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 …

CEO COMMENTARY: Salary Finance- unregulated payday loans in disguise?

Published 21 January 2021

Salary finance, or advance, schemes seem to have grown rapidly in recent times. These schemes allow employees to access their salary early on the grounds that this will enable them to better manage their finances. Major employers, along with many well-known hospitality brands, have signed up to a range of salary finance schemes and early access to pay continues to grow in popularity. These products sit outside of FCA regulation currently, and seemingly trying to avoid future restrictions, many companies that offer early access to pay are keen to point out that it is not ‘credit’. Salary finance schemes were included within the scope of the recent Woolard Review, most of the attention about unregulated products focused on the ‘buy-now pay-later’ market, a focus reinforced by recent negative media coverage. As we await the Woolard Review’s findings, we believe there is significant risk to consumers from salary finance. Customers who use salary advance schemes need to be protected in a similar way to customers who use consumer credit. Salary finance providers often position themselves as the cheaper alternative to high-cost credit and claim to focus on the financial wellbeing of employees. In reality, these schemes appear low cost because there is almost no risk of an advance not being repaid. We have concerns around the potential for customer harm that could come from using these products. Customers have less protection in comparison to regulated products and carry all the risk. Limited or non-existent affordability checks, and the fact that use of a salary advance is not obvious when regulated lenders check whether a customer can afford a loan creates problems. It means that customers could quickly find themselves overburdened, given credit they cannot afford to repay, in a situation that is very difficult to get out of. Advances are often repaid via a single payment following the next payday. Unlike regulated lenders, most salary advance schemes do not check whether the employee can afford this without borrowing again. This creates a risk of employees relying on repeated advances to survive and meet their financial commitments. Individuals may also be tempted to borrow more than they can afford to repay and become trapped in a spiral of debt. For employees who do encounter difficulty, there is no requirement for employers or advance providers to refer individuals for debt advice, or other help, if they are unable to manage their money after using salary advances. With salary finance, campaigners are advocating for an unregulated product, that avoids affordability checks, does not offer forbearance, or give primacy to priority debts. While there were concerns about payday lenders using continuous payment authority (CPA) to take repayments, this is CPA ‘on steroids’ as the money does not even reach the bank before it is repaid. It is a retrograde step to replace a regulated product with one that is unregulated. The current growth of these products outside the regulatory perimeter illustrates the need for the regulatory framework to be able to move quickly, adapting to …

CEO UPDATE: One week in – big challenges and our first steps

Published 13 January 2021

Now into my first full week as I started my new role as Chief Executive at the CCTA, I have been taking the first few steps towards implementing the new strategy that we have agreed with the Council. Having been part of the alternative lending sector for a number of years, I can see common issues affecting many lenders and how we can help with some of the challenges they now face. I am delighted that CCTA has committed to play a part in ensuring that responsible lending will be there as we come out of these extraordinary times. It is undoubtedly a tough time for the sector. Taking a minute to look back on the first week in my new role, I was not surprised to see data from the FCA showing thousands of firms are at risk of collapse due to the impact of the Covid-19 pandemic. Our own industry numbers show a dramatic drop in lending when you compare 2019 to a similar period in 2020. There is a real threat that companies will go under, especially SMEs that do not have the deep pockets of the banks. This will undoubtedly have a negative impact on our customers as the supply of credit would fall further. When this happens, we know the need for credit is still there so consumers look elsewhere, often to less desirable alternatives. All this underlines the fact that access to alternative credit needs to be maintained, particularly at a time when mainstream lenders will likely seek to avoid risk in uncertain times and tighten their lending criteria. Customers need to be able to access a range of safe, competitive products. Credit will play a part in us getting back on our feet, getting back to work and juggling our finances. I want CCTA to be the home for these alternative lenders, allowing us to create a stronger voice for the sector. There are significant regulatory challenges that remain, along with the impact of the pandemic. We need to continue to engage with our external stakeholders on these issues and help them to understand why the sector is vital to the consumers that use it. Jason Wassell CCTA CEO

