In Search of Balance and Consensus

Published 14 March 2019

The CCTA held a briefing this morning for personal finance journalists and bloggers ranging from the Daily Telegraph to the influential consumer site, DebtCamel. We wanted to talk about what we see as a looming ‘crisis of access’ to credit for those consumers on lower-incomes with the least choices, but also the mass market of credit consumers who we have termed “the squeezed out middle” (to borrow a phrase from Theresa May — there can’t be many people in public life doing that this morning). We wanted to call for some balance and proportionality in the regulation; and to find some consensus with consumer voices as to what ultimately is the best, or least harmful, outcome for consumers who are going to need access to credit come what may. Our over-arching message was that the cascade of regulation in the past 4-5 years has reached a point where the powers-that-be risk harming consumers instead of protecting them. There are two root causes of this problem — over-regulation (albeit well-meaning) and a claims racket of dubious legality that is targeting lenders with historic ‘affordability’ claims, seemingly aided and abetted by FOS which appears to be turning a blind eye to data and privacy breaches. The combined effect of this is a sharp increase in market exit and, as a consequence, a sharp reduction in access to regulated credit for consumers. This isn’t just a sub-prime problem, it’s beginning to affect the whole non-mainstream market, in other words the ‘squeezed middle’ is getting ‘squeezed out’. I was asked to provide an evidence base for this and I pointed to a number of factors including the rate of business closure in my own association and rising recorded numbers for ‘friends and family’ borrowing and properly illegal loan sharks. However, I also acknowledged that more research is needed, and specifically the FCA needs to carry out a comprehensive impact assessment of the welter of measures it has introduced in recent years to adjudge the impact on consumers’ access on legal sources of credit. Without access to legal sources of credit, there really isn’t any consumer protection at all. The situation with CMCs and FOS also needs looking at. I don’t contest that many of the historic affordability claims are legitimate, but a great many of them demonstrably are not. There are questions about the provenance of the data sets the claims companies appear to be using for their carpet-bombing sorties, as well as their compliance with new GDPR and privacy regulations. I was also asked about my assertion that tighter ‘affordability’ rules are having a counter-productive effect. It is a difficult argument to make because moves to make lending more affordable sound like such an obvious and uncontentious thing to do. In the vast majority of cases they are. But the unintended consequence is that increasingly tight affordability requirements mean that many lenders have no choice but to stop lending to certain groups of consumers. Those at the bottom of the economic tree are …

Time for the FCA’s helicopter parenting approach to credit users to end and let them make their own choices

Published 07 March 2019

The last few weeks have seen an unprecedented number of press releases from the Financial Conduct Authority regarding the consumer credit industry. The regulator has good intentions like any worthwhile organisation but its current cosseting approach does the consumer a disservice and is consequently narrowing their availability to responsible, regulated credit. In August 2018, Sky News reported on my concerns that the collapse of Wonga would lead to more lenders entering into administration and this would subsequently result in consumers turning to illegal lenders or placing pressure on friends and family instead. In just a little over 6 months since the article was published, we have seen the collapse of further lenders in Curo Holdings Plc and Oakam Ltd and the cessation of online lending and sale of stores by The Money Shop, while some lenders in other areas of high cost credit have issued profit warnings or are struggling to deal with the mass number of historical redress complaints being sent to the Financial Ombudsman by dubious claims management companies. In the meantime the Money Advice Service found £96 billion of debt is hidden from friends and family with many of those in debt saying that they don’t want to burden others with their financial issues. This would suggest many may find it difficult to approach friends and family about borrowing a loan which could lead to some consumers opting to use an illegal lender. A recent Channel 4 documentary saw illegal lenders referring to themselves as “a necessary evil” and describing how “business is booming” . Only last week, a court heard how a loan shark had started ‘in a small way’ in 2012 but by 2018 he was making £1,500 a week with a total of approximately £450,000. The Sky News article also referred to the CCTA’s views on how the “combination of consumer pressure and political intervention had hobbled an industry that served “the majority of consumers”. Sadly this situation has remained unchanged and the regulatory creep has actually extended across the high cost credit industry as a whole, as the FCA have capped the rent-to-own sector, are assessing the options for intervening in the motor finance market and have warned they will be taking a closer look at the cost of guarantor loans. This continuous barracking of the industry by the regulator is proving too much of a challenge to smaller lenders whose daily operations are being hampered by compliance costs and tick boxes. Many are reluctantly looking to exit the market which means only the larger companies will survive, therefore limiting consumer choice. Customers have a right to access responsible credit, and a right to choose what credit they require. The FCA used to say it wasn’t a price regulator but it increasingly feels like policymakers are happy to accept the notion of intervening on market prices, egged on by consumer activists and distracted politicians. Freedom of choice is slowly being will be taken away from the consumer, and especially the consumers who most …

