A creditworthy approach from the FCA – but a bigger dilemma remains

cp17-27The Trust’s policy manager Meg van Rooyen considers the FCA’s recent consultation on creditworthiness, and the urgent need for public policy solution on affordable credit.

Today sees the close of the FCA’s consultation on its rules for assessing creditworthiness in consumer credit lending.

Here at the Trust, we have responded positively to the approach the FCA is taking in many ways. For instance, we support the regulator’s approach to clarifying the meaning of affordability and to make the definition explicit within the rules, and it is also welcome that the FCA is to make it clear within the rules that creditworthiness includes both the risk to the lender and affordability for the borrower.

There is a big dilemma here, however, for anyone who is concerned as we are about the huge problem of financial exclusion in the UK. There needs to be a balance between sensible requirements on lenders to assess affordability and the risk that more people on lower incomes will lose access to credit.

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Thoughts on the FCA’s credit card proposals

As this week’s Bank of England figures show, credit card balances continuing to surge, the Trust’s policy manager Meg van Rooyen reviews the Financial Conduct Authority’s new proposals on persistent debt and early intervention.

The latest lending figures from the Bank of England, out this week, show credit card balances are continuing to grow by half a billion pounds each month. With consumer credit across the board surging by 10 per cent a year, here at the Trust we continue to be concerned that many households are leaving themselves exposed to financial difficulty if their circumstances change.

Persistent credit card debt is a key feature of the UK’s household debt problem, with the FCA finding 1.6 million people repeatedly paying only the minimum payments on their credit cards.

In April 2017, the Financial Conduct Authority (FCA) made a series of proposals to address the issue of persistent credit card debt, as part of its overall package of remedies from its credit card market study.

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High hopes for the Goods Mortgage Bill – but the FCA should act now

shutterstock_258751613The Trust’s Policy Manager Meg van Rooyen looks at the new Goods Mortgage Bill included in the Queen’s Speech.

In an eventful few weeks at Westminster – to say the least – a new piece of legislation appeared in the Queen’s Speech designed to tackle a long-running cause for concern in the advice sector.

Why reform logbook loans?

Bills of sale are commonly used to secure a “logbook loan” on goods you already own, usually your car. This is a form of high-cost lending that has been a source of considerable problems and caused substantial consumer detriment. Based on legislation that dates back to the 19th century, bills of sale are an archaic lending vehicle with obscure and complex rules that has no place in a modern society. The lending products offered using bills of sale are both oppressive and enforced unfairly and the advice sector has repeatedly raised concerns about logbook loans. It seemed particularly unfair that people who have innocently bought a second hand car with no knowledge of an existing logbook loan attached to the car, can still lose the vehicle.

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Freedom at a cost? Challenges for the debt advice sector in the new pensions landscape

shutterstock_355590383The new pension freedoms which came in from April 2015 are proving to be quite a challenge in the debt advice world.  All those people over 55 with a defined contribution pension can now access their pension savings in various ways.  People can now take 25% of the pot as a one-off tax-free lump sum and choose how to invest the rest of the pension pot with no requirement to take out an annuity.  This poses the question, should we ever advise people to use their pension to pay back their debts?

The implications for debt advisers need to be given careful thought.  In the free debt advice sector, we are authorised by the FCA to offer debt advice to the public, usually under the limited permissions regime.  We are not generally authorised to provide financial advice about ‘retail investment products’ such as pensions.  We can provide generic guidance about pensions but cannot go any further.

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Time for statutory Breathing Space?

shutterstock_163433831Meg van Rooyen considers the possibility of a scheme for England and Wales, along the lines of the Scottish Debt Arrangement Scheme, to provide a statutory breathing space for people with financial difficulties. This article is reproduced on Thoughts from the Trust with permission of Quarterly Account, the journal of the Institute of Money Advisers.

Where people in debt ‘do the right thing’ by engaging with their creditors, make affordable offers of payment using the CFS or SFS, CASHflow, or a recognised equivalent and maintain regular payments, they should get protection from further enforcement.  This currently does not take place unless people enter a formal debt remedy such as an IVA, administration order, debt relief order or bankruptcy.  Even where a formal debt management plan is in place, there is no guarantee that creditors will accept the offers made or freeze interest and charges.  There is no protection against any creditor who forms part of the plan from undermining its effectiveness by taking further action, typically by issuing a claim in the county court.

The primary objective in providing a suitable remedy in relation to a temporary change in circumstances is to provide for a mandatory freeze on interest and charges and a moratorium on enforcement action.  This would allow people time to seek support, source an appropriate debt option and most importantly prevent their situation from getting worse.

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Reviewing the Consumer Credit Act – a debate that’s dry, but absolutely vital

CCA 1974After recent figures showing yet more growth in consumer credit, and last week’s cut in interest rates, it seems a good time to share my thoughts on the piece of legislation that underpins much of the borrowing that takes place in the UK.

Since responsibility for the regulation of consumer credit moved from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA) two years ago, the FCA has had some high profile successes in tackling this new brief – not least its intervention in the high cost credit market through the payday loan cap.

Some of its other work, of course, is less headline-grabbing, but every bit as important.  In no area is this more true than its review of the Consumer Credit Act (CCA).

This review came about during the transfer of consumer credit from the OFT, at which point the Treasury required the FCA to carry out a review of whether to keep the remaining provisions of the CCA or replace these with FCA rules.  The review will report back by April 2019, and is a hugely significant piece of work.

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Why the FCA must regulate insolvency practitioners and lead generators

shutterstock_355590383There has been much discussion in the world of credit and debt about what the debt advice landscape will look like after the FCA authorisation process is completed.  It is possible that many fee-charging debt management companies will be permanently removed from the market.  This is to be welcomed if future consumer detriment is prevented as a result.

However, we are concerned that there is a very real chance that a new regulatory gap in the market is opening up instead.

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A full and final end to questionable debt management models?

MoneyThe collapse of Compass (R M R Financial Services) debt management company has been much in the news. This has had a huge impact on their clients, many of whom thought they were paying off their debts but have in fact lost thousands of pounds and are left devastated.

Full and final settlement debt management models

This model appears to work by the company offering creditors low or token payments whilst the rest of the client’s available income goes into a “savings pot”. The intention is that the saving pot is built up to be used in future to make offers to creditors in full and final settlement of the debt.  While the pot is building up, which can take years, the client pays considerable monthly fees to the company. Read more