Changes at the FOS

Published 08 December 2023

Earlier this week, the Financial Ombudsman Service (FOS) published its Plans and Budget consultation for 2024/25. While these are first steps, we believe that they are heading in the right direction.  The consultation details changes to the organisation’s funding model, including a £100 reduction in the case fee, a decrease in levy payments and plans to consult on charging professional representatives, which include Claims Management Companies (CMCs), to bring cases to the FOS.  We have been working on reform of the organisation and the complaints system for some time. Members will know that we have engaged with the FOS from the board level to the frontline teams interacting with firms daily, so it is good to see some steps in the right direction.   Firstly, it is good news that the proposed case fee is set to drop as this affects all firms. Businesses have endured year-on-year increases in recent times. We have often discussed the burden the case fee places on firms, particularly for small and medium-sized businesses, so it is promising that the FOS wants to try to bring this down.  It is also promising that the Ombudsman will move forward with plans to charge CMCs to access its service. CMCs have long been a feature of the alternative lending market.  We have raised the poor practices shown by some CMCs again with the FOS and those responsible for regulating the sector. Firms see many poor cases brought by CMCs due to the lack of incentive to submit a higher quality claim when they bear none of the financial cost.  Lenders have struggled with poor practices, including receiving a high volume of cases where they have no record of the customer ever taking a loan. There have been concerns that customers weren’t even aware that CMCs were bringing cases in their name, as the proper authority has not been obtained. This put a significant strain on many businesses so it is good to see that they will now be charged a fee. Hopefully, this will encourage them to bring forward only legitimate cases.   Firms will still pay a case fee in these circumstances, but CMCs will also be charged if these proposals move ahead. FOS are seeking views on the amount as part of the consultation. These changes could be significant, but they are still at the consultation stage. Some of the proposals would need secondary legislation to be laid before Parliament by HM Treasury before they could be implemented. Still, it is promising to see the start of that process with some publications from the Government in recent days.  As you would expect, we will continue to engage with the FOS on its plans. Our CEO, Jason Wassell, will attend the FOS Industry Steering Group next week to discuss these proposals in more detail. And the association will also submit a formal consultation response.   We encourage members to do the same or share their views. If we can demonstrate how these changes would help firms and better support those customers …

Level playing field in consumer credit?

Published 03 December 2023

BNPL and Big Tech shake things up Unsurprisingly, consumer credit regulation plays an essential part in the lending market. A level playing field in consumer credit is a crucial principle. Firms of different sizes and formats and providing various products need access to the market. We can see some areas where we may come off track with the current discussions about regulating Buy Now Pay Later (BNPL) and Big Tech entering into financial services. These developments open up some great discussions about how consumer credit is regulated. They pose some challenges for the Financial Conduct Authority (FCA). More BNPL firms come into FCA regulation, but BNPL is still unregulated This issue came back to the front of my mind with the end of a set of temporary permissions that some firms had to provide FCA-regulated products while sitting out the regulatory regime. Those firms with regulated credit products must now have the correct FCA permissions. It has brought in some BNPL firms like Klarna into the FCA orbit. The vital point is that the BNPL product is still not regulated by the FCA. It is interesting to see what is happening, made more difficult by rumour and speculation. Regulation of BNPL continues to be a hazy area. There have always been regulated firms providing the unregulated BNPL product, including some CCTA members. We need clarity and want a level playing field for all consumer credit firms. Some firms, though far fewer, still say that BNPL is not a credit product and should continue to be a non-regulated product. Did the Government wobble on regulation? Our last City Minister, Andrew Griffith, was thought to have been floating a lighter regime for BNPL, and indeed, we had heard him say directly that this was a cheap form of accessible credit. I took from what we heard that this was a way of filling some of the growing gap between supply and demand. However, that raises questions about that level playing field in consumer credit. The flag was raised, and many organisations rushed to join the battle. It is also fair to say that this pause in regulation raised considerable concerns amongst the debt charities. There were joint letters of complaint and plenty of words on why BNPL regulation should be pushed on. It will be interesting to see whether the new Minister is sceptical or returns to the more traditional view. Our long-held position is that we should try to keep the regulatory burden to a minimum so we can certainly understand those promoting new products looking to develop their case for exception. However, we need an even approach. Big Tech enters That theme continues into the FCA’s interest in Big Tech potentially entering into financial services. There are some big questions about whether those firms can create a market advantage from the large amounts of data they hold. A debate that we know will roll into 2024 and beyond. We know that data is an integral part of the market. We …