The financial grip squeezes ever tighter as one third of UK workers need a second income to make ends meet

Published 22 January 2019

The squeeze on people’s disposable income is growing ever tighter as the need for financial smoothing devices for many of the UK’s workers grows ever more important. New research from Gettasub has found that one third of workers (32 per cent) are actively considering taking a second job in order to stay afloat. In the last month alone, over one third (34 per cent) of workers admitted to having suffered sleepless nights due to financial worries. Whilst just over one in ten (13 per cent) also said they were planning to skip work to avoid travel costs. Additionally, 48 per cent of workers believe the botched Brexit situation will make their financial situation worse. When asked about how much the workers had overspent during the Christmas break, 29 per cent of respondents said they overspent by between £51-200 and 22 per cent by 201-£400. Additionally, one in ten (13 per cent) said they overspent by between £401 – £1,000. Only one third confirmed that had not overspent during the festive period. The month of January topped the list as the gloomiest month, with over half (55%) of workers saying it was the month they were the worst off. The research also found that many people were increasingly turning to credit cards in order to stay afloat. Nearly two in 10 people (19%) said they had to borrow money from friends and family to make ends meet. Greg Stevens, CCTA CEO comments: “The need to preserve access to responsible credit is greater than ever. Many of the UK’s hard working families are struggling to make ends meet and are looking for fair and accessible credit to smooth the peaks and troughs of their financial lives. “At the CCTA, we are making it our mission to campaign for access to responsible credit and to ensure that there is a balanced debate with the regulator and consumer groups. We intend to help prevent overly restrictive regulation from cutting off the essential supply of short-term credit for those who need it.” https://www.gettasub.com/

Tis’ the season of political uncertainty!

Published 12 December 2018

Today’s announcement by the 1922 Committee has meant we now have another round of madness as Conservative MP’s go for a Leadership Election, at the same time as the Prime Minister cavorts around Europe attempting to give CPR to a corpse. Nero is fiddling even faster as Rome burns. The real danger is that she wins with a majority in single figures and the Party becomes unmanageable for a year, as she can’t be challenged again for a 12 month period. There are so many divisive pivotal splits in the world at the moment that means democracy as we know it is under dire threat. This will create disunity and chaos – the bedrock for altercations and violence with potential escalation across borders. Weak government allows extreme regulation to creep through as scrutiny becomes less diligent. In turn that produces unintended consequences to the very people it was designed to protect. The Financial Services Industry needs to step up its game to protect access to responsible credit for the consumer, despite the Westminster political confusion and games. Collaboration and meaningful discussion appears to be missing in so many areas of modern life. Changes are imposed, to be challenged and then modified. We see so many current projects having expensive fixes as the collaborative reasoning at the beginning is not good enough, or enough time is not given to fully understand all of the lobby group’s rationale. To cap all of this, the UK is fast becoming the laughing stock of Europe, if not the world. The outcome of the leadership contest is awaited with trepidation and hope that the UK ship will ultimately be steadied and set sail in the right Brexit direction. Greg Stevens CCTA CEO 12th December 2018

Leaving the EU will be costly, but what is the price of remaining?

