The rising cost-of-living continues to dominate the headlines along with the Tory leadership elections and the heatwave. The recent news has also highlighted the rise in bogus insurance claims.
According to ONS, the largest upward contributions to the annual CPIH inflation rate in June 2022 came from housing and household services (principally from electricity, gas and other fuels and owner occupiers’ housing costs) and transport (principally from motor fuels). Aside from fuel, food and non-alcoholic beverage prices have risen by 9.8% in the year to June 2022, up from 8.7% in May 2022 and the highest rate since March 2009.
Joanna Elson CBE, CEO of the Money Advice Trust, said:
“The unrelenting rise in costs, with inflation now at 9.4%, is increasing pressure on all households, with the impact not felt equally. With further substantial energy price rises around the corner, our fear is that for people on the lowest incomes, the worst is yet to come.
“At National Debtline four out of ten people we help already do not have enough coming in to cover essential costs, with callers to our Business Debtline facing a similar challenge. And for those that do have a small amount left at the end of each month, this amount is continuing to decrease.”
The current discussions around SDRPs don’t really help identifying debt relief for those with deficit budgets or that we need to find effective strategies to engage with essential service providers (e.g. Energy) before the situation worsens where regulated debt advice providers have effective strategies for proposing repayment plans alongside existing debt remedies like DMPs.
Looks like some of the data is now available.
Pre-paid Funeral Plans
My first take on this FCA announcement around which firms are not going to be approved is that it is a sign of what is to come and this may be something that FinTechs and BNPL providers need to take careful heed of, as the time window to get a case officer appointed seems to get longer and longer. We appear to have an under-resourced regulator, but that may be one of a number of factors. I attended the FCA innovation day in July and there appears to be a gap between the vision, ambition and actuality. The link around FCA service-standards below may add context to this.
The FCA expect that only 20 funeral plan providers (out of 68 listed by the FCA) will be authorised when they take over the regulation of the sector next week (29 July 2022).
Critical third parties (CTPs)
The Bank of England, PRA and FCA (collectively the ‘supervisory authorities’) have set out potential measures to oversee and strengthen the resilience of services provided by critical third parties (CTPs) to the UK financial sector. This relates to outsourcing arrangements, notably with cloud-based providers.
The discussion paper sets out potential measures for how the supervisory authorities could use their proposed powers, which include:
- A framework for identifying potential CTPs, which would inform the supervisory authorities’ recommendations for formal designation by HM Treasury
- Minimum resilience standards, which would apply to the services that designated CTPs provide to firms and FMIs (financial market infrastructure firm)
- A framework for testing the resilience of material services that CTPs provide to firms and FMIs using a range of tools, including but not limited to scenario testing, participation in sector-wide exercises, cyber resilience testing and skilled persons reviews of CTPs
Comments are open until 23 December 2022.
The relevant sections of the Financial Services and Markets Bill (FSM Bill), which was put before Parliament on 20 July 2022, set out a proposed statutory framework for managing systemic risks posed by third parties designated as ‘critical third parties’ or ‘CTPs’ by HM Treasury (HMT). The supervisory authorities welcome the CTP proposals in the FSM Bill.
FCA Annual Report
The FCA Annual Report has set out how they have met their objectives over the 12 month reporting period. This is aligned with being a more innovative, assertive and adaptive regulator.
Amongst other things, the report covers a wide range of activities, including:
- Protecting consumers – including their work to reduce persistent credit card debt, reviewing how firms treat borrowers in financial difficulty and making Buy Now Pay Later (BNPL) terms fairer
- Developing a new Consumer Duty – this will set a higher standard of consumer protection by requiring firms to focus on delivering good outcomes for consumers
- Reducing the risk of fraud and scams – including launching a wide-reaching InvestSmart campaign, removing permissions from firms that don’t use them and robust scrutiny of cryptoasset firms applying to us for authorisation.
They focused on interventions around persistent debt rules and the general insurance sector. As a consumer, my experience is that my motor and house insurance has gone up and not down. I am also of the view that the credit card operators chose to implement the persistent debt rules in a manner that doesn’t seem aligned with the FCA’s intentions. The cost-of-living squeeze will undoubtedly begin to see evidence of this when higher credit card repayments and rising interest rates don’t seem to align with households struggling to make ends meet. Fair value under Consumer Duty must be a serious area of consideration around how interest rates are set for credit cards, where they may vary significantly from when a customer was onboarded.
They have touched on page 33 how they assessed 63 firms regarding treatment of borrowers in financial difficulty. They reviewed policies, procedures and how they tested outcomes. 78% of the firms offered some form of support and forbearance to customers who were up to date
with their credit commitments, but worried they will fall behind. This has underpinned FCA work to benefit consumers, including sustainable forbearance, fees & charges and staff training & competence. Their final findings are due later in 2022.
Regarding CP21/30 (Debt Packagers – page 34), the party line is that they are still considering responses and remain committed to making sure consumers receive high-quality debt advice and to tackling the harms caused by many debt packagers.
