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Vulnerability and Debt News – July 2017

                                                                                               FCA Reports

  • FCA Annual Report Highlights

The FCA has published it’s 2016/2017 Annual Report and Accounts. The report acknowledges that there are practical difficulties in measuring the effectiveness of the FCA but that it believes that confidence in its performance continues to grow. The Annual Report gives a useful overview of the FCA’s activities across all of its markets, and across different themes and sectors relating to consumer credit specifically. With a thematic report into how firms approach early arrears and a separate consultation on persistent debt in the credit card market, it is clear that the FCA has an ongoing interest in how firms approach consumer indebtedness and the exercise of forbearance.

Further details can be found in our email to members here.

  • Staff Remuneration and Incentives

The FCA has published its long awaited paper setting out the findings of the thematic review. The FCA considered the extent to which firm approaches to the remuneration and incentivisation of staff could contribute to poor practice and adverse outcome for consumers. Although the review did not indicate widespread improper practice, much of the FCA’s concern centred on the extent to which firms were properly identifying and mitigating the risks that their remuneration policies could have to the customer. Although much of the focus is on remuneration linked to selling, the FCA does make observations in connection with the collection of debt which may be of interest.

Further details can be found in our email to members here.

PRA Statement on Consumer Credit

Members will be aware that the Prudential Regulatory Authority has undertaken a review of consumer credit lending amongst some PRA-regulated firms. The PRA has consider the asset quality and underwriting practices for personal loans, credit cards and motor finance. The PRA found, amongst other things, that firms approach to underwriting risk appeared to be overly influenced by the current benign economic climate and that rising consumer indebtedness and ability to repay might not always be reflected in firms’ assessment of risk.

            Background and further details can be found in our email to members here.

FLA Vulnerability Research – Update

The second part of the research, Vulnerability: a guide for lending, commissioned by the FLA and The UK Cards Association was published in June at a well-attended event held at the House of Commons. The second guide focuses on identifying and supporting customers with a mental capacity, or other capacity, limitation that may affect their decision-making abilities. As before, the new guide has an accompanying data report.

Vulnerability: a guide for lending and Data Report

Vulnerability: a guide for debt collection and Data Report

The FLA will be working with the Vulnerability Working Group, drawn from a cross-section of members, to build on this research and potentially develop further resources for members. We will also be running fringe sessions at both the Conservative and Labour Party Conferences on the vulnerability research in conjunction with MacMillan Cancer Research.

 Other Updates –

Financial Guidance and Claims Bill

The Bill to make provision for the new Single Financial Guidance Body, which will replace the Money Advice Service and make provision for the transfer of Claims Management regulation from the Ministry of Justice to the FCA has reached the committee stage in the House of Lords. The Bill is at an early stage, but amongst the amendments proposed in the Lords are that the SFGB:

  • Conduct research into the level of unmanageable, its causes and potential measures for prevention.
  • Seek to improve financial inclusion.
  • Promoting awareness of the benefits of financial planning.
  • Conduct a review into the desirability of a breathing space scheme. The factors to be considered as part of this reflect some of the elements of now defunct Bill proposed in the last Parliamentary session by Kelly Tolhurst MP.

 We will keep members updated as the Bill progresses through the Parliamentary process.

Stepchange

Stepchange has issued a Press Release calling for the pensions auto-enrolment scheme to be used to develop ‘rainy-day’ savings which it argues will help financial resilience to sudden income shocks.

Money and Mental Health Policy Institute

The MMHPI has published a ‘policy paper’ setting out what it considers to be some of the particular risks around ‘high cost’ credit for consumers suffering with mental health problems that it perceives. The paper also makes some proposals, such as the introduction of price caps on some products and a ban on point of sale customer incentives for all retail credit, for addressing the concerns that it has. The paper raises concerns regarding the extent to which the MMHPI has understood the markets in question and the sustainability of some of its arguments and the FLA has issued a formal response to the MMHPI’s policy proposals and will continue to monitor proposals closely.