Published 03 December 2018

David Smith, wrote an insightful piece in The Times this week (Nov 27th) on why leaving the EU will be costly, but what is the price of remaining?   David, who spoke at our annual CCTA conference earlier this month, describes how the endgame of the first phase of Brexit is proving “even messier than feared.” Theresa May, by trying to appeal directly to voters over the heads of MPs who oppose her deal, is adopting tactics that might work in a second referendum, though she has said that she is implacably opposed to that. David’s view, which is shared by many in financial markets, is that “in the end a withdrawal agreement something like hers will be backed by parliament, but it will be a rocky road.” Here’s why: “Through all the ups and downs of the process, the overwhelming conclusion from economists is that leaving the EU will shrink the economy and make us poorer.The National Institute of Economic and Social Research calculates that under Theresa May’s preferred deal the economy in the longer term — by 2030 — will be about 4 per cent smaller (3 per cent for gross domestic product per head) than if the UK had stayed in the European Union. Garry Young, its head of macromodelling and forecasting, put it well: ‘We estimate the long-run cost of leaving the EU on the government’s preferred deal to be roughly equivalent to losing the annual output of Wales.’ An assessment this week from researchers at the London School of Economics, King’s College and the Institute for Fiscal Studies for the think tank UK in a Changing Europe concluded that GDP per capita would be between 1.9 per cent and 5.5 per cent smaller by 2030 under the proposed deal compared with staying in the EU. The range reflects different assumptions about productivity. When it comes to forecasts, a consensus view for the short term, including the bodies responsible for the new assessments, was that the economy would be about 3 per cent smaller than otherwise by the end of this decade as a result of Brexit. Such forecasts are exactly on track. Mrs May and her negotiating team have done well to secure a withdrawal agreement in difficult circumstances. Her aim has been to respect the letter of the referendum with the minimum amount of economic damage. Other options, including leaving on World Trade Organisation terms, would be even more damaging, about double the negative effect, according to the new assessments. We are nevertheless in the unusual position of a government trying to enact something that it knows is bad for the economy. As time has gone on, so the supposed economic gains from Brexit, a bonfire of red tape, lucrative trade deals and the fantasy of unilaterally abolishing all trade restrictions — a great way of destroying your manufacturing and farming industries — have all been exposed as bluster. We are left with reducing EU immigration, which will damage the economy. Why would any …

CCTA responds to the FCA’s proposals to introduce a price cap on the rent-to-own market

Published 23 November 2018

On 22nd November, the Financial Conduct Authority proposed to introduce a price cap on the rent-to-own (RTO) sector. This will come into force on 1st April 2019, subject to consultation.  Under the proposed cap, credit charges cannot be more than the cost of the product and RTO firms will also need to benchmark the cost of products against the prices charged by three other retailers. While the cap has been welcomed by a number of campaigners, we, at the CCTA, are concerned that this is yet another example of regulatory creep affecting the industry, with the potential for extreme consequences. The FCA is being drawn deeper and deeper into the realm of price controls. It was set up as a competition and conduct regulator, but it is rapidly becoming a price setter. In June 2018 during a Treasury Select Committee hearing, Andrew Bailey re-iterated the findings of the FCA’s recent HCC review. During the Committee, Bailey resisted calls for blanket rate caps. He also acknowledged the importance of maintaining access to credit for the millions of consumers who cannot access mainstream credit. He was very clear: caps have consequences. During the hearing, Bailey also rejected demands to reconsider a cap on home credit. On alternative credit options, Bailey acknowledged that outside of Northern Ireland, Credit Unions are underdeveloped in the UK. Importantly, he said that “they are not, on their own, the only solution” and that it would be a “great loss, if we cut off people from credit.  The decision to cap the rent to own sector is therefore surprising and we expect that this will lead to more calls for more caps on other sectors. Campaigners are clear what needs to happen — price controls to put rent-to-own lenders like BrightHouse out of business. But they are much less clear about what will fill the vacuum. Credit unions and social lenders are being proposed as solutions. But these are a drop in the ocean compared to the commercial businesses serving millions of customers day in, day out. The campaigners also know that, once a cap goes in, it becomes the FCA’s and the Government’s problem, not theirs. They are not on the hook when the supply dries up. Of course, the ones who really suffer are the consumers. They lose access and choice. And ironically life becomes more expensive for them because they lose their budget-smoothing mechanisms. Ultimately, the erosion of lenders will continue and access to consumer credit will be restricted by default. A result that is certainly not in the best interests of the consumer.   Greg Stevens CCTA CEO