Engaging on the FCA’s Product Sales Data consultation

Published 24 November 2023

Anyone in consumer credit will likely know about the FCA’s recent consultation on Product Sales Data (PSD) reporting. The FCA has stated that the proposals aim to collect further data from the market to inform their supervisory and policy approach. The proposals would mean data would be provided to the FCA on every loan issued across credit cards, motor finance, etc. That includes information about every customer. The FCA themselves say that 120 million credit agreements currently cover around 40 million individuals. They are also requesting “back book” data on every agreement that is currently live. This is a massive amount of data for the regulator to hold. We have concerns across a range of areas The CCTA has concerns not only about the regulatory burden that reporting on this scale will place on firms (with smaller firms likely to be disproportionally affected) but also if it is right or safe for a financial regulator to hold this level of data. This clashes with the ideas that are developing in financial services around data protection. We continue to talk about data minimisation, seeking out and keeping only the personal information required. If these plans go ahead, the level of data the financial regulator will hold about the UK public and their intimate financial details will be a step change. As part of our advocacy work on the issue, we have been raising these concerns with various stakeholders since the publication of the consultation and directly with the regulator. That work has included journalists who cover financial services and regulation. We briefed the Sunday Times about the proposals and what they would mean for consumers. Along with our briefings, we supplied comments about the impact the data reporting would have on alternative lending. This week, we saw a piece published in the Sunday Times, which can be read here. (behind paywall). It picks up on the main CCTA concerns about the proposals and the additional burden likely to fall on small firms. The association is also quoted. The piece was also picked up the CityAM, providing some extra coverage of our arguments. More to be done The official consultation has now closed. However, as part of our continuing work on the issue, we ask members to review the more detailed proposals. Please share concerns in terms of what is workable. We will be looking to raise these directly with the FCA in the coming weeks.

CS Lending Summit – challenges in consumer credit

Published 17 November 2023

In a post-pandemic world, there has been a shift in the way people attend industry events. So, it was great to participate in the CS Lending Summit operated by Credit Strategy. For us, there was interest in how Consumer Duty continues to be a mandatory discussion point and how there is more focus on access to credit. CS Lending Summit has long been a chance to review the lending agenda and look ahead. This was no different as we heard about some of the significant issues. There was a great session on what is happening regarding the use of credit, especially during this period of economic volatility. Consumer Duty is high on today’s agenda. I was delighted to be asked to contribute as a speaker and to chair the Consumer Duty session. Consumer Duty has been a priority for the Consumer Credit Trade Association and our members for the last few years. Discussions about what the Consumer Duty might be in practice, consultations and implementation programmes have been challenging. It was interesting to hear from various firms about how they approached this matter. The examples included considerable changes to credit products alongside increased communication and engagement. Consumer Duty is not just a matter for today’s agenda. We know it will be with us for the foreseeable future. One of the questions I wanted to ask is what the next phase might look like. Everyone can point to issues within their sector that might be reviewed through this new prism. We have already seen the FCA intervene with the banks regarding passing on interest rate rises to savers. There are several other areas where the FCA has started to talk about whether a particular approach might not fit with Consumer Duty. I think that we will see more of this. Will this be a way to pick up on issues the FCA feels are untidy and make changes without specific rules or consultation? Access to credit is always on our agenda. We are always interested in discussions about access to credit. Our founding members formed our association over a century ago to push out new credit products to expand access to communities underserved by mainstream lenders. So it was interesting to hear Steve Brigham of Moneyline talking about their experience as the “lender of last resort”. Many of the issues they face seem very familiar. However, I think it is fair to say that many of our members tend to serve a higher-income grouping. Anyone with a view of what is happening can see that illegal lending is increasing. The research from Fair4All estimates that about three million people have used loan sharks over the last three years. We know that the Centre for Social Justice came up with just over a million people currently involved with illegal lenders. All the panellists picked up on the growth of Buy Now Pay Later. Expanding outside of FCA regulation. By now, we have enough research to suggest that BNPL has filled part of …

