Bank of England increases base rate to 1.25%
On the day that the FCA issued their ‘Dear CEO’ letter to over 3,500 lenders, the Bank of England announced that interest rates would rise to 1.25%. At its meeting ending on 15 June 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.25%, to 1.25%. Those members in the minority preferred to increase Bank Rate by 0.5%, to 1.5%. I think most of us are expecting a continuation of this theme further into 2022 as further inflation increases are expected, consumer confidence is falling and GDP is negative.
The June rate rise means that homeowners with a typical tracker mortgage will have to pay about £25 more a month. Those on standard variable rate mortgages will see a £16 increase. About three-quarters of mortgage-holders have a fixed-rate deal, so have not been affected immediately. These need to be factored into horizon scans for annual review of debt solutions, which are becoming increasingly complex.
Link: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/april2022 – released 13 June 2022
Food prices rises in the Summer
The Institute of Grocery Distribution (IGD) has predicted that prices will rise at a rate of 15% as households pay more for staples such as bread, meat, dairy and fruit and vegetables. Inevitably, this has prompted speculation that consumers will skip meals.
This may prompt support for the UK farming sector, where fuel prices have also seriously impacted the sector.
The Government has announced a major reform of the Consumer Credit Act
HM Treasury has announced that they plan to modernise consumer credit laws to cut costs for businesses and simplify rules for consumers.
Economic Secretary to the Treasury, John Glen said:
“The Consumer Credit Act has been in place for almost 50 years – and it needs to be reformed to keep pace with the modern world. We want to create a regulatory regime that fosters innovation but also maintains high levels of consumer protection. That’s why I have committed to undertake this ambitious long-term reform – and it’s exactly what I’ll deliver.”
The reforms will build on the recommendations of the FCA’s retained provisions report and the Woolard Review – which both made recommendations for a reformed regime. A consultation is expected to be published by the end of 2022 outlining the government’s proposals and seeking views from stakeholders on how the Act should be reformed. It is recognised that reforming the Consumer Credit Act is complex and will require substantive work to deliver the reforms. Some of this will need to be anticipated in regulating the BNPL sector.
David Postings, CEO of UK Finance, commented:
“We applaud the government’s announcement that it will reform the Consumer Credit Act. Replacing this outdated legislation with regulatory rules that are suited to the modern world is the best way to protect consumers while allowing lenders to innovate and compete. The government says it expects to consult on reforms by the end of this year which is a really positive step. We hope that the forthcoming Financial Services and Markets Bill will enable changes to be implemented as swiftly as possible.”
MAT 2021 outcomes report
Money Advice Trust has published its latest outcomes report. In 2021, MAT helped 170,420 people through its National and Business Debtline services. They helped 107,510 people over the phone and via its digital advice tool, with a further 27,430 people helped through webchat. The majority of consumers helped were on low income. Mental health was a material factor in a meaningful minority of cases. Insufficient income to cover essential payments was the primary reason for debt and deficit budgets are an increasing problem.
For the first time, energy arrears became the most common priority debt MAT were hearing about. In 2021, 23% of all clients were in energy debt, up from 16% in 2018, and this has grown further in 2022. Page 4 of the report is worth looking at from a priority arrears and unsecured debt perspective, where average debt levels on energy, utility and council tax generally reflect many months arrears.
In 2021, the Business Debtline service helped 22,740 small business owners and self-employed people over the phone with a further 12,740 helped via webchat. Worth downloading.
FCA ‘Dear CEO’ letter from 17 June 2022
DEMSA circulated a bulletin when the news was first announced by the FCA and also circulated the letter. We have also posted on LinkedIn and Credit-Connect has included the DEMSA comment:
“DEMSA welcomes the clarity of the message from the FCA and the ongoing collaboration between the lending community, debt resolution providers, debt advice sector and specialist support providers. It is clear that there is work to be done and consistency of approach for those that are financially vulnerable is important, as it is likely that they will have multiple debts with a range of creditors.
“Communicating expectations to unauthorised BNPL providers is important, aligned with the clear message of not waiting until the Consumer Duty policy rules in July 2022 to undertake reviews of current policies and practices, where embedding the FCA vulnerability guidance and inclusive design principles is important. DEMSA welcomed the opportunity to present at the Vulnerability Registration Service (VRS) webinar this week around the new BSI international kitemark – ISO 22458 on consumer vulnerability.”