CCTA endorses Provident Financial Consumer Credit Division Authorisation by the FCA

Published 12 November 2018

We are pleased to note that the Financial Conduct Authority (FCA) has informed Provident Financial plc that its Home Credit and Satsuma businesses have been fully authorised. In a statement published on the firm’s website, Malcolm Le May, Chief Executive Officer of Provident Financial plc said: “This is excellent news for our customers and testament to the improvements achieved in Home Credit during the past year from an operational and regulatory perspective. Under new leadership, Home Credit has successfully implemented a new operating model, delivering improved oversight and control over field activity and customer outcomes. “Authorisation would not have been achieved without the hard work of Chris Gillespie, MD Consumer Credit Division, his senior leadership team and all their colleagues who at head office and in the field embraced change resulting in better outcomes for customers. “Home Credit, Satsuma and the rest of the group will continue to work in partnership with the FCA to ensure we have viable businesses operating to the highest regulatory standards in the sector. Now that the authorisation process is concluded, the business intends to progress discussions with the FCA regarding the implementation of enhanced performance management of its Customer Experience Managers based upon a balanced scorecard approach and some element of variable related pay. “I look forward to continue working with Chris and his team as we develop and grow Home Credit and Satsuma, so not only will we be the biggest provider of home credit in the market, but also the best for customer outcomes and service.” 12th November 2018

Data brokers and credit scorers accused of GDPR breaches

Published 11 November 2018

European regulators have been asked to investigate several data brokers, credit rating agencies and adtech companies to see if they are breaching the EU’s new data protection laws. Privacy International, the campaign group, filed a series of complaints to the British, Irish and French data regulators on Thursday against data broker Acxiom, software giant Oracle, credit rating agencies Experian and Equifax and adtech companies Criteo, Quantcast and Tapad. The campaign group claims that the businesses, which buy and sell the data of millions of online consumers, do not have a legal basis to amass such information.  “Part of their business models are about fundamentally exploiting data and therefore clash with many of the provisions [of the EU’s General Data Protection Regulation],” said Ailidh Callander, legal officer at Privacy International.  “We put most of our attention on the bigger companies with which people have a direct relationship, like Facebook and Google, but then there are these other companies that most people have never heard of, and wouldn’t expect to have a huge amount of data about us.” Facebook and Google have already faced complaints under GDPR and attracted unprecedented criticism for their approaches to data privacy following the Cambridge Analytica scandal.  Google was also caught up in controversy last month after it emerged that the company had withheld details about a leak of user data after a staffer argued that publicising the leak could cause political problems for the company. But the latest complaints from Privacy International highlight growing concern about a little-known ecosystem of data brokers, adtech companies and credit rating businesses that have also built business models around buying and selling data online. Private web browser Brave filed a similar complaint last month with the UK data regulator and the Irish data protection watchdog against Google and the adtech industry. Ms Callander said the data collection practices of such companies fell foul of GDPR’s principles of transparency, “data minimisation” and purpose limitation. The companies argue they anonymise data and obtain individuals’ consent for using their information, but Privacy International said that by amalgamating large amounts of anonymous or “pseudonymous” information, the businesses were able to infer sensitive facts such as political affiliation, religious beliefs and ethnicity. Criteo said the company had a “proven record of ensuring [its] technology has high levels of data privacy and security” and had “complete confidence” in its practices under GDPR. Acxiom said it participated in data security and privacy tests led by industry bodies and had a 50-year history “leading the ethical use of data and technology to deliver more relevant marketing and better consumer experiences from respected brands”. Experian said it would review the allegations: “We have worked hard to ensure that we are compliant with GDPR and we continue to believe that our services meet its requirements.” Equifax, Quantcast and Oracle declined to comment. Tapad did not respond to a request for comment. The UK’s Information Commissioner’s Office said it was “aware of concerns raised about the compliance of data protection laws by big …