Supporting Talk Money Week

Published 09 November 2023

We are now well into Talk Money Week 2023 run by the Money and Pensions Service (MaPs) which we are supporting. The purpose of Money Talk Week is to break the taboo of talking about money and encourage individuals to speak about their finances, something we still seem to struggle with here in UK. It is an annual campaign that organisations of all kinds can get involved with. Despite the current spotlight on household finances, talking about money remains a taboo. People find it difficult to open up about money worries, and don’t access the expert advice available to help them find a way forward. This is a shame because the research shows that when people do talk about their finances, they make better and less risky financial decisions, and feel less stressed and anxious. By talking more about money, we can build financial confidence and resilience to face income shocks, life events and whatever the future holds. This year MaPs are encouraging consumers to do one thing that could help improve their financial wellbeing- it could be checking your pension or talking to your child about pocket money. Think about what your one thing could be. It’s no secret that many consumers are currently struggling with the cost-of-living pressures. It keeps coming up in the press and also got a mention in this week’s Kings speech. As we head into the winter months which often come with an increase in spending, lenders will need to think about how they can proactively engage with their customers to support them if required. Part of that is about making sure that individuals know where to turn to for advice. The Money Helper website contains a huge range of information, tools, and guidance about all aspects of money so is a great place to start. Here at the CCTA we are always keen to support external campaigns that fit with the vision of our association. At the heart of the CCTA is a commitment by our members to lend responsibly. It is important that consumers should only borrow when it is in their best interests to do so. This is also part of a wider debate about the need for access to credit. When used appropriately credit is an important tool to help individuals manage their finances. We need to ensure there are range of products that meet the needs of consumers to help them manage their finances effectively.

Regulation of BNPL – an update

Published 06 November 2023

We think the FCA announcement on Buy Now Pay Later (BNPL) activity is interesting for several reasons. First, it is fascinating that over 1 in 4 adults had used BNPL in the second half of last year. This raises some critical questions about the regulation of BNPL. The FCA believes about 14 million people used BNPL in the second half of last year (2022). That is about 27% of the population over six months, compared with 17% in the preceding twelve months. If we want to mess around with the statistics, then that suggests that we are heading towards doubling earlier figures. BNPL increases – meanwhile, credit supply drops I think that points to a tangible need for credit when the credit supply for many communities is withdrawn. We know from our work that we have seen a reduction, especially in working-class communities. Home-collected credit is a product that tens of millions of individuals have used over the last century. Over the last few years, we have seen it drop around 80%-90% in lending. That drop is due to regulatory intervention while demand remains as high as ever. Unfortunately, the consequence of that is the growth of illegal lending. Fair4All did great research in their report, As One Door Closes. They built upon the work of the Centre for Social Justice. In their study, they revealed that an estimated 1.1 million people in England use illegal lenders. Like all credit products, BNPL can deliver significant benefits for UK families. It can help close the gap when appropriately used. We need a more significant discussion about access to credit and supply and demand. The regulation of BNPL Of course, another standout is that the FCA has again used powers under the Consumer Rights Act 2015. That is because BNPL continues to be unregulated like other credit products. A more cynical observer might suggest these concerns around the contract are not the most significant issues when discussing BNPL. There are bigger matters. And for transparency, the Consumer Credit Trade Association does have members that provide BNPL products. It is a small group within our broader membership, but it does mean we hear different perspectives. From that, we know we need to have more certainty about the future of BNPL regulation. That is fair to both the lenders and the borrowers. There has been some public debate about the regulation of BNPL. How will BNPL be regulated? Should it be handled differently from other parts of consumer credit? Suppose we are considering a change of approach to regulating credit for BNPL. If we are thinking of how to control other innovative products. Then, we need to talk about a level regulatory playing field. Unfortunately, the current credit market does not work for many families in the UK.

