents an opportunity for the Treasury to review the management of the organisation”.

CCTA Spring Summit

Published 17 March 2021

We held our first summit of 2021 this week for our members. It was great to have such good attendance from across all the different areas of the association’s membership. Though, we would prefer to be able to bring members together in a face-to-face environment, we must continue to meet virtually for at least the next few months. We want to offer members the opportunity to hear from industry stakeholders on a range of issues at our events. On this occasion we were joined by Gareth McNab, Director of External Affairs at Christians Against Poverty (CAP). He presented to members on the new statutory Breathing Space scheme that goes live in May. Gareth was able to explain the policy intent behind the scheme, but also how firms can implement it to deliver the best outcomes for consumers. There were lots of questions, and many members were keen to learn more both about the scheme and the work of CAP. Through the session we were also able to provide more detail on the CCTA’s plans for the year. The association will be working to build relationships with external stakeholders. We will use these meetings to provide knowledge and insights back to the members. We also want to facilitate members to be able share information and their experiences with others. The number of common issues facing the membership continues to rise. There are some priority issues we intend to focus in on. Unsurprisingly FOS and complaints appears here. Along with areas that the FCA has highlighted including affordability and vulnerability. The impact of the Covid-19 pandemic is another area that we must continue to keep a close eye on. There also remains our campaign on protecting access to responsible credit. This has long been a focus of the CCTA, and this will continue on as we work to demonstrate the importance of having access to credit for consumers and the negative impacts caused when it is not available. We are keen to hear from members on any feedback they have on the summit and the content that was shared. We are planning more events for year, including some more interactive sessions on specific issues. We will be in touch with more details soon.

CCTA comment on the departure of Caroline Wayman, CEO of Financial Ombudsman Service

Published 10 March 2021

“It is no secret that we have long been concerned about the management of the Financial Ombudsman Service (FOS). Our most recent concerns have been about the organisation’s finances- both the funding model and runaway spending. “Just as important is that we tackle Claims Management Companies’ (CMCs) activities. Regulators have identified cases of fraudulent activity, the misrepresentation of individuals and the misuse of their data. Yet, the FOS seems happy to encourage them and give them the benefit of the doubt. “As we look ahead, the next Chief Executive must ensure that the Ombudsman provides an impartial service that works for consumers and firms. The FOS needs to help tackle bad practice by CMCs and ensure that customer data is protected and not misused. For firms, there needs to be consistency of approach and better understanding of consumers, products and the challenges facing firms”.

What do we want from the budget?

Published 03 March 2021

At around lunchtime today Rishi Sunak will deliver his budget for the coming year. Arguably the biggest day of year for any Chancellor, this is a budget like never before as we will learn the true impact of the Covid-19 pandemic on the economy. There is a lot of speculation about tax rises, possible changes to Universal Credit and further support for the industries most affected by the pandemic. With government borrowing at a record high, we expect much of the budget will be focused on recovery and how to get the economy moving again. At the CCTA we are interested in the impact on family finances and believe that the members we represent have an important role to play here. For many families, credit – particularly from non-bank lenders – is an important tool in balancing their own budget. The demand for this form of credit exists because it meets the needs of a group of customers. It may be that a small amount of credit is required for a relatively short period of time, or that a customer with a thin credit file cannot get credit from a bank. For many customers, credit is about making sure the car can get you to work or getting a higher-than-average electricity bill paid, the alternative being unable to work or a default on their credit file. Mainstream lenders are likely to tighten their risk appetite in the coming months as it becomes more difficult to assess the true financial situation of the borrower. This will mean that a segment of customers will find it more difficult to access credit. We know that when supply falls the need is still there, so consumers look elsewhere. Often at less desirable alternatives. There needs to be a real conversation about how credit is used and why it remains vital to so many. The pandemic has damaged that economy in ways no one could have predicted but the use of credit is not only valuable to individuals, but society in general and the economy. Credit fuels economic recovery which is so desperately needed now. Within the budget, a business minded government should recognise the important contribution made by the consumer credit market. A period of stability will allow our section of the credit market to continue to serve customers while also contributing to growing the economy once more.