The letter provides high-level guidance on expected conduct ahead of the Consumer Duty as lower-income households face a dis-proportionate impact around rising inflation. They have also reinforced expectations around embedding their Vulnerability Guidance from February 2021.
The FCA has been reviewing how lenders treat borrowers in financial difficulty, including referrals for debt advice and specialist support. They have also reminded lenders to review their approach to taking on new borrowers, taking account of the financial pressure they may face and the impact on their expenditure. This is ahead of BNPL coming under FCA regulation and they wrote to unauthorised BNPL providers as part of this communication programme.
This was timely with the DEMSA presentation this week at the VRS webinar (see below) around the new kitemark – ISO 22458 – around consumer vulnerability and inclusive design, which is pivotal to tailored forbearance.
DEMSA welcomes the clarity of the message and the ongoing collaboration between the lending community, debt resolution providers, debt advice sector and specialist support providers.
Caroline Siarkiewicz, CEO of MaPS, said:
“With the rising cost of living, we recognise that this is a concerning time for many households. It is normal to experience worries about money, but it’s better to face them rather than ignore them and there are options available to help ease any immediate concerns.
“We welcome the FCA’s letter today to lenders to ensure that those struggling or who face vulnerable circumstances are offered the support they may need and we encourage consumers to talk to their lenders as soon as they can if they are struggling to meet payments.”
Carolyn Delehanty has also posted around examples of good practice and areas of improvement. Support is going to be required at all levels to close gaps in advance of the Consumer Duty being published in July 2022 and ensuring that a lot of the Customer Experience (CX) strategy is not just rhetoric and can be evidenced as firms transition to the new principle and rules by April 2023. This will impact firm regulated firms of all sizes and those that are about to embark on the authorisation process (e.g. unauthorised BNPL providers).
UK Finance blog on affordability checks
There is an interesting blog by UK Finance entitled ‘How can lenders best assess their customers affordability during the cost-of-living crisis’. This is obviously timely given the FCA expectations around onboarding new customers and the level of AML/CDD/KYC checks required.
They have reflected that CRAs have many products to assist lenders with their affordability assessments, but they come at a cost. They have indicated that many lenders are building their own affordability models using some of the ONS data.
They have speculated that Open Banking could provide real-time insight into how price increases are impacting on disposable income, which could help make affordability models more sensitive to sharp changes in costs. Open Banking take-up is currently estimated at around 5m users in the UK, so just over 10% of the adult population, however this is expected to increase to around 60% by September 2023. I am sure many will have differing views of this and the Cerebreon story may put some interesting context to this in terms of consumers in problem debt.
Larger lenders are potentially at an advantage in untangling all these moving parts as they will have access to customers’ current account and credit card spending patterns. This should allow them to gather more robust data on how customer spending by category of goods/services has changed over the past 2 years.
By way of example, Starling has updated its Spending Insights tool to help people improve their money management skills as the cost-of-living crisis continues to reduce disposable income.
Data on Demand help Just to increase match rates and portfolio liquidation through use of alternative consumer insights
Just set out with the objective of understanding to what level alternative contact channel data sources could uplift their account resolutions in addition to their existing CRA partnership. I am sure this will be relevant to debt resolution firms and debt solution providers.
My thanks to Ken and Gillian at Cerebreon for sharing the infographic and case study (attached). This relates to income & expenditure reviews that they have undertaken for IVAs at the annual review stage. Some very interesting outcomes, notably in terms of the average uplift in disposable income when we are currently talking about reductions in disposable income because of the cost-of-living crisis.
There are also some other notable stats around how consumers engage and the penetration of open banking. I won’t say anymore to encourage you to review the case study.
As with many of the providers supporting the sector there are very interesting product developments in the pipeline around integration of external datasets and tools like income optimisation.
Debt among the over-50s
We often tend to focus on the young and the elderly, but my previous experience in the debt solution sector has been around those in the over 35 bracket (sandwich generation) where adult kids and elderly parents may still be applicable and use of credit has matured and there may be multiple credit agreements with relatively high balances, including multiple credit cards. Financial resilience may be tested by a range of life events, often concurrent events.
Sue Anderson of StepChange has talking to restless.co.uk. 33% of over-50s surveyed by StepChange said that they don’t feel confident about their financial situation and are concerned that they may not be able to cover rising living costs.
