Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust shares her thoughts on the recommendations from Christopher Woolard’s review into unsecured credit.
A 7am start to the working day is not always the easiest, even if it only involves turning on the computer in the next room. Today’s early start, however, was rewarded with some welcome news in the form of the wide-reaching recommendations made in the Woolard Review into unsecured credit.
Back in September last year, former interim chief executive of the FCA, Christopher Woolard, was tasked with reviewing change and innovation in the unsecured consumer credit market. A fast changing market and one that had undergone substantial change under his watch, this review particularly targeted some of the newer forms of credit that have emerged in recent years. Most notably ‘buy now, pay later’.
Here are five reasons why I think the review hits the right notes.
1. Regulating ‘buy now, pay later’
The recommendation to regulate ‘buy now, pay later’ payment services that allow you to split payments – and the government’s swift response in accepting this call – is welcome. We have highlighted the potential harm these unregulated products can cause and I am pleased to see action being taken. This has so far been a much swifter response to an emerging consumer issue than we have seen in the past. It may still take some time to bring forward the necessary legislation, but this is an encouraging sign.
This recommendation on ‘buy now, pay later’ will understandably grab the headlines, but the review is full of other timely and well-reasoned measures too.
2. An outcomes focus on consumer credit
On consumer credit, Woolard highlights the need for an outcomes-focused approach. He is is right to caution against only focusing on affordability assessments and emphasises the need for the whole lending journey to be looked at. Within this, I am pleased to see the reference to how people actually use products in the real world and the focus on the importance of lenders meeting the needs of consumers for as long as they hold the product, something the financial impact of Covid-19 has brought into even sharper focus.
On the FCA’s quick response to Covid-19 in the form of the different temporary support measures introduced, Woolard is right to highlight this work. In our view he personally played the key leadership role and ensured speedy people-focussed decisions.
We’re pleased the review also looks to the future, and his recommendations on achieving greater consistency of support post Covid-19 should be listened to.
3. Building the case for affordable credit
The review also makes a further useful contribution to the debate on affordable credit. While the government has good intentions here, progress has been slow. One key element is the need for the No Interest Loan Scheme (NILs) to get up and running as soon as possible. We would like to see this scheme build in the ability for people to use the loans to pay off their rent and council tax and pay these back over a longer period to help people in crisis with outstanding debts built up due to Covid-19.
Supporting and enabling existing alternatives to high-cost credit such as credit unions and Community Development Finance Institutions in this area also feels like a sensible approach.
4. A strong focus on debt advice
Of course, it is good to see strong recognition of the role of debt advice in supporting a healthy credit market. With the financial impact of the pandemic set to be with us for some time, and demand for debt advice already high going into the outbreak, sustainable long-term funding will be crucial in the years to come. For those of us who’ve been around the sector for a while, the quest for improved funding arrangements seems never-ending, if sometimes circular.
But I’m an optimist here, and urge the FCA Board to keep this important issue in their sights as Woolard recommends – and use their leverage with HM Treasury, Money and Pensions Service and others to progress the work many of us have been part of over the past few years. A focus on multi-year funding would be particularly welcome and the FCA themselves could consider how their approach to the levy might support this.
In the shorter term, pressures on the sector will grow with the introduction of Breathing Space and the Insolvency Service review of debt relief order (DRO) limits which could well mean more people are eligible for debt relief. The debt advice sector needs to be funded to deal with higher demand on its services.
5. Reviewing debt solutions and introducing SDRPs
Debt solutions play a key part in peoples’ route out of debt and I am encouraged by the review’s highlighting of problems with individual debt solutions – in particular, miss-selling of Individual Voluntary Arrangements (IVAs) through lead generation firms. This is something that we have been looking at in recent months and we agree with the review that a holistic look is needed in the wake of Covid-19. That’s why in October we called for a full review of debt options to ensure robust and effective routes that work in the new context of Covid-19.
As Woolard highlights, this needs to include waiving fees for DROs for people who cannot afford them as well as waiving of fees for bankruptcy for those on income-related benefits, and reducing fees for other applicants. We think this is an excellent idea.
Equally important though is introducing Statutory Debt Repayment Plans as soon as is practical. Had they been in place, along with the Breathing Space scheme, before Covid-19 hit, we would have been much better equipped to deal with its financial impact on households. As the review says, this is a significant change for debt advice and a good moment to look at putting the sector as a whole on a more sustainable footing.
Covid-19 has magnified the need for a fresh look at credit markets, credit products and how we support people through providing safe routes out of debt. This review has come at a crucial time where there is the opportunity to implement changes that will have a beneficial long-term impact on people in debt. While there is much to reflect on from today’s review, there are some clear steps for government, the FCA and Insolvency Service to take. We look forward to working with them to take forward many of the review’s recommendations.