Why the launch of yet another anti-consumer credit campaign could have dire consequences for the customer

Published 26 October 2018

Yesterday, I was fortunate to be able to represent the views of our members and industry on the BBC Radio 4 You & Yours programme which can be heard here. The 8 minute segment referred to the launch of the Debt Hacker campaign and gave its founder, Alan Campbell the opportunity to lay out his stall regarding Debt Hacker, and his desire to bring an end to high cost credit. While the campaign intentions are to be applauded, there is a danger that the direct submission of mass complaints to FOS, regardless of whether they are genuine or not, will have an adverse effect on the sector as lenders will opt to leave the market leaving the customer with reduced availability to consumer credit. The demise of Wonga has prompted the campaigners to focus on other lenders by taking the view that “if just 100,000 people complain to the FOS about how they are treated, it would cost the payday lenders £55m alone, win or lose”[1] and the Debt Hacker website tool allows customers to complain directly and therefore without the assistance of a CMC and their associated fees. This is a great tool for the submission of genuine complaints but the cost of deluge of false complaints will still render many small lenders inoperable and effectively close down the sector by default. Whilst government and the FCA remain prostrate because of Brexit, consumer activists in consumer credit are having relatively free rein to concoct their storylines and spin, and the customers requiring access to responsible credit could become the unintended casualty. Greg Stevens Chief Executive   [1] https://www.ft.com/content/5ce95d2c-ae9c-11e8-8d14-6f049d06439c  

CCTA responds to the ‘Dear CEO’ letter issued to payday lenders by the Financial Conduct Authority

Published 17 October 2018

The FCA has published a ‘Dear CEO’ letter issued to all payday lenders regarding the issues surrounding the increase in complaints about unaffordable lending and how the FCA expect firms to firms to manage the impact.  Lenders have been requested to assess their lending activity to determine whether creditworthiness assessments are compliant and inform the FCA if they are unable (now or in the future) to meet their financial commitments because of any remediation costs. The Dear CEO letter refers to four recent decisions made by the Financial Ombudsman Service involving individual complaints about payday loans which illustrate the FCA’s concerns and that these cases should be used by lenders when determining their own complaint handling procedures. The CCTA is concerned that this latest stroke only serves to add to the ‘ regulatory creep ‘  which is already concerning members and industry alike. FOS is acting like a regulator while the regulator acts like a consumer activist, but neither are looking through the lens of natural justice and reality. Impartiality and fair play to both the consumer and business in parts seems to have disappeared out of the back door. The Wonga collapse could be repeated elsewhere, and the continuing fraudulent consumer behaviour promoted by the current rise in litigious thinking could bring about a dramatic loss of access to responsible lending to higher risk clients. With all the indicators pointing to the lower paid already struggling, and people between jobs, with broken relationships, or a blip in their life having to use the ill-fated Universal Credit, there will be fewer financial lifelines available.  The Banks have already increased their cut off rates, so less people will be able to borrow, and the BoE last week was looking for even more credit risk aversion. The danger is that the distance between ‘the haves’ and ‘the have nots’ will become greater at a time when the UK could be going into Brexit recession. We must take action now to prevent an access to credit drought that will affect society and the economy today, and for our future generations.  

