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.

New FCA Guidance keeps vulnerability firmly on the agenda

Published 01 March 2021

In the last week, the Financial Conduct Authority (FCA) published its final guidance on the fair treatment of vulnerable customers. The treatment of vulnerable customers has been a key priority for the FCA, and it is an issue that has grown in prominence within financial services in recent years. The regulator views vulnerability as a spectrum of risk, with the risk increasing if a customer has characteristics of vulnerability, such as health issues, the impact of significant life events, low ability to withstand financial or emotional shocks and/or low financial capability. The guidance follows hot on the heels of the publication of the FCA’s latest Financial Lives Survey. The survey looks at attitudes to money, along with the interaction consumers have had with financial services firms. Findings from this survey show that nearly 28 million people in the UK now have one or more characteristics of vulnerability. This means a large proportion of the UK population is at risk and the Covid-19 pandemic has only increased the numbers of individuals that might become susceptible to vulnerability, further pointing the spotlight at firms as to how to best help these consumers. The aim of the guidance is to drive improvements in the treatment of vulnerable consumers, in the hope that they achieve outcomes that are as good other customers. The FCA explains notes that: “Characteristics of vulnerability may result in consumers having additional or different needs and may limit their ability or willingness to make decisions and choices or to represent their own interests. These consumers may be at greater risk of harm, particularly if things go wrong”. The guidance is helpful as it outlines the regulator’s expectations of firms when dealing with vulnerable customers. Companies need to ensure they can recognise and address vulnerability at any point in a customer’s journey. They also need to be prepared to demonstrate how addressing vulnerability is at the heart of their business model. Firms need to have considered their customer base, product design and the skills their staff require. And this needs to be kept under constant review. As firms digest the new guidance, we will be discussing vulnerability, and the role of the upcoming statutory breathing space scheme with our members at our summit on 10th March. Look out for more detail about our work on vulnerability beyond this.

A Missed Opportunity: CCTA responds to the findings of the Woolard Review

Published 02 February 2021

A Missed opportunity “While we welcome some positives within the Review findings, such as recommendations to reform credit reporting and addressing the problems within the debt management market, this a missed opportunity to explore many of the issues facing the unsecured credit market.” “We had concerns from the outset about limited industry representation, and the review is weakest when it comes to an understanding of how the market operates now and in the future. At a time when lending is under pressure, few of these recommendations will help the diverse range of lenders that we represent. This was an opportunity to create a consumer credit market that worked well for consumers and firms.” “Consumer credit remains crucial to many families across the UK. As we come out of the pandemic, this has never been more important. We need to get the economy back on its feet and credit will help people manage the small costs that allow them to get back to work or the more considerable expenditure on a new car or improvements to their homes.” The same road on alternatives to high-cost credit “The report highlights the need for alternatives to high-cost credit, but customers continue to seek out a range of products that meet their needs. The recommendations for alternatives are the same that have been tried so many times without success.” ‘Buy-now-pay-later’ an example of the bigger problem “The fact that it has taken a review to start a process that brings the ‘buy-now pay-later’ (BNPL) firms within FCA regulation just illustrates a larger problem. The FCA should be able to act more quickly to extend the boundaries of regulation and apply clear rules for firms to follow. The development of salary finance outside the perimeter is another obvious example. It is a product that has many of the features of the old payday lending but will continue to sit outside of FCA regulation.” Future regulation “We support the view that the FCA needs to take a holistic approach to regulation, looking at the entire lifecycle of a credit product and the associated customer outcomes, rather than focusing in on one aspect of its use in isolation.” Jason Wassell CCTA CEO

Our views on the Financial Ombudsman Service budget consultation

Published 29 January 2021

The Financial Ombudsman Service (FOS) has been consulting on its plans and budget for the coming year. As the consultation closes, we wanted to share our thoughts. We feel the proposals will place increasing pressure on lenders and create an environment in which borrowers do not receive the best outcomes. It is no secret that many firms in the non-bank lending sector have struggled with the FOS and its approach to handling affordability complaints. We are now seeing rising numbers of complaints across consumer credit. While another essay could be written on the impact of interpretation and then re-interpretation of affordability principles, the most pressing demand is around the financial consequences of increased FOS fees. The proposals would see funding grow and place greater demand on firms. What will surprise many is that in a process that should be impartial and fair handed in its approach, the lender always pays the fee for the case to be considered by the FOS. Win or lose they currently pay £650 per case, with a proposal that this would increase to £750. With the lender always picking up the cost, this opens up opportunities for abuse by claims management companies (CMCs). These commercial organisations can submit cases to the FOS for free and, if they win, they take a significant share of any compensation owed to the customer. The threat of a case fee can be weaponised, used as a threat. Agree to the demand or face an automatic case fee. Customers can be used as pawns in a CMC’s strategy to submit as many claims as possible. Review by the FCA found that many of these are submitted without individuals’ knowledge, often as many as 1 in 4 customers saying they have never heard of the CMCs. The FOS has also shown itself to be keen to apply case fees for just about anything submitted. This includes cases where the FOS decided that they did not have the jurisdiction to consider the matter but still sought to apply the case fee – it is difficult to think of another organisation that charges to tell you it can’t do something. In another twist, the FOS has come up with the idea of charging the proposed higher fee for the thousands of cases in the system that will not be decided until the new financial year. While most cases are cleared within the year, there are a considerable number that cross over. Indeed many that have been in the queue for years. Last year that meant the FOS received an additional £1.1 million in fees. The story told by the financial report is something that we believe needs more attention before we head down the path of funding increases. While information is scant, we can see a reliance on contractors to help deliver on a falling caseload. The costs of using contractors mean that this is considerably more expensive. Our rough calculation is that each contractor will cost nearly twice as much as a …