The importance of field knowledge
Don’t underestimate ‘doorstep data’

Published 16 September 2024

A year ago, my colleague Rob Oxley wrote in a CCTA Magazine article that “a one size fits all approach to consumer debt recovery isn’t effective” but accepted that “a fully tailored approach to each and every customer isn’t possible – or at least not without access to quality data.” In 2024, there’s no doubt that customer data is king. But, in the ‘techy’ age, there is often a misconception that the most valuable data comes from digital sources. While data needs to be digitised to get the maximum value from it, it also needs to be accurate and authentic and, when we forget about real people and their real circumstances and rely on just what the digital data is telling us, we don’t get the full picture. We’ve taken a doorstep-driven approach to digital data gathering which has enriched and enhanced the quality of our data to enable a truly tailored approach. Since we launched Verify, Perch Group’s ‘intelligent’ field services firm, in August 2023, we’ve taken a doorstep-driven approach to digital data gathering which has enriched and enhanced the quality of our data to enable a truly tailored approach. So, while Verify’s customer reconnection and verification team has been able to draw on Perch Group’s existing data to make better informed approaches to the hardest to reach customers, we’ve also been able to feed intelligence back into the wider debt lifecycle that we’ve gathered on the doorstep. This is where the benefit of our full-service, fully integrated, Group-wide approach to debt resolution really comes in. Of the domestic and commercial customers visited on the doorstep: 17% couldn’t read or write in English 23% had a visible vulnerability 37% didn’t understand what a QR code was or how to use it 14% relied on their children’s technology to access the internet 28% didn’t know what a credit file was or how it would affect them While we knew there were customers who were digitally excluded, we didn’t know the extent of it until we reached out to them ‘in the field’. The intelligence gathered through our welfare and reconnection visits, isn’t something we could ever get from a database – until now. By feeding all this insight back into our customer data platform, we’re able to build a rich tapestry of information about specific circumstances that can inform not just our field strategies but our wider debt collection and litigation strategies to ensure the best possible customer outcomes. When we say that Perch Group is ‘powered by technology, driven by people’ we really mean it. While we utilise the absolute latest technology from our state-of-the-art field services app and case management system, to the use of field audio and QR codes, we also know that we are dealing with real people and they need a people-centred approach. There doesn’t need to be such a thing as ‘computer says no’ when you are face-to-face with a customer. When we set out to revolutionise field services with Verify, we took a …

Please do not ask for credit…
The need for a functioning credit market for all

Published 11 September 2024

Credit is an emotive subject, especially when it is used by lower income households. When used in the wrong way, credit can lead to bad outcomes. It should not be a substitute for better wages and social security benefits. It can be harmful and lead to problem debt, court action and increased anxiety and misery. However, in our experience, credit (when appropriate), can be hugely valuable to some households, including those on lower incomes. Credit can smooth income, alleviate immediate pressures and help with household budgets. At Fair4All Finance we are concerned about the changing shape of the consumer credit market; specifically, a growing unavailability of regulated credit for lower income households. We believe that the shape of the credit market is as important as the size. The market needs to serve people on a wide range of incomes and across all housing tenures. However, in the past decade things have changed. Whilst the size has returned to pre-pandemic levels of around £227billion in outstanding consumer credit and credit cards, our evidence is that the shape of the market is changing. Research undertaken by Ipsos indicates that the poorest households and those in rented accommodation are less likely to be approved for credit and as a result are more likely to make decisions on how to meet their credit solutions in sub-optimal ways including relying on selling goods, going without, missing bills, or even using loan sharks. Our research is supported by reports from LEK Consulting, who identify a non-standard credit need of £7bn, of which they think a £2bn gap could be commercially met. Clearscore and EY also said the credit market is “failing non-prime borrowers.” A decade ago, lower income households, accessed forms of higher cost credit such as home-collected and high-cost short-term credit. These products, along with rent-to-own represented around 4% of outstanding regulated consumer credit. Last year these products accounts for under 0.4% of all outstanding credit. In just five years that’s a reduction of 3.5 million loans worth £1bn. This is in the period that included the impact of a pandemic and cost-of-living crisis which disproportionally affected lower income households. So where have these borrowers gone? Part of the answer appears to be the explosive growth in the use of Buy Now Pay Later (BNPL) which is now used by 27% of adults, including a percentage who held higher cost credit, and a percentage of BNPL borrowers who ought not to be accessing the credit but legislation means that their exposure to the product is not visible. BNPL usage included 44% renters and 14% of people with an income under £15,000. The same FCA report says high cost loans were accessed by 53% of renters and 23% by those with incomes under £15k. Analysis by the FCA in 2023 reports that just over four in ten of any BNPL holders in past twelve months also accessed high cost loans. So, there may be some drift from forms of high cost credit to BNPL. Denial of …