CCTA’s thoughts on current claims management activity and the impact it is having on the industry

Published 05 September 2018

The recent news that payday loan company, Wonga, has sought a £10million bailout is an ominous reminder of the challenges currently facing the consumer credit industry as regulators, consumer groups, and claims management companies focus their attentions on high cost short term credit providers. The latest document to come from the Financial Conduct Authority details the regulators’ Creditworthiness Policy Statement and while it does promisingly recognise the need to keep the regulations proportionate, the approach may come as too little, too late for some lenders. Over-regulation presents its own challenges, but many in the consumer credit industry are experiencing the same issues faced by Wonga, as they are having to deal with a significant spike in claims being directed towards the Financial Ombudsman Service, driven principally by claims management company activity. While many cases may be genuine, the credit industry’s chief bugbear is the behaviour of sham Claims Management Companies (CMCs) that are using industrialised processes to send thousands of bogus compensation claims into FOS.  They use pro forma, template complaints letters, without conducting any due diligence or fact-checking in advance. It is alleged in many instances, that consumers will not even know a claim is being made on their behalf. Such disingenuous behaviour is clearly not limited to the credit industry as the Solicitors Regulation Authority updated its warning notice on 9th August 2018[1] with advice to law firms who act in personal injury cases, particularly holiday sickness claims.  The notice, which sets out the expected standards, notes the SRA are investigating firms involved in holiday claims, with potentially improper links with claims management companies. They are also seeing firms pursuing claims without the proper instructions of claimants. Failure to complete due diligence may explain why the proportion of claims brought against credit companies by CMCs rose from 9% in 2016/17 to 22% in 2017/18. Anecdotally, those numbers will spike even more alarmingly this year as the window for PPI claims starts to close and CMC’s are turning their attention to other avenues of opportunity such as payday loans.  The recent comments by Wonga[2] that the company has seen an increase in claims relating to legacy loans is echoed by many but is a particular blow to some SME credit businesses as every single complaint taken on by FOS costs an SME business £550 regardless of whether the claim is legitimate or not.  Consequently it is important that the industry has confidence that the regulator can and does identify any malign activities of the claims management industry who send thousands of vexatious complaints to an over-stretched Ombudsman in the hope that they won’t be rooted out. The need for trust in FOS is doubly important because it is being given new powers as it extends its remit to handling complaints from larger SMEs in the aftermath of banking scandals such as RBS / GRG and interest rate swaps. Likewise, on 1st April 2019, the FCA becomes the regulator for all CMC’s . We await the results of this with …

CCTA responds to the announcement Wonga has stopped taking loan applications

Published 30 August 2018

The following is the CCTA view on access to credit and the impact of aggressive regulation,  and over zealous and sometimes vexatious redress claims made by the Claims Management Companies. These and other factors are the cause of the ongoing operating problems being experienced by Wonga. Access to responsible credit is required by the majority of consumers, to address short and longer term needs. As is much publicised the just about managing ( JAM’s ) consumers exist in most socio economic groups, with many families making ends meet until there is a crisis that needs a financial fix. Unauthorised bank overdrafts cost more than many high cost credit loans, so short term credit products like Wonga provided the financial breathing space consumers required. A strong consumer lobby and political muscle produced severe FCA regulation that collapsed the business model for certain short term loan products – but not unauthorised Bank overdrafts. Added to this Claims Management Companies leapt on the back of the change in regulation and targeted short term lending as a potential area for mass claims based on affordability issues. The Industry is currently coping with a dual problem of excessive vexatious claims and the FOS acting as a regulator, rather than an impartial ombudsman service. If the current scenario is allowed to continue consumers will be forced to find different routes to obtain financial assistance which may include the usage of illegal lenders, with the potential threat that comes with it. More than likely friends & family will be used, which is the fastest growing sector for access to credit. Borrowing from friends & family brings with it a degree of psychological pressure and potential family breakdown. Politically there is little if no capital for politicians to suggest that a price for risk model works well for the consumer and business.