CCTA comment on CSJ report on tackling illegal money lending in England

Published 21 March 2022

We welcome this new report and this study into the scale of illegal money lending. Even before the current cost of living crisis, we have talked about the increasing problem of loan sharks and the real pain they cause to families across the UK. It is now estimated that over one million people are relying on illegal lenders. The CCTA has highlighted the sharp decline in the supply of regulated credit in recent years and what this will mean for a group of individuals that struggle to borrow elsewhere. While we agree that Credit Unions and other community schemes need support, experience shows they can’t fill the space left by commercial lenders leaving. Families need access to a blend of commercial and not-for-profit lenders providing financial products that meet their needs. Without this, there will be a growing number of these horror stories of illegal lending.

CCTA response to BNPL Consultation

Published 19 January 2022

HM Treasury’s consultation on Buy-Now Pay-Later (BNPL) products has recently closed. Here we share the main points from our response. These are key principles we believe HM Treasury needs to consider when shaping the future regulation of consumer credit. • HMT wants a proportionate regulatory regime for BNPL. However, BNPL is often used as a substitute for other credit products. It is important that there is consistent regulation – and consumer protection – for substitutable products. • Many credit products are already offered in a digital online environment. The online nature of a product does not necessitate a different or lighter-touch regulatory approach. Lenders have made digital products work for customers and firms under the current regulatory regime. • If the provisions of the Consumer Credit Act are not fit-for-purpose for one credit product, it is not fit for-purpose for any credit product. • The customer journey for any credit product needs to be structured in a way that ensures consumers have all the information they require, presented in a clear way, and opportunity to exit the process if they decide it is not the right product for them. • Comprehensive reporting of credit usage and repayment is vital – to protect customers and lenders. • Affordability checks must be required for BNPL in the same way as these checks are required for other credit products. No interest does not necessarily mean lower risk. A BNPL loan can be unaffordable, even if no interest is payable.

CCTA response to the Financial Ombudsman Service (FOS) plans and budget for 2022/23

Published 15 December 2021

“For some time, we have been talking about the financial pressure our members are under from the current fee structure of the FOS. We are disappointed by today’s announcement which includes a large rise in the compulsory jurisdiction levy paid by firms. “While we would welcome the freezing of the case fee after the successive rises of recent years, we are concerned about the reduction in the free cases threshold particularly when, all case fees, win or lose, are shouldered by the firm. “The free threshold has been reduced from 25 to just three cases. This will mean that around 20 per cent more firms will now have to pay case fees, which will disproportionately affect smaller businesses. That alone represents a cost of over £16,000 to a firm with 25 cases. “There is little explanation of why the organisation’s cost base will rise by over £40 million for the coming year and is an example of the wider concerns we have had about the financial model of the FOS in recent years. More needs to be done to ensure the Ombudsman delivers value for money”.  

What will the FCA’s ‘Consumer Duty’ mean for access to credit?

Published 24 November 2021

I spoke last week at an event exploring the FCA’s proposed ‘Consumer Duty’. The Duty is positioned as asking firms to put themselves in the shoes of the customer and consider if they would like to be treated how their firm treats customers. We are concerned that it is a much more radical change in the relationship between consumer and lender and that was my warning. The FCA says the purpose of the proposed Duty is to set clearer and higher expectations for firms’ standards of care towards consumers. These are principles that no one can really disagree with-better product design, value for money, improved communication. They are what we should all strive to do, what we want to deliver. But as an industry, we are concerned about the responsibility the Duty will place on firms that are already struggling. With the next consultation paper, which will include the draft rules, due from the FCA before the end of this year, it’s time to think about the possible unintended consequences for consumers. We have already seen a drop in the supply of credit to many customers. Big companies have left the alternative lending market in recent months, but more worryingly – existing lenders will need to consider what the Duty means for their future. They may want to move away from areas of lending that are at the greatest risk of being challenged under the Duty. Not because they are doing anything wrong, but because future interpretation of their current actions are uncertain. History shows that interpretations of FCA principles shift. And a shift in future interpretation may lay lenders open to possible challenge, back-book review, and retrospective compensation. We worry this will mean access to credit and financial inclusion, will drop further as lenders consider these risks. The principles and indeed the regulation haven’t really altered for years across areas like affordability. However, the supervisors or adjudicators’ interpretation has shifted over the years. We know from our work with our members, that there are decisions taken on a daily basis about what should be included in affordability assessments, levels of verification, permissible data types, definitions of sustainability, the use of third-party tools and many other unwritten rules. Now there is an argument that this is what principles-based regulation is all about. Regulation can adapt to new risks and threats without having to be redrafted. However, this brings new risks of policy being created in isolation behind closed doors; not utilising the best version of the arguments and without reference to other policy objectives (e.g. competition). It is also the retrospective application that seems so unfair. Lenders are happy to adapt, to listen to the regulator and to their customers. Then being asked to apply today’s interpretation on lending that dates back a decade brings additional risks. We all want to see greater protection for consumers, but in creating a duty on the lender it marks a radical shift in responsibility. It lands the risk almost completely on the lender …