LETTER TO ECONOMIC SECRETARY: Consumer Credit Act – A case for reform

Published 03 December 2020

John Glen MP Economic Secretary to the Treasury HM Treasury 1 Horse Guards Road London, SW1A 2HQ Dear Economic Secretary CONSUMER CREDIT ACT – THE CASE FOR REFORM Our trade associations represent a wide range of specialist lending companies across the lending and leasing sector. Modernisation of the Consumer Credit Act (CCA) is urgently needed to simplify procedures to support customers in financial difficulty, notably those impacted by Covid-19, and facilitate access to credit via digital means and to new products, such as low-emission vehicles. The attached proposals have been developed in collaboration with specialist consumer credit lawyers to identify the areas of the CCA most urgently requiring change. They are not intended to dilute consumer protections rather they would simplify the regulatory architecture to ensure it is more flexible and enhance rights in some instances, for example, by aligning the rights for subscription-based finance with those for more traditional products. The FCA review of the CCA which reported to HM Treasury in 2019 provides a solid basis for extensive reform. It is important that its findings are acted upon before they go out of date. The Government has a golden opportunity over the term of this Parliament to create a forward-looking dynamic regulatory framework in a market covering two-thirds of all FCA-regulated firms. The FCA has the expertise to conduct this exercise in collaboration with you and your officials and we would be willing to provide additional resource as appropriate to support this important work. We have shared the paper with consumer representatives who agree that improvements need to be made to the Act, particularly in respect of the treatment of customers in financial difficulty. We are certain that we can find common ground in other areas. As a next step, we would like to invite you to a virtual roundtable discussion (which we will organise) with industry trade bodies and consumer representatives. We would extend this to relevant HMT and FCA officials. Yours sincerely

OVERVIEW: Consumer Credit Act – A case for reform

Published 03 December 2020

The Association of Alternative Business Finance (AABF), the British Vehicle Rental & Leasing Association (BVRLA), Consumer Credit Trade Association (CCTA) and the Finance & Leasing Association (FLA) represent lenders and leasing companies across the UK. Modernisation of the Consumer Credit Act (CCA) is pressing to simplify procedures to support customers in financial difficulty and address other impediments to a forward-looking consumer credit market. We have developed proposals with the support of legal experts to identify the areas of the CCA most urgently requiring change. EXECUTIVE SUMMARY • The Consumer Credit Act (CCA) is approaching its fiftieth anniversary but some of its core provisions date back to the 1960s. Reform is therefore long overdue. • We propose a simplification of consumer credit landscape via a twin-track approach of the Financial Services and Markets Act (FSMA) and Financial Conduct Authority (FCA) rules to enhance existing consumer protection as they will be able to be applied in a more responsive and flexible manner, for example, when customers need urgent support. • It will facilitate the delivery of innovation, for example the funding of low emission vehicles, and new market entrants to offer more consumer choice. • The Government has made the case for reviewing the financial services regulatory framework (in its consultation on the post-Brexit landscape) and our recommendations build on its proposals. • We propose a series of roundtable discussions at which industry trade bodies, consumer representatives would map out with HMT and FCA officials a detailed plan for CCA reform. OVERVIEW The current regulatory framework governing consumer credit for over 40,000 firms is complex and ill-suited to the way in which today’s households borrow to smooth their finances or SMEs lease equipment to grow their businesses. We favour a simpler approach which starts from the premise that nothing is required to be retained in a specific piece of legislation, namely the Consumer Credit Act (CCA). We need to consider what regulatory and legal protections are needed today (which may mean retaining similar protections to those in the CCA, including S75 rights, and enhancing them in other areas) and then legislate in a way which removes duplication, fosters flexibility and is done in a proportionate manner. The FCA’s very comprehensive review of the CCA (presented to HM Treasury in 2019) provides a good starting point. It would be possible to replicate the CCA’s provisions in a combination of powers contained in Financial Services and Markets Act (FSMA) and the Financial Conduct Authority (FCA) Consumer Credit sourcebook (CONC). Primary legislation could amend FSMA to create protections to those in the CCA and the FCA could prescribe in CONC when these protections would apply. In this way, the regulators could respond quickly in a targeted and proportionate way to real harm, based on evidence gathered by the FCA. Building on the FCA’s 2019 review of the retained CCA provisions, Information Requirements would, for example, be set out in the rules in CONC, whilst Rights and Protections, including S75 connected liability, and Sanctions, including enforceability …