Payplan

  • Payplan has conducted some survey work to better understand attitudes to debt in the UK. Involving 1200 people, the survey considered whether attitudes varied according to gender, location, the nature of the credit and the amount owed before debt advice was sought. A useful infographic providing a snapshot of the results is available on the Payplan website here.
  • Payplan has also published a resource in the form of a blog article about how to go about telling a partner that you are in debt – why you should do this, how you might approach it and what to expect when you do.

Money Advice Service

  • MAS has issued a Press Release calling on friends and family to keep an eye out for problem debt. It suggests that while 1 on 6 adults might experience financial crisis, only 1 in 5 is likely to seek financial assistance. As such, friends and family are well placed to spot signs of problem indebtedness and encourage people to seek debt advice. The release suggests a number of indicators that might suggest financial difficulty, and a series of sets that friends and family might take to start a discussion.
  • MAS has announced the appointment of Peter Wyman’s as the independent lead for the review of debt advice funding in the UK. The review will look at the current and future call for debt advice and its cost, how it should be funded and by whom, the benefits of current funding model as well as the scope for needs based improvements and how the sector should transition to a new model if changes are required. We have circulated an email to members giving a more detailed overview which can be found here. We will be meeting with Peter Wyman as part of this review.
  • MAS has published a document entitled ‘Working Collaboratively with Debt Advice Agencies Toolkit’. The document is intended to provide a practical guide to working effectively with debt advice agencies. Many of the suggestions will already be familiar to members that have close working relationships with debt advice organisations, though there appear to be some inaccuracies in the document (such as in relation to some regulatory requirements). Our email to members with further details can be found here.

 Credit Services Association

  • Members will be aware that from October this year, firms seeking to obtain a money judgment in relation to a consumer credit agreement will be expected to have followed the Pre-action Protocol for Debt Claims. We have circulated a number of emails updating members on the development of the PAP and concerns which are available on the FLA website. The Credit Services Association has also published a blog containing a useful summary of the PAP and its intentions which can view here.
  • The CSA has additionally relaunched its Code of Practice which may be of interest to members that retain the services of CSA members for collection purposes.

Resolution Foundation

The Resolution Foundation has published a blog article considering the changing economic outlook, changes in the value of earnings in real terms and what this might mean for future availability of credit for consumers and their ability to service repayments, and the risk appetite of firms.

Citizens Advice

  • Council tax arrears, amongst other debts owed to central and local government, regularly presents itself as particularly problematic debts for those in financial difficulty. All three of the larger debt advice bodies have reported in recent years that such debts are frequently more problematic than debts owing under consumer credit agreements. Citizens advice has produced a revised protocol with the Local Government Association which is intended to encourage local councils to work more collaboratively with debt advice bodies to help those in debt and with arrears of council tax more effectively. The revised protocol can be accessed here and an accompanying guidance note for councillors can be found here.
  • Individuals with mental health problems who are experiencing financial difficulty may also experience additional difficulties, such as problems with employment, access to appropriate benefits and access to housing. Members will be familiar with the potential benefits of income maximisation and broader collaboration with debt advice in some cases and Citizen Advice’s paper suggests that similar benefits can be achieved in relation to local authority debts.
  • Citizens Advice has also called for a pause on the roll-out of Universal Credit. It argues that frequent delays of up to six weeks or more when migrating consumers from the existing system to Universal Credit is creating unnecessary strain on individuals’ financial circumstances and is likely contributing to financial difficulty.

FLA Vulnerability Hub – All updates on the Hub – please check regularly.

Vulnerability Training – The FLA runs regular training courses on Vulnerability and Building Sustainable Repayment Plans for Customers in Default.  The dates for Vulnerability Training for 2017 are: 26 July; 2 November. If you are interested in attending any of these or you would like more details, please contact jon.dear@fla.org.uk or visit the FLA website.

Money Advice Liaison Group Annual Conference – Many members may be familiar with MALG and its traditional focus on being ‘neutral ground’ where creditors and debt advisers can discuss current and potential issues affecting consumers in financial difficulty. In light of its 30th anniversary and new structure, MALG is adopting a different approach for its 2017 conference. If this is of interest to members, details of the conference can be found here and the programme can be found here.

Please let us know if you have any colleagues who would also like to receive this bi-monthly Newsletter: Patsy.Calnan@fla.org.uk