Reflecting on the Consumer Duty
One year on…

Published 09 September 2024

Lantern discuss their Consumer Duty journey so far and reflect on the last twelve months. The thought process and actions taken regarding their Annual Report are also considered. HOW DID YOU FIND THE JOURNEY OVER THE LAST YEAR? Once we got our heads around the cross cutting rules, and mapped them to each of our business areas, processes and policies, it felt pretty straight forward. Getting to that stage however was a little more difficult as it was extremely time consuming for colleagues, on top of business as usual. We took the decision from the start to join everyone in the company into the process, to ensure all colleagues understood what the Consumer Duty was, what it was designed for and how it impacted each particular role, and then the wider business. WHAT WERE SOME OF THE THINGS YOU CONSIDERED? Our gap analysis began in 2022, with the bulk of the work undertaken in 2023 and a check-in with Deloitte (outsourced internal audit) mid 2023. As the Non-Exec Chairwoman (previous CEO), the business selected me to be our Consumer Duty Champion (CDC). This was due to having knowledge of the operation whilst also bringing independence. 2024 has been a time for adjusting and further embedding, following external feedback and using the Chair/CDC suggested questions on the FCA website, which we incorporated into our report. WHAT IS INCLUDED IN YOUR ANNUAL REPORT? The Management Information (MI) required around the Consumer Duty has largely been part of our Board and Executive packs over the last five years, so it made sense to retain and enhance it further, rather than starting again. In November 2023 we began to segregate the focussed Consumer Duty MI into a dedicated ‘CD pack’. This covers all elements and highlights aspects of the business which could have a harmful impact on the customer. Discussion around the Consumer Duty at Board is given the same amount of airtime as the financial section to ensure we discuss consumer impact thoroughly. The CD pack contains Key Performance Indicators around kept rates, income and expenditure capture, vulnerability flags, engagement rates, payment values and channels, expression of dissatisfactions and complaints, etc., (mirrored to some of the regulatory data submissions to the FCA). We’ve also included stats on recruitment, agent scores, attrition, training and competency, IT/system infrastructure reports, third party management, data suppliers and incident logs. This whole pack gives a clear picture of our position each month and importantly trends over time. HOW IS THE ANNUAL REPORT COMING ALONG? It’s around twenty pages, with fifteen to twenty pages of appendices/back up data/evidence. The report gives detail on the changes made between July 2023 and today, and focuses on information around operations and service, but also around culture. We recently ran the ‘almost’ final report past Deloitte, as a further sense check which results in a couple of further recommendations. A dry run took place at the June Board meeting, ready for the final report in July.