Minister talks about access to credit

Published 20 April 2023

We are always interested in hearing from Andrew Griffith, Economic Secretary to the Treasury. He is also referred to as the city minister because financial services fall within his area of responsibility. So when he spoke at the Mansion House about Financial Literacy and Inclusion, it was good to hear him talking about the importance of access to credit. It was even better that he recognised the role that the Government and regulators have in the supply of credit. We talk to many investors, especially international ones, concerned about what is happening with UK FS regulation. We agree fully that the best intentions can lead to regulations that will increase financial inclusion. His reference to the problems with affordability is one that we welcome. Affordability was a bad experience for many lenders. Affordability is an excellent example of a regulatory obsession that has gone off track. Unfortunately, arrears and defaults are part of lending, at the core is an understanding of risk. These happen when people encounter the unexpected, the loss of a job, a boiler breaking down an illness without sick pay. No affordability test will prevent these from causing problems for a borrower. Many people live with the cost of credit, adapt to their position, pull back from some expenditures at times, and look for new ways to bring in income like working an additional shift. Over the last few years, we have seen the development of a model that does not take this into consideration. So what we have seen is the exiting of many firms from the market due to regulatory issues, along the lines set out by Mr Griffith. More than a million people use illegal lenders in the UK. This fall in access to credit is not without consequence, elsewhere organisations like the Centre for Social Justice are telling us that over a million people in England are using illegal lenders. We are happy to play our part in attempting to tackle the growth of illegal lending, and it was not that long ago that we sought to create stronger connections between our members and the illegal money lending teams. Including carrying a piece in our CCTA magazine and running a workshop for our members. Later Mr Griffith refers to a return to the concept of “caveat emptor” or buyer beware. That is certainly not the direction the FCA has been moving in recent years. Increasingly the responsibility rests with the lender and away from the borrower. Consumer Duty is the most explicit demonstration of this, as the responsibility for a good outcome sits with the lender. The customer really is a passenger on this journey. We could get into a much longer discussion about “agency”, but that is for another day. But there is agreement. To end on a positive note, everyone agrees that we should do more to increase financial literacy. We need everyone to understand more about the options available to them, the benefits and the consequences if things go wrong. …

Increasing regulatory burden leads to a drop in regulated supply

Published 13 April 2023

We are currently reviewing the FCA Strategy to determine its implications for our members. That is being considered alongside the FCA’s proposed regulatory fees and levies. Too often regulators set rules that work well for the big banks and mega insurance companies. The FCA often fails to recognise the important part played by smaller firms and that increasing regulatory burden needs to be considered. There has been a decline in UK-regulated credit for many as lenders exit. The CCTA has been pointing to the decline in regulated credit as more alternative lenders leave the market. These are lenders that are not easily replaced so families across the UK have fewer options when it comes to credit. The Centre for Social Justice has highlighted the growth of illegal lending in the UK. They travelled the breadth of the country to understand where and how illegal lending takes place; commissioned polling of over 8,000 UK adults; compiled and analysed the largest sample of known victims to date; and heard first-hand the powerful stories of those exploited, often by ‘friends’ who turn out to not be friends at all. More than a million people using illegal lenders in the UK In England today, they estimate that as many as 1.08 million people could be borrowing from an illegal money lender. We believe this is the first independent evidence that shows loan sharks circling as we see regulated supply drop away. There are those that try and create an equivalency, between non-prime and illegal lending. However, there is a chasm in terms of the protections provided by regulated lenders and the threats that often come from organised crime involved in illegal lending. Anyone finding themselves in trouble with an FCA-regulated firm knows that they can rely on consumer protection rules. Ultimately they can turn to the Financial Ombudsman or the courts. Those borrowing from illegal lenders have no such comfort and can become embroiled in further criminal activity. The CCTA will be reporting back on the increasing regulatory burden and other issues at the upcoming Summit on 26th April 2023.  If you are a member, then sign up. CCTA Events Diary

FCA roundtable on Consumer Duty implementation

Published 28 February 2023

This note is a readout from a meeting we recently attended with the FCA. This will interest CCTA members who are involved in Consumer Duty implementation. INTRODUCTION As part of our policy and advocacy work, we attend the FCA’s regular roundtable meetings on Consumer Duty. These meetings, which are held specifically for Trade Associations, are a chance for the FCA to provide further detail. They could also provide insight into their expectations of firms with respect to Consumer Duty. This is an opportunity for us to put forward key questions and challenges that our members face in implementing the requirements of the duty. I attended the latest roundtable, which was held virtually, on 23rd February.  The meeting focused on the FCA’s recent review of implementation plans. They also talked about their communication and engagement activity and an update from the Financial Ombudsman Service. IMPLEMENTATION PLAN REVIEW The FCA provided an overview of their findings from the review of implementation plans for larger firms. Their findings were published on 25th January on their website. The overview they provided was effectively a summary of their published findings, where they found evidence of both good practices and areas for improvement in areas. This included Governance and oversight, Culture and people, Deliverability, Third parties, the Four Outcomes and Data strategies. They also re-iterated that where firms are falling behind on their consumer duty implementation plans, they expect firms to ensure they are continuing to focus on prioritising areas of greatest impact on consumer outcomes. Firms need to make changes to ensure consumers receive communications they understand. As well as products and services that meet their needs. They pointed out the need to work with other firms in the distribution chain to ensure all parties are delivering good outcomes. Whilst this review focused on larger firms, it is important to inform our members that the FCA will shortly be sending out a survey for smaller firms. This will be focused on their implementation plans. This is likely to be sent out “in the next couple of weeks” and will ask firms to provide responses to questions about their implementation journey. COMMUNICATION AND ENGAGEMENT The FCA was keen to highlight the work they have done with respect to industry-wide communication and engagement. They pointed to the progress made here and made reference to their Consumer Duty webpage for firms. This included sectorial webinars, and a series of podcasts focusing on each consumer outcome. As well as their sector-specific portfolio letters. It was good to hear that the communication and engagement activity will continue. They will be continuing engagement with trade associations and wider stakeholders and producing more webinars and podcasts. Two important areas for our members are that the FCA has advised they aim to issue guidance communications around the April deadline for the exchange of information between manufacturers and the distribution chain. FINANCIAL OMBUDSMAN SERVICE Richard West, the Director of Casework Policy at FOS. gave a short update. He was keen to highlight that they are …

