In Search of Balance and Consensus
Commentary | 14/03/19
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 the first ones to have their access stopped (no bad thing you might say). But the tighter the restrictions, the higher up the socio-economic tree the cut-off goes.
This is the nub of my argument.
Fundamentally, the FCA has determined that ‘affordability’ cannot be the subjective judgement of a borrower, but must be an objective assessment by lenders. As a result, huge numbers of potential borrowers are becoming excluded because they cannot afford to borrow (according to the regulator), yet many are in situations where they cannot afford not to borrow (because the costs they would otherwise incur are higher than the cost of the borrowing they would have used if they were permitted to).
Too often there is no meeting point in the debate about credit and debt. But the complexity of the situation calls for a more nuanced approach. We look forward to more engagement with consumer representatives and commentators to find a balance that best serves consumers.