CCTA Response: The Woolard Review

Published 02 December 2020

FCA Call for Input: Review into change and innovation in the unsecured credit market (The Woolard Review) CCTA welcomes the opportunity to comment on the review into change and innovation in the unsecured credit market. We are concerned that not enough focus has been given to the issue of consumer needs for financial smoothing products, especially with consumers in several socio-economic groupings deemed to be making ends meet, or having more month than money. The old puritanical saying that people should live within their means, is sound advice and should be ‘schooled in’ at an early age. We have long been an advocate of financial education, and supported Credit Action/Money Charity through financial contribution, by certain members funding student money manuals for all new university entrants, and by our CEO being an active Board Member of the charity for a period. We believe that it is a priority that all governments have failed on, because it is difficult to achieve and probably of limited political value. However, the danger, stresses and strains, of not understanding day to day finance is a major issue impacting on personal and family relationships the length and breadth of the UK. All financial services are a risk as life, both personal and business, does not always run smoothly. Disruption and change grow faster in our ever-changing world, impacting on businesses and consumers alike, so occupations and relationships are constantly changing. Credit is therefore, and ever will be a risk market, but a market that is a necessity for the precarious state of the UK economy, and the extreme reliance on consumer spending to underpin UK GDP. Unless there is a seismic shift to massive industry productivity the economy desperately needs the current levels of domestic spend, in fact if there is a bad exit from Brexit consumer lending will need to be substantially higher. If the intent from the regulator was to completely de-risk credit and remove the consumers from the supply side who live on credit and spend more they earn, by vehicles such as, multiple credit cards, it would create distress and anger with the consumer. In fact, there well may be an outcry by constituents to their Member or Parliament that the FCA is deciding social policy which they would assume is for Government. Similarly if the affordability cure was to take millions of consumers out of the use of flexible credit, there would be outrage from both the consumer and politicians in depressed areas, with the so called Conservative northern ‘red wall’ potentially reverting back to Labour. Progress cannot and should not be delayed but the current pace and thrust of regulation will have severe impacts on the access to responsible credit products that the consumers want. Similarly all parties should come together with government and consumers to shape the future before mechanistic, over-regulation, data modelling, and third party data ruin the economy by limiting the supply side. The Competition Commission (CC) inquiry model structure works well in addressing the supply …

CCTA ARTICLE: Greg Stevens CEO – Addressing the issues

Published 24 November 2020

For only a small handful of people has 2020 been a good year, Geoff Bezos and Joe Wicks spring to mind. For most other businesses and individuals, it has been lousy. The retail banks have had mixed blessings. On the one hand, they have taken a hit like everyone else, with a deteriorating economy, less personal and business lending and collections restricted by the Government’s emergency payment deferrals. On the other, they have been able, to an extent, to reverse the narrative that attached to their wholesale arms during the last global crisis (the financial one) in 2008-9, when they were bailed out with public funds for problems they had caused. A TOUGH ENVIRONMENT For consumer credit businesses, the commercial and regulatory environment is as tough as it has ever been. Covid has knocked most businesses for six. In response, the Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) are doubling down in their scrutiny of lending and relending decisions, even at risk of shrinking the regulated market. Pre-Covid, it was getting harder for credit businesses to ‘price for risk’. The pandemic and its aftermath will make it even less conscionable to policy makers. A spirit of ‘safetyism’ is pervasive in government, which is bearing down on the ‘risk-reward’ trade-off at the heart of credit deals. This largely accounts for the difficulties businesses are having at FOS. The Ombudsman has the power to dole out retrospective justice on credit deals struck three, four, five years ago, sometimes longer. Given the mood and inclinations inside both government and regulator, this feels like a different era. ‘Good consumer outcomes’ are now sacred, anything short of it is punished regardless of factors beyond a lender’s control. Criticisms of FOS are falling on deaf ears. Government, Regulator and Ombudsman are lock-step in their approach to affordability. CAUSE FOR OPTIMISM So what of 2021? Are there glimpses of sunlit uplands that can give lenders cause for optimism? I suppose the first and fundamental point is there will always be demand for credit, and more so in 2021 than any other year. In the aftermath of Covid, with furlough wound in and unemployment soaring, people will need the smoothing and balancing mechanisms that creditors provide. The sub-prime, non-standard marketplace will grow. But so, inevitably, will personal risk levels. Finances will be tighter, credit records impaired. The million dollar question, therefore, is how can anyone lend into this marketplace and satisfy the regulator’s ‘affordability’ expectations at the same time? The reality is many of the industry’s ‘de-risking’ models have been deemed inadequate. The use of a friend or family-member as guarantor has come under sustained attack. Even home-collected credit, which officials traditionally regarded as a benign model, is being challenged for the frequency of relending patterns in use for over a century. The reality is there is a market there for any businesses that can sufficiently de-risk, but if they can’t, they will struggle. Some challenge. BUSINESS AS USUAL? For government and regulator, 2021 will be …