End of a chapter?
Considering wind-down plans

Published 04 September 2024

The FCA’s focus on the content and quality of wind-down plans (WDPs) continues, most recently with the regulator creating a new webpage in March 2024 advising firms how to prepare effective WDPs. All firms are expected to have a WDP in place to enable a firm to cease its regulated activities with minimal adverse impact on its customers, counterparties and the wider markets. The new webpage advises firms on the required components of a WDP. This includes identifying the steps and resources a firm will need to wind-down its business, especially in a situation where resources are limited, and evaluating the risks and impact of a wind-down and considering how to mitigate these risks to continue to achieve an effective wind-down of the entity and its business. However, the FCA has frequently been vocal when WDPs do not meet their expectations. In November 2023, the FCA published detailed feedback outlining good and poor practices in WDPs as part of their concluding report on Investment Firms Prudential Regime implementation observations. While this feedback was targeted at investment firms, we review and advise on WDPs across all financial services (FS) sub-sectors and these comments from the FCA resonate with what we see in the wider FS market, including consumer credit firms. GOOD PRACTICES IDENTIFIED INCLUDE: WDPs being sufficiently detailed to identify business as usual costs, wind-down driven costs, and cashflow mismatches. This often means a firm being required to prepare a financial model for a wind-down covering off how working capital will be managed at a minimum. Testing through simulations or ‘war games’, i.e. detailed scenario considerations of the implementation of any wind-down. In addition to formal triggers on capital and liquidity, using non-financial triggers, for instance, on reputational risk or key client concentration. Appropriate consideration of group WDPs and any trigger points contained therein, as well as the order with which the affected legal entities would be wound down. This includes highlighting and addressing group interdependencies whether through systems and processes, people or legal contracts, and with group entities providing critical services who are themselves in wind-down. POOR PRACTICES IDENTIFIED INCLUDE: WDPs not being updated for years. We recommend an annual review, or at a point of any material change to the business. WDPs and cost assumptions not being aligned. This can be supported through improved financial modelling. Using unrealistic assumptions, particularly the activation of the wind-down being assumed to take place under normal, instead of stressed conditions. This means the possibility that liquid assets and own funds have been depleted by a prior restructuring attempt when wind-down commences has not been considered. Often WDPs are prepared with a regulatory mindset and require the economic and commercial overlay driven by theoretical distress. Group dependencies not being comprehensively considered and assessed, or the impact of group WDPs on shared systems, costs and resources not considered. IN CONCLUSION The overarching objective is for a WDP to reduce any risks of negative impacts on a firm’s customers and market should it need to wind-down …

The importance of truthful advertising
Marsh Finance consider the FCA’s stance

Published 02 September 2024

In the ever-evolving world of car finance, staying abreast of regulatory changes is not just advisable; it’s imperative. The FCA recently underscored this necessity by publishing an update on its efforts to curb misleading adverts and financial promotions. In 2023, the FCA’s diligent oversight led to over 10,000 financial adverts and promotions being withdrawn or amended — a significant increase of 17% from the previous year. KEY REGULATORY UPDATES AND THEIR IMPLICATIONS The FCA’s increased issuance of alerts, rising to 2,285 in 2023 from 1,800 the previous year, clearly signals its commitment to protecting consumers from scams. The recent focus on illegal crypto-asset promotions underscores the expansion of the FCA’s concern, reflecting the broader changes in the financial landscape. Of particular note is the FCA’s concern regarding the rise of ‘finfluencers’—influencers promoting financial products on social media. This trend highlights the evolving financial promotion channels and the need for firms to ensure all promotions are clear, fair, and not misleading. From 7 February 2024, the requirement for authorised firms to obtain permission from the FCA before approving promotions for unregulated persons marks a significant shift. It emphasises the need for expertise and competence in the approval process, ensuring that consumers have the information to make informed financial decisions. THE CONSUMER DUTY AND ITS ROLE The Consumer Duty is a cornerstone in the FCA’s efforts to ensure that firms are genuinely acting in the best interests of consumers. It mandates that firms provide clear and comprehensive information and demonstrate that their actions help consumers make effective decisions. THE FCA’S STANCE ON MISLEADING ADS AND PROMOTIONS Lucy Castledine, Director of Consumer Investments at the FCA: “People need clear, fair and accurate information to base their financial decisions on. We will continue to intervene and take action when we identify firms not meeting our minimum standards.” As senior stakeholders at car dealerships, it’s crucial to understand that the landscape of car finance is not just changing; it is becoming more demanding regarding transparency and consumer protection. MARSH FINANCE: YOUR PARTNERS IN COMPLIANCE With over fifty years of experience in the car finance industry, we understand the challenges and opportunities presented by this evolving regulatory landscape. Our unique position as a family-owned lender allows us to offer more than just financial solutions. Our free compliance and operational consultancy service is specifically designed to support our partners in this area. We provide expert guidance to ensure that financial promotions are compliant with the latest FCA regulations.