We have been featuring this over several bulletins and Chris Warburton is currently running a survey around support providers to the debt advice sector and wider creditor community that are I am trying to boost. I have tagged a few of you on LinkedIn.
Manu from InBest has also posted on this topic. This has picked up some traction.
Dan Woodhead from IncomeMax has also been promoting the good work with EDF. They are delighted to confirm £11m of additional income on behalf of EDF customers. They have been working together since 2011.
For England & Wales in May 2022 there were 1,584 Creditors’ Voluntary Liquidations (CVLs), 70% higher than in May 2021 and 66% higher than May 2019. Numbers for other types of company insolvencies, such as compulsory liquidations, remained lower than before the pandemic, although there were 4 times as many compulsory liquidations in May 2022 compared to May 2021, and the number of administrations was 95% higher than a year ago.
In Scotland, there were 93 company insolvencies, 82% higher than May 2021 and 19% higher than in May 2019. This was comprised of 19 compulsory liquidations, 68 CVLs and 6 administrations. There were no CVAs or receivership appointments.
In Northern Ireland, there were 20 company insolvencies, 2.6 times as many as in May 2021, but 50% lower than May 2019. This was comprised of three compulsory liquidations and 17 CVLs. There were no administrations, CVAs or receivership appointments.
In England & Wales, there were 2,030 DROs in May 2022, which was 33% higher than in May 2021, but 11% lower than May 2019. By contrast, there were 566 individual bankruptcies, which was 23% lower than in May 2021 and 61% lower than May 2019. The Insolvency Service commentary says that in the 11 months since the change in DRO eligibility criteria (June 2021), an estimated 7,787 individuals have had a DRO approved who would not have previously been eligible.
There were, on average, 7,812 IVAs per month in the 3-month period ending May 2022, which is 6% higher than the 3-month period ending May 2021 and 10% higher than the 3-month period ending May 2019. IVA numbers have ranged from around 6,300 to 7,800 per month over the past year.
In May 2022 there were 144 individual insolvencies in Northern Ireland, 26% lower than in May 2021 and 39% lower than May 2019. This consisted of 128 IVAs, 8 DROs and 8 bankruptcies.
There were 5,749 Breathing Space registrations in May 2022, which is 6% lower than the number registered in May 2021. 5,638 were Standard breathing space registrations, which is 7% lower than in May 2021, and 111 were Mental Health breathing space registrations, which is 136% higher than the number in May 2021.
Vulnerability Registration Service (VRS) webinar – 14 June 2022
Congratulations to VRS for a very informative and well attended event last Tuesday. I have attached my slides from the event.
The excellent ‘Jigsaw – Identification, Implementation and Integration’ webinar is on the VRS YouTube channel now, and the links for the presentations are below:
Whole webinar – https://www.youtube.com/watch?v=1k2Wfrn2Scc
- Event Introduction – Helen Lord, CEO – VRS https://youtu.be/1k2Wfrn2Scc?t=513
- Lynn Crawford, Financial Inclusion – Changing Lives https://youtu.be/1k2Wfrn2Scc?t=1761
- Katie Reynolds-Jones, Head of Marketing and Communications – GAMSTOP: All you need to know https://youtu.be/1k2Wfrn2Scc?t=2914
- Stuart Murgatroyd, CEO – Data on Demand ID.VU & VRS – an opportunity to better serve financially vulnerable customers https://youtu.be/1k2Wfrn2Scc?t=4255
- Panel Discussion – covering how different solutions providers are collaborating to ensure that supporting your vulnerable customers can be as seamless as possible. Panellists joining Helen Lord, VRS: Chris Jones, VCX; Steve Preston, Elanev; Andrew Gething, MorganAsh; Julian Graham-Rack, PrinSIX Technologies https://youtu.be/1k2Wfrn2Scc?t=5168
- Kevin Still update on ISO 22458 (consumer vulnerability) international standard-inclusive design in Financial Services, Water and Energy https://youtu.be/1k2Wfrn2Scc?t=8539
- Daniel Woodhead, Operations Manager – IncomeMax https://youtu.be/1k2Wfrn2Scc?t=9655
- Iris Quar, Services Manager – AMIS (Abused Men in Scotland) https://youtu.be/1k2Wfrn2Scc?t=10023
- Karen Perrier, CEO – Money Advice Plus & Ana Miranda, Project Manager – Surviving Economic Abuse: An introduction to the Economic Abuse Evidence Form – a pioneering tool to identify economic abuse https://youtu.be/1k2Wfrn2Scc?t=10836
- Rob Bell, Compliance Consultant – RB Compliance https://youtu.be/1k2Wfrn2Scc?t=11859
- Carolyn Delehanty, Vulnerable Customer Experience Expert – Delehanty Consulting https://youtu.be/1k2Wfrn2Scc?t=12707
- Chris Jones, VCX Vulnerability Toolkit https://youtu.be/1k2Wfrn2Scc?t=14060
The Inclusive Service Kitemark has been launched by BSI to assist vulnerable consumers. I have provided a link below to an interview with Natasha Bambridge, Global Consumer Promise Practice Director at BSI, about how the Kitemark will help protect and support consumers. Worth a read.