Time to talk money

Published 10 November 2021

This week is Talk Money Week run by the Money and Pensions Service (MaPS). Set up by government, MaPS exists to ensure every person feels more in control of their finances throughout their lives. Talk Money Week is a campaign designed to increase people’s sense of financial wellbeing by encouraging them to open up about personal finance. People in the UK don’t talk about their money enough. Despite the COVID-19 crisis affecting our finances, 9 in 10 UK adults don’t find it any easier to talk about money, or don’t even discuss it at all. Research shows that people who talk about money: make better and less risky financial decisions have stronger personal relationships help their children form good money habits for life feel less stressed or anxious and more in control. Building money conversations into our everyday lives also helps us build financial confidence and resilience to face income shocks, life events and whatever the future throws at us. MaPS have put together a number of guides to help you start to talk about money here. These cover talking to a partner or your children about money, amongst others. Learn more about Talk Money Week here.

CCTA Response to FOS feedback statement on its consultation on temporary changes to reporting the outcomes of proactively settled complaints

Published 02 November 2021

“Unfortunately, the FOS has missed out on an opportunity to deal with the backlog of complaints it faces”. “At such an early stage, where the decision still rests with the customer, ask the lender to take one more look. The customer can accept an improved offer, with the comfort that if they have any concerns, they can carry on with the FOS investigation. This could have been the simplest of systems”. “However, this new process includes a check on the offer made by the lender, bringing with it delay as the FOS carries out a review. There will be a new administration system as we count these cases. There will also be the application of a £750 case fee each time, no matter what happens”. “From the engagement we have had with members, some lenders are surprised that the FOS seems to have rejected a simpler process. There is less surprise that the FOS are keen to continue charging a full case fee”.

Is the cost of living on the increase?

Published 25 October 2021

We are being told that there is a rise in the ‘cost of living’ but what does this mean? Simply that the necessary costs we all face are going up, but what is driving this rise now? September saw a slight drop in inflation, but economists predict this is likely to only be a temporary dip before the rate continues to rise into next year. A rise in the level of inflation means the costs of goods and services have gone up, and this translates into a struggle for many as they try to manage their family finances, especially if wage growth cannot keep up. We have all read about increases in the price of fuel, food, and other costs in recent weeks. Some of us will also have struggled to fill up at the pumps or find everything we want at the supermarket. These shortages and rising prices will translate into bigger household bills for many as we look towards Christmas. This comes at the same time as many of the Covid-19 support schemes are being withdrawn. The Bank of England (BoE) has said it will have to act soon on rising inflation. This means that an imminent rise in interest rates is likely, with the hope of the reducing the price of goods – but this will mean higher costs for borrowing across many credit products. For CCTA members, the higher costs of living will need to be factored into lending decisions. They will need to think about what this means for affordability assessments. For some, these additional costs will mean that credit is no longer affordable. Undoubtedly, the effect of the pandemic is at play here, along with some of the supply chain issues caused by Brexit. Rishi Sunak will deliver his Autumn budget later this week, where he will try and address some of the pressures on households. We have already seen that the National Living Wage is to rise. The BoE rate setting committee is next due to meet in early November. Only then will we get a truer picture of how this will play out. It remains to be seen if this is simply how we move out of the pandemic and beyond the teething problems of Brexit, or if tougher economic times are here to stay.

CCTA comment on HM Treasury consultation on the regulation of BNPL

Published 21 October 2021

CCTA commenting on HM Treasury consultation on the regulation of BNPL said: “The consultation on BNPL is welcome, but it highlights that the current regulation of consumer credit is complex and unwieldy. These products should already be regulated by the FCA, but the system takes too long to change.” “We support BNPL regulation, including checks on a customer’s ability to repay if they are taking instalment plans. We also need increased visibility of this form of borrowing on credit records. BNPL use is currently invisible and means other lenders are making decisions without seeing the whole picture”. “Consumers using BNPL who fall into financial difficulty should receive the same protection as users of other consumer credit products. They should also be able to use the Financial Ombudsman Service as an independent method of dispute resolution.”