Weathering the storm
Challenges and innovations in UK lending

Published 28 August 2024

The UK continues to grapple with economic challenges, including a cost-of-living squeeze compounded by various factors. While recent months have seen falling inflation figures, particularly in food prices, other pressures persist. Heightened energy and fuel costs, disruptions in global supply chains, and ongoing geopolitical tensions such as the war in Ukraine and the aftermath of Brexit continue to impact households across the nation. According to Citizens Advice, the combination of housing and energy expenses has pushed five million people into negative budgets, marking a 50% increase over the past four years, with an additional two million cutting back on essentials to avoid financial strain. Despite the downward trend in inflation, the high cost of necessities remains a significant concern for millions of individuals and families across the country. CHALLENGES OF THE UK LENDING LANDSCAPE In response to the cost of living, lenders confront heightened defaults and fraud, making loan approvals more stringent. Lenders have faced several challenges with collecting borrowers’ repayments due to rising living costs, including income instability, limited disposable income and the ability to service existing debt, increasing the likelihood of delinquency or default. As more individuals seek credit to cover their expenses, a growing number, particularly those already in vulnerable circumstances, encounter challenges in securing loans. Numerous lenders report an increase in rejected applications due to applicants failing to meet affordability criteria, highlighting consumer’s heightened financial burden. CHARTING A COURSE WITH THE FCA The Financial Conduct Authority (FCA) has outlined its expectations for lenders to support customers facing financial difficulties. Building upon the Tailored Support Guidelines (TSG) introduced during the Covid-19 pandemic, the FCA aims for these measures to be an enduring element of a lender or debt collector’s Consumer Duty. Lenders are asked to extend support not only to those already in arrears but also to customers at risk of payment difficulties. Key expectations include better identification and engagement with vulnerable customers, offering transparent forbearance options that consider existing indebtedness, and providing affordable and sustainable repayment plans. Additionally, lenders are encouraged to explain the benefits of debt advice and facilitate access to it for customers. Implementation of Standard Financial Statement (SFS) guidelines, along with the ability to share income and expenditure assessments with customers for use with other creditors, is emphasised as integral to supporting customers. The FCA’s Borrowers in Financial Difficulty (BiFD) project, initiated in response to the pandemic, aims to assess firms’ policies and processes following the implementation of TSG for mortgages, consumer credit, and overdrafts. The BiFD Report underscores the importance of lenders being well-equipped to support customers, particularly given the ongoing cost-of-living challenges. Firms should be proactively identifying and addressing financial difficulties, necessitating the implementation of robust systems and processes. Firms should be proactively identifying and addressing financial difficulties, necessitating the implementation of robust systems and processes. Increased customer contact and tailored forbearance options were highlighted, stressing the need for a better understanding of individual circumstances to ensure sustainable debt repayment arrangements. Furthermore, lenders are encouraged to provide signposting advice regarding money …