Chris Warburton has also featured an interview with Helen Lord around ‘Can you model vulnerability’. You can see the full video at the link below.
FOS future funding model (attached)
On 14 June 2022, the Financial Ombudsman Service (FOS) issued a discussion paper around their future funding model. This is part of their commitment to consider revisions in their funding model as set out in the Action Plan to change and improve the organisation to provide the best service for ‘customers’.
They are inviting financial services organisations, trade bodies, consumer groups and other stakeholders to provide feedback on the principles that should guide the future funding model. They are also canvassing CMCs. The paper includes sections on the levy and case handling fees. Some of the future suggestions including charging CMCs for bringing a complaint to FOS. They have also covered ideas that they are not taking forward.
Worth monitoring, especially for firms in some of sectors with higher volumes of complaints and subject to CMC activity. Responses by 5 August 2022.
Digital fraud – scam awareness
More than 40m UK consumers are thought to have been targeted by digital fraudsters so far in 2022, a double-digit increase from the same time last year.
Citizens Advice research has identified that millions more people have been targeted by scammers as the cost-of-living crisis takes hold. More than three quarters of UK adults said they have been targeted by a scammer this year – a 14% increase compared to this time last year.
The most common types of scams reported included:
- Deliveries, postal or courier services (55%)
- Someone pretending to be from the government or HMRC (41%)
- Someone offering a fake investment or financial ‘get rich quick’ schemes (29%)
- Rebates and refunds (28%)
- Banking (27%)
- Online shopping (24%)
- Health or medical (13%)
- Energy scams (12%)
I think many of us can relate to these.
Ahead of many households receiving vital government help for the cost-of-living crisis, Citizens Advice and the Consumer Protection Partnership have launched their annual Scams Awareness campaign to help people protect themselves from opportunistic scammers.
Citizens Advice has seen a range of different cost-of-living scam tactics used by scammers. These have included emails claiming to be from the regulator Ofgem asking people to enter their bank details to get the £400 energy rebate, or claiming the government is giving £200,000 out at random to people who are of pension age, disabled or on a low income.
I may be a little behind the curve on this, as the podcast with Craig Simmons from MaPS relates to May 2022. The visuals do suggest it is a good watch from the reactions of Lee Usher and Peter Wallwork. I am assured that there are more to come by Lee.
Joseph Surtees – Cabinet Office – Three lessons on policy-making forums
Joe is leaving Cabinet Office fairly shortly on a career break. Readers may find his LinkedIn article of interest. Joe currently runs the government’s debt Fairness Group. The Fairness Group is a partnership between government, consumer representatives and the debt advice and debt collection sectors. Its members include HMRC, DWP, Citizens Advice, StepChange, the Local Government Association and the Credit Services Association. Its objective is to identify where public sector debt management could be improved and work to bring that improvement about.
Arum webinars on SDRPs for both the public (11/7) and private (12/7) sector
I have provided the link from Steve Coppard, Director of Arum/Just, on their SDRP consultation webinars on 11th (public sector) and 12th (private sector) July 2022. DEMSA is registered to attend. We will have had the benefit of The Insolvency Service briefing on 21/6 by then.
The Insolvency Service briefing on SDRPs – 21 June 2022
DEMSA is attending this virtual event.
Equity, Diversity and Inclusion in energy Conference 2022 – 30 June 2022
Now in its third consecutive year, the one-day conference will take place on 30 June in person at the QEII Conference Centre in Westminster. It is free to attend and sponsored by Accenture.
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