What politicians should be focusing on at party conference

Published 04 October 2021

This week the Conservative Party Conference is taking place in Manchester. This will bring this year’s major conference season to an end, following the Labour Party Conference in Brighton last week. Both parties seem to be facing big questions about the unity of membership. Keir Starmer’s first conference speech as Labour was well received but there is still a clear division in the party between Corbyn supporters on the left and Starmer’s supporters closer to the central ground. Boris is fighting his own battles. A driver shortage followed by a petrol crisis has meant that he needs to demonstrate that he has a plan to deal with the impact of Brexit and show that it really was worth it. All this comes at a time when there is a sharp focus on family finances and living standards. Times are difficult for many households. The more alarmist papers have drawn comparisons to the 70s and the three-day week, but could there be some truth in their claims as we face energy shortages and higher levels of employment? Brexit combined with the impact of Covid-19 makes for uncertain times. In the last few weeks alone several energy firms have gone bust, and the furlough scheme has come to an end. It has been estimated that a million workers remained on furlough at the end of September. The end of scheme will force tough conversations for employers and the Bank of England is expecting a rise in unemployment. The Government announcement of a new scheme to help families struggling with the cost of living is welcome, but it will only plug the gaps that have been left by the withdrawal of other support. Politicians need to understand that the pandemic has accelerated change in how we live our lives, the labour market has evolved, and so have housing and travel requirements. What does this mean for alternative credit, a sector relied on by those who struggle to borrow elsewhere? The need for this form of borrowing will remain and is likely to grow as more people face variable incomes or uncertainty about their future finances. There is a call from the alternative lending sector to understand how people choose to manage their finances. This market was shrinking before the pandemic hit and we continue to see major players leaving the market due to regulatory challenges. The Government too needs to better understand the impact of the pandemic on the supply and demand of credit. Politicians continue to work on ‘affordable products’ with a pilot of a No Interest Loan Scheme and the expansion of credit unions. In reality millions of pounds of taxpayer money has been spent on trying to grow these alternatives, with very little to show in the way of success. Alternative lending companies exist because of need. They are well placed to help a group of consumers manage their finances to match their individual situations. Now is the time to ensure that access to credit is preserved when the future …

Plans announced for new UK wide No Interest Loan Scheme pilot

Published 07 September 2021

Local and national partners sought to deliver No Interest Loan Scheme pilot with Fair4All Finance, Toynbee Hall and Fair by Design Pilot will test whether this scheme can be scaled to make resources go further to improve financial wellbeing for customers in vulnerable circumstances Millions more people have become financially vulnerable during Covid, requiring urgent support – the pilot will target such individuals Fair4All Finance is teaming up with Toynbee Hall and Fair By Design to deliver a No Interest Loan Scheme (NILS) pilot, the first of its scale across the UK, with £3.8m in funding from HM Treasury and up to £1m of lending capital from each devolved administration, matched in England by Fair4All Finance. The loans will provide a vital financial cushion for people unable to access or afford existing forms of credit, but who can afford to repay small sums, by offering a way to spread essential or emergency costs. The scheme will kick off with proof of concept loans in Autumn 2021, followed by a wider two year pilot in up to six areas of higher deprivation starting in Autumn 2022. Fair4All Finance, Toynbee Hall and Fair By Design will design and deliver the pilot in collaboration with HM Treasury and the governments in Northern Ireland, Scotland and Wales. They will work with credit unions, Community Development Finance Institutions (CDFIs) and other regulated lenders, who will be able to apply to administer the loans through a formal procurement process starting in November. Local councils, housing associations and charities will be encouraged to form partnerships with lenders and provide co-funding to help increase the amount of people the pilot can reach. These partnerships are key to the success of the scheme. The NILS pilot aims to test the benefits to customers, society and the economy and show whether a permanent nationwide NILS can be delivered in a sustainable way. There will be a period of market engagement for the wider pilot over the next few months to gather further feedback on the scheme design and match local partners. Interested organisations are invited to attend two upcoming webinars to find out more: The first webinar on Tuesday 21 September will provide more detail on the pilot and strategy behind it, with a few words from John Glen, Economic Secretary to the Treasury. CLICK HERE TO REGISTER The second webinar on Tuesday 28 September will focus on the wider pilot procurement, contracting, co-funding, pricing and delivery. This will also cover the opportunities to pilot other unrelated products with Fair4All Finance which makes for a much larger scale and duration of contract. CLICK HERE TO REGISTER John Glen, Economic Secretary to the Treasury said: ‘Backed by a £3.8m boost at Budget 2021, our No-Interest Loans Scheme pilot is making good progress and it’s excellent to have Fair4All Finance on board. I now want to see lenders and organisations committed to financial inclusion supporting this innovative new scheme, which could make a vital difference for people right across the UK who …

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.