Working hand in hand
The successful integration of AI and human expertise

Published 26 August 2024

Artificial Intelligence (AI) is transforming the collections sector by enhancing operational efficiency and customer interactions. AI can also be used to streamline processes like risk assessment and customer engagement, leading to better outcomes. It also supports agent development by automating repetitive tasks and complementing human expertise. Agents can leverage AI for real-time feedback and personalised training, continuously improving skills and performance. This symbiotic relationship ensures that innovation not only boosts efficiency but also fosters professional growth among staff. By combining AI and human expertise, the collections sector achieves greater effectiveness and adaptability. COEO UK’S CENTAUR APPROACH coeo UK employs a “centaur approach” to AI implementation, referring to the mythical horse-human hybrid. This strategy divides tasks between team members and AI, resulting in a workflow that is part human, part AI. coeo UK employs a “centaur approach” to AI implementation, referring to the mythical horse-human hybrid. Commercial director Ben Calvert explains, “We aim to augment our workforce by removing repetitive, time-consuming duties and allowing intelligence to be utilised in the best way. For instance, by automating processes such as agent audits, AI provides immediate feedback based on recorded transcripts. This allows our QA team to promptly address issues and offer personalised, data-driven training to agents.” TRADITIONAL QA PROCESS In coeo UK’s call centre, ensuring the quality of interactions is crucial for optimising customer experience. The QA team traditionally assesses call quality using a bespoke questionnaire and scorecard system called the QA portal. Specific questions evaluate calls, identifying areas for improvement. This process takes roughly fifteen minutes per call, providing a representative sample of coeo’s entire customer base. The feedback has consistently improved agent performance, turning every call into an opportunity for growth. BREAKING NEW GROUND WITH AI To enhance efficiency and accuracy, coeo UK has adopted a ground-breaking approach to scaling QA assessments using AI. AI algorithms now assess 100% of interactions, ensuring comprehensive evaluations. The QA team collaborates closely with the AI system to calibrate assessments, ensuring accuracy and reliability. This collaboration allows for the identification and resolution of issues more effectively, improving overall performance and customer satisfaction. IMPACT BENEFITS OF AI IN QA The integration of AI in QA processes offers numerous benefits, including scalability, accuracy, efficiency, and proactiveness. AI-driven evaluations reduce human errors and biases, streamline QA processes, and facilitate proactive issue identification and resolution. FINAL WORDS FROM BEN CALVERT “The utilisation of AI in QA represents a paradigm shift in the finance sector, optimising processes and enhancing outcomes for all stakeholders. By embracing AI as a complementary tool, financial institutions can unlock new opportunities for innovation and growth while preserving the invaluable role of human expertise in decision-making and customer engagement. This is how we’ve used artificial intelligence to improve our processes for the betterment of everyone, including our clients, staff, regulators, and all key stakeholders.”