‘The Future of Credit’ research – comments by CCTA CEO

Published 22 February 2023

Nice to be invited to the Finance and Leasing Associations dinner tomorrow, always a remarkable event. More important than the invitation to dinner is the strong collaboration between credit associations on issues that are of importance to our members. One of the common areas of work is the promotion of the value of credit to UK families and businesses. So, I was pleased to see the work being carried out by the FLA on the use of credit and especially the future of credit. I recently took part in the launch of some of their research entitled The Future of Credit. For those involved in this world, much of what it says rings a bell in terms of why people perceive, choose, and use credit. It was good to hear about what consumers want to see in the future of credit. Once again there are some familiar themes – greater personalisation, flexibility, control, and education. The research showed that most people feel that credit is working, but they could identify areas where it could be improved. There was a call for a deeper relationship with more engagement and deeper contacts, and it should be less transactional about applications and payments. That raises some interesting questions about whether a longer-term deeper relationship would be seen by the regulator as building a dependency rather than improving service. Credit is part of everyone’s lives. I also wonder whether some of these experiences and views may alter depending on your circumstances. For some, there are many products available. Others have fewer options. I believe that will mean that the relationship with credit may be very different. Lots to discuss. I know that the FLA is continuing to do more with this research, and I think it is an area where trade associations can work together.

CCTA Chief Executive announced as Credit Week Leadership Awards finalist

Published 14 February 2023

I am very pleased to hear that I have been shortlisted for Business Leader of the Year in Alternative Finance award held during Credit Week. These are always interesting awards reflecting credit leadership across a range of sectors. Organised by Credit Strategy every year we watch our members do well across the sectors. Every year we post our congratulations to others in the days after. It was a pleasant surprise when asked if I was happy for my name to go forward and to be a finalist is just the cherry on top. It is all about the great team at the CCTA. Up against some great other leaders, we are so happy that we have received this recognition. This seems like a good opportunity to say how I work with a great team that keeps the CCTA moving. Our small team are specialists in their function areas – across policy, membership and communication. Campaigning hard for our members, providing our members with advice and building a network of lenders, brokers and associates. More than that, the team are willing and able to step in and help each other. Of course, the CCTA would be nothing without volunteers who serve on our Council, giving up their time to help direct the organisation. We are also helped by a small band of members who take part in our discussions. They are willing to share their experiences and insights. It is that knowledge and experience that allows us to bring focus to our work. Credit leadership We will continue to be strong advocates for alternative lenders; be a source of insight and facilitators of a network of lenders and associates. My congratulations to everyone else nominated for The Leadership Awards, taking place on 16 March 2023, as part of Credit Week.

FOS discussion update

Published 09 February 2023

It was good to talk to the Financial Ombudsman Service earlier in the week. We raised some concerns that our members had during the FOS discussion. However, we also welcomed their commitment to more engagement with the consumer credit industry. One of the issues that we are particularly keen to raise in our FOS discussion is their approach to Consumer Duty. The risk that people have mentioned to me is whether we will see differences in approach between the Financial Conduct Authority and the FOS. Unfortunately, there is a belief that sometimes there is a disjoint between the two organisations. I know that they would push back strongly on that suggestion. However, there have been a number of times when it seems that there are differences. From what we heard, the FOS are well aware of this concern and are trying to mitigate this risk by working closer to the FCA. There was an interesting FOS discussion about good outcomes. Looking at how this is implemented across different sectors and products. Remember if you are a CCTA member then please keep talking to us. Raise any issues you have with us. I am always happy to provide more information about our work. If you are not a member of the CCTA but are involved in non-bank lending, then please consider joining. More information can be found here.