Reforming Consumer Credit Legislation
8 October 2020
By Stephen Haddrill, Director General
Earlier this week the Treasury announced revisions to the legislation which prescribes how default notices issued by lenders should be written. This is a step forward. For too long, the law has required lenders to use language that is threatening in tone and does not reflect the mutually respectful relationship that lenders seek with borrowers.
It might seem churlish therefore to complain, but the truth is that the announcement has only scratched the surface of what needs to be done to reform consumer credit legislation.
The Consumer Credit Act and other regulations set out the terms of three important letters which are sent to borrowers who are struggling to repay their loans. The default notice is the last of these. Ahead of this are the letters which explain the help that borrowers can receive, and how that help will translate into a new loan agreement: known as the Modifying Agreement. The law stipulates what this agreement should contain, but in an attempt to be comprehensive, it gives birth to something that can be very confusing for the borrower. That creates unnecessary anxiety. Such anxiety is then compounded because the new agreement cannot be signed online and therefore takes an unnecessary amount of time to put in place.
Some lenders have tried to reduce the pressure on the borrower by just issuing an informal, brief statement of the forbearance they will provide. But in doing so they risk being challenged later on the enforceability of the new arrangement. And also in due course they have to issue a Notice of Sums in Arrears, again in prescribed, archaic and abrupt language.
These are just some of the faults with the Act. It also inhibits innovation and the use of technology. It adds complexity to lending on electric vehicles that will help tackle climate change. The time has come to reform it properly by sweeping it away and replacing it with a regime that fits the way that the financial services industry is now regulated: by a regulator empowered to adapt consumer protection quickly to changes in the way the economy works, to the way people want to receive information, and to the way services are provided. That is a major but necessary task. It has been on Ministerial agendas for years. It needs to be resourced and put at the top of the list.
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The Chancellor is working on the shape of his Comprehensive Spending Review and Budget to determine what the Government can afford to spend and how spending should be allocated at a time of the greatest uncertainty. The pandemic is placing huge pressures on him to keep the taps open to maintain economic recovery. At the same time, his ability to raise taxes to pay for this largesse is severely constrained for the same reasons. There will be a gap in the country’s finances, and it may have to be met by borrowing. Fortunately, interest rates are low, and the Government remains credit worthy. It can afford to ease the pain of business and individuals through the winter.
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Now more than ever Government needs to avoid becoming trapped in the here and now. It must show anticipation and vision. That is not at all easy given the need to tackle so many short term problems against a backdrop of uncertainty about what the next months will bring. So it’s good that major long term priorities such as net zero, raising productivity and levelling up across the country are still being addressed. These are goals that the FLA wholly supports and we look forward to the coming spending review showing vision in taking them forward...
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We stand at a fork in the Covid road. In one direction the virus fades away, business opens further and economic recovery gathers real momentum. In the other, we bounce from lockdown to lockdown, with millions losing their livelihoods and the economy remaining in the doldrums for years.
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After the turbulence of recent months, we now have a Government with a mandate to govern for a full term – and the numbers to get business through the House of Commons.
That list of business is very long, and of course begins with negotiating a rather tricky post-Brexit trade deal, not to mention a brewing storm about the unity of the UK. As strong as the SNP are in Scotland, their influence in Westminster has been blown away by the size of the Conservative majority. And what about unity more generally? Some basis for co-existence between leavers and remainers needs to be found.
So, what are the implications of the General Election results for the financial services sector and FLA members in particular?