Staying out of hot water
The FCA’s continued focus on financial promotions

Published 21 August 2024

There can be no doubt that the Financial Conduct Authority (FCA) sees financial promotions as a potential high-risk area for consumer harm. They are the proverbial ‘front shop’: the way in which customers become aware of different ways to finance a product. The FCA is already starting to flex its muscles on financial promotions. Firms should therefore act now to ensure they are not on the receiving end of any supervision or enforcement visits. THE FOCUS ON FINANCIAL PROMOTIONS Ever since the FCA took over responsibility for consumer credit, there has been an increasing focus on financial promotions. In May 2022, the FCA issued a Dear CEO letter. It says that the FCA “expects authorised firms issuing and/or approving financial promotions in relation to consumer credit to ensure that all communications of financial promotions are clear, fair and not misleading and otherwise comply with the rules set out at CONC 3. This includes ensuring that those to whom a financial promotion is addressed, or at whom it is directed, understand the nature of the firm’s regulated activities”. The FCA identified a number of concerns including: customers being misled into thinking that “the lender will make no checks on credit status, whether with a credit reference agency or by other means” some promotions failing to include a representative APR when one is triggered; and promotions by credit brokers failing to state that they are credit brokers and not lenders. These messages were repeated in the FCA’s financial promotions webinar on 16 November 2022. MORE RECENT DEVELOPMENTS On 17 July 2023, the FCA published a consultation on guidance for financial promotions on social media. This led to, on 26 March 2024, the FCA publishing its Finalised Guidance 24/1: ‘Finalised guidance on financial promotions on social media’ . Some of the key messages from FG24/1 are: The FCA expects financial promotions to be standalone compliant. While promotions of complex financial products “might require additional supporting information or disclosure”, the “initial promotion needs to remain compliant in and of itself”. The requirement for prominence in the FCA’s handbooks is “media-neutral”. Firms should consider the existence guidance on prominence. Firms should ensure information which is required to be displayed prominently “is displayed without needing click-through or any other optional action to view it”. THE FCA’S DATA-LED APPROACH IS INFORMING THE WAY IN WHICH IT REGULATES All of this activity probably comes as no surprise given the FCA’s financial promotions data from 2023. This says that the FCA continued to increase its “intervention activity in response to poor financial promotions”. For authorised firms, the FCA says 10,008 financial promotions were amended or withdrawn following the FCA’s intervention. The FCA “remain concerned about the levels of compliance with the financial promotion rules”. THE FCA’S CASE STUDIES The FCA has a dedicated webpage on financial promotion case studies. One is on motor finance. This says the following mistakes often happen: mentioning weekly/monthly payment without a prominent representative example using an incentive statement without a prominent representative APR; and …

Shining light on an important cause
TransUnion partners with Andy’s Man Club

Published 19 August 2024

TransUnion, a global information and insights company and one of the UK’s leading credit reference agencies, has announced its partnership with Andy’s Man Club, a charity that works to eliminate the stigma around mental health by creating a judgement-free confidential space where men can be open about their challenges. This is particularly important in the Northeast and Yorkshire and Humber regions, where the suicide rate was higher between 2020 and 2022 than in anywhere else in the UK. Andy’s Man Club was chosen by the vast majority of the TransUnion UK team, who were given the opportunity to vote for a charity that the business would support for the next twelve months. Co-founded by Luke Ambler after his brother-in-law Andy Roberts died by suicide aged 23 in 2016, Andy’s Man Club offers men of all ages a judgement-free, non-clinical environment of free-to-attend peer-to-peer support groups. These are led by more than 1,600 trained facilitators, are attended by more than 4,500 men across the UK, with more groups starting up each week. We’re all looking forward to building our relationship with (Andy’s Man Club) and doing all we can to raise awareness about its work, and funds to support such a worthy cause. “Death by suicide is the biggest killer of men under 54 in the UK, with male mental health surrounded by deeply ingrained cultural stigma,” said Luke Ambler, co-founder of Andy’s Man Club. “As Andy’s family, we had no idea of his mental health struggles, and we wanted to help other men who may feel that they have nobody to talk to, or they don’t know where to get the right kind of support. We’ve built a network across the country, and we’re looking forward to expanding it to help even more men in the future.” “Andy’s Man Club is particularly close to our hearts, as one of our team members is a facilitator for the organisation and has shared the powerful and positive impact that it has had on his own life,” said James Robinson, Managing Director of Consumer Interactive at TransUnion UK. “With so many people across our Leeds and London offices having voted to support its work, we’re all looking forward to building our relationship with the team and doing all we can to raise awareness about its work, and funds to support such a worthy cause. “TransUnion UK employees have three paid leave days each year to spend on volunteering. This created a great opportunity for team members to raise awareness – and funds – by participating in the 26-mile Yorkshire Three Peaks challenge, which took place on 16 May 2024. We’re proud to say that more than 100 people signed up for the event, whilst many others supported their colleagues and the cause in other ways. “At TransUnion, we remain committed to prioritising the well-being of our employees. Mental health is a fundamental part of overall well-being, and we believe it’s important to continue encouraging education, normalising conversation and building awareness for mental health …

Forward thinking
Improving customer outcomes through open banking transaction data

Published 14 August 2024

Brandon Wallace, Product Manager at transaction data intelligence specialist Bud, explains why he believes forward-thinking lenders should use transaction data to improve outcomes throughout the lending lifecycle. Access to credit isn’t just about borrowing money – it’s about empowering people to manage their finances and navigate life’s ups and downs with confidence. In today’s regulatory landscape, ensuring that customers receive fair treatment, support when needed and clear information to make enlightened decisions are more important than ever. Consumer-permissioned transaction data via open banking can help lenders to meet regulatory expectations and drive better customer outcomes. OPEN BANKING TRANSACTION DATA DRIVES CUSTOMER-CENTRIC LENDING Being able to tailor loan products specifically to customer needs, based on real-time insights into financial behaviour is made easy though transaction data. We can gain a clear picture of customers’ financial health, from essential expenses to savings habits. This allows lenders to offer loans that are affordable with rates that make sense – reducing the risk for both parties and helping customers manage their finances more effectively. REGULATORY COMPLIANCE: NOT A HURDLE, AN OPPORTUNITY Navigating regulatory compliance obligations can be daunting, especially for smaller lenders with limited resources. But here’s the twist: meeting those regulatory expectations can actually help lenders serve customers better. The Consumer Duty requires us to deliver good customer outcomes. It sets a higher standard for consumer protection and requires us to prioritise customers’ interests at every stage with clear communication, fair pricing and proactive support. While regulatory requirements often seem like a hurdle, they also present opportunities for innovation. By embracing open banking, lenders can not only streamline compliance but at the same time improve customer outcomes, and ultimately business outcomes. It’s about creating a lending environment that’s fair, transparent and responsive to customers’ needs, fostering trust and loyalty. HOW DOES OPEN BANKING TRANSACTION DATA IMPROVE CUSTOMER OUTCOMES? Building trust and transparency: Decisions based solely on traditional credit scores can be non-transparent and slow to reflect current financial realities. By using real-time spending and income data, lenders can provide clear, transparent decisions. This can make it easier for customers to understand why a product is suitable or not. Convenient and stress-free experience: Open banking automates the collection of financial information, sparing customers from answering difficult questions such as: “How much do you spend on food every month?”. The process is seamless, near-instant, and makes the application experience more user-friendly. Precise affordability assessments: Open banking allows lenders to use actual spending and income data to evaluate an applicant’s true affordability position, instead of relying on generic or outdated bureau data. This ensures that the lending offered is truly reflective of what customers can afford. Personalised solutions: By leveraging actual spending and income data, lenders can tailor their product offerings to fit customers’ real financial needs. This not only reduces financial stress and promotes financial stability, but also aligns with the Consumer Duty regulations, ensuring that lending decisions support fair value and appropriate customer outcomes. IMPROVE YOUR BOTTOM LINE Beyond customer satisfaction and regulatory compliance, …

Regulatory changes in consumer credit
Insights and strategies for the year ahead

Published 12 August 2024

The last twelve months have been a busy period in the regulation of consumer credit. The FCA has continued to focus on affordable lending, customers in financial difficulty and more recently on the treatment of vulnerable customers. That, coupled with Consumer Duty implementation and embedding, including the production of the first Annual Board Report means there has been no let up for firms. At the same time, the FCA have also strengthened their approach to supervision by requiring consumer credit firms to provide extensive new data, reinforcing their data led approach to identifying harm. As we look towards the next twelve months, the FCA will continue to strengthen protections for customers in financial difficulty. Policy Statement PS24/2 brings in new rules from November which includes taking aspects of the Tailored Support Guidance (TSG) and moving them into the FCA Handbook. Given these customers are also likely to be vulnerable, firms will need to ensure their policies, procedures and outcomes monitoring is effective, with the latter providing the evidence that customers are receiving tailored and sustainable forbearance that results in good customer outcomes. The significant changes to consumer credit data reporting, as set out in PS24/3, will require firms to provide extensive granular data on the sale and performance of credit agreements in the form of three new Product Sales Data (PSD) returns. While these requirements come into force on a phased approach, firms need to act now, ensuring they can easily retrieve and report the required data. And in line with existing Consumer Duty monitoring requirements, be able to identify harm with clear action plans to remedy poor outcomes. Given higher interest rates in both the credit card and personal loans market, another area of focus will be Price and Value. This is a key outcome under Consumer Duty which the FCA expect all firms to be able to demonstrate. While the FCA understand that credit risk in certain consumer cohorts is greater, they will be scrutinising firms to ensure they are not capitalising by increasing prices unfairly and offering products that do not provide fair value. The key here is to be able to evidence that the price the consumer pays for the product, and ongoing fees and charges over the product lifetime, are reasonable compared to the overall benefit the consumer receives. Complaint handling will also be an area of focus. The FCA is currently conducting a multi-firm review of high-cost lenders, with preliminary findings indicating areas for improvement. Poor complaint handling exposes firms to a range of issues and firms need to ensure their complaint handling policies, procedures and controls, including root cause analysis is not only compliant with DISP, but also delivers good customer outcomes in accordance with Consumer Duty outcome 4 – Consumer Support. And finally, underpinning all of this, firms must have robust governance practices and risk management protocols to identify, monitor, manage and evidence customer outcomes. During H2, the FCA will be reviewing a sample of Consumer Duty board reports and in accordance …

A change in direction?
What a new Labour government could mean for the industry

Published 07 August 2024

GENERAL ELECTION RESULT Labour won the recent General Election with a landslide victory. The party now has a majority in the House of Commons of 170, close to what Tony Blair achieved in 1997. However, they achieved a relatively modest share of the vote for a governing party. This coupled with low voter turnout, may undermine that majority in the coming months and years as they look to introduce their legislative programme. Small parties also did well with the Liberal Democrats achieving their best election result, and both the Greens and Reform picked up a handful of seats for their respective parties. The Conservatives suffered their worst result in history. Rishi Sunak has announced that he will stand down as leader once arrangements for choosing a successor are in place. So, we can expect a full leadership election soon. THE NEW LABOUR GOVERNMENT From a financial services perspective, we have seen little surprise in who has been appointed so far. Rachel Reeves has become the first female Chancellor and Tulip Siddiq MP has been appointed Economic Secretary, with responsibility for financial services regulation. Siddiq has shadowed this brief for the last few years and has commented recently that she intends to “tear down barriers to growth” and has also called on the Conservatives to stop delaying the regulation of the Buy Now Pay Later (BNPL) sector. WHAT DO WE KNOW ABOUT LABOUR PLANS? During the election campaign, Labour managed to say as little as possible, sticking to key pledges made by Keir Starmer. The manifesto also made little mention of the financial services sector, beyond recognising the contribution it makes to the UK economy. It did refer to the cost-of-living crisis and the need to improve financial resilience. The party also released a publication in January called “Financing Growth” which was largely an appeal to businesses which focused on the need to promote growth and competition. Part of this was about distancing the party from a previous anti-business stance. Another possibility for the future is a ‘Fair Banking Act’ that has been introduced in other countries. This included details on creating a national financial inclusion strategy, and there are rumours that the Labour Government may appoint someone (likely to be connected to the Financial Inclusion Commission) to look at this issue in further detail. This document also mentioned plans to regulate the BNPL sector so this might be something we see them move quickly on. Elsewhere we know that the Labour Party has always been supportive of the Credit Union movement so expect this to continue. Another possibility for the future is a ‘Fair Banking Act’ that has been introduced in other countries. A bill of this kind would likely call on high street banks to lend to underserved communities or provide funding to do this. Banks may not be forthcoming, but there is also a role for us here to explain how the alternative lending sector can be part of the solution and help with access to credit. One …