It seems that the FCA has issued a range of press releases around their interventions over the reporting period and one recent one includes fee capping by CMCs.
BNPL clearer terms
Following FCA intervention in February 2022, the FCA has now published details of the changes the BNPL firms (i.e. Clearpay, Klarna, Laybuy and Openpay) have made and guidance for other BNPL firms in the sector to remind them of their obligations.
StepChange, Citizens Advice, Money Advice Trust and DEMSA have all welcomed the action and cooperation by the providers, which will be important going forward with the congested regulatory agenda ahead around Consumer Duty, CCA Reform, the Credit Information Market Study and bringing BNPL under the FCA supervision.
Registry Trust publishes Q2 2022 UK & Ireland monetary judgment statistics
There were 229,580 new debt judgments processed in Q2 2022 across all jurisdictions. This was 7.3% more than during the same period last year. However, the number of monetary judgments marked as ‘satisfied’ on the Register continues to decline with a 6% year-on-year decrease.
In England & Wales, the total value of consumer and commercial monetary judgments increased 84% from £418m in Q2 2021 to £770m in Q2 2022. Scotland and Northern Ireland also saw significant increases in the number of decrees and value of debt registered in Q2 2022 compared to Q2 2021.
The number of CCJs against consumers in England & Wales has increased by 2%, from 187,910 in Q2 2021 to 192,022 in Q2 2022. The value of consumer debt has seen an increase of 55% year-on-year, from £324m in Q2 2021 to £504m in Q2 2022. The average value of consumer debt rose by 52% year-on-year, from £1,726.25 to £2,627.47.
The number of decrees against Scottish consumers has decreased by 9%, from 3,991 in Q2 2021 to 3,632 in Q2 2022. However, the value of consumer debt has seen an increase of 5% year-on-year, from £12.1m in Q2 2021 to £12.7m in Q2 2022. The average value of consumer debt rose by 15% year-on-year, from £3,043.89 to £3,502.11. Quite a marked difference to England & Wales.
The number of judgments against consumers in Northern Ireland has increased by 32% from 706 in Q2 2021 to 933 in Q2 2022. The value of consumer debt has seen an increase of 85% year-on-year, from £1.63m in Q2 2021 to £3.03m in Q2 2022. The average value of consumer debt rose by 41% year-on-year, from £2,302.60 to £3,256.96.
DEMSA attended the HM Treasury consultation event on 20 July 2022. Attendees were mainly from the debt advice sector. This was designed to stimulate discussion around the impact assessment that was published as part of the consultation document 13 May 2022.
I have made the point that we need to ensure that we are comparing the right numbers, as deficit budget cases and token payment plans need to be excluded. It really ought to be comparing onboarded DMPs (in recent history) where we top and tail some of the outliers to get a reasonable comparison and to immediately identify cases that would be ineligible for an SDRP. We can then overlay where they would probably not be advised to go on an SDRP because of expected payment problems or meaningful downturns in disposable income.
We need to be careful when looking and comparing disposable incomes between a DMP and an SDRP if the intent is to include provisions for priority repayments that would normally sit outside of the DMP and be directly negotiated with the providers (e.g. Council tax, rent arrears). The plan length for the unsecured creditors to determine the projected duration of the SDRP needs to take account of the SFS calculator that HM Treasury is proposing. Irrespective of whether The Insolvency Service is calculating the final distributions, the debt adviser needs this data to explain the projected duration where this in all probability will be different to the DMP figure. If we have StepChange and PayPlan both reporting priority debt in around a quarter of advised cases (again we need to smooth out obvious ineligible cases) then we need to project where there will be provision in the disposable income for an SDRP.
CAP has been fairly vocal that only a minority of cases would look like being suitable for an SDRP (i.e. less than 5%). The CAP figures are simply based on their demographics and fairly apparent from their yearbook (‘on the edge’). CAP has confirmed that they routinely include priority debts in their DMP proposals. They have expressed a concern that the arrival of the SDRP may cause some priority creditors to review this position for DMP proposals as opposed to SDRP submissions received via The Insolvency Service hub.
PayPlan has also indicated that they see this as a minority of cases based on current criteria and would probably see the SDRP as useful where a DMP runs into difficulties and has problematic creditors where the protection is useful.
DEMSA has expressed concern that the opening figures for 2025 are likely to be significantly overstated in terms of SDRPs volumes, especially when looking at the total expected volumes of DMPs in 2022 and that disposable incomes are likely to be under pressure going into 2023 and 2024. I am not sure that DMP volumes are keeping pace with IVA volumes at present at over 7,000 cases per month. For many of the firms, the average opening debt level divided by disposable income is closer to 10 years than 7 years before we include the eligible priority debts.
DEMSA has confirmed that we need a re-project on debt advice demand into 2023, which is of particular significance with the MaPS Lot1 award intended for September 2022.
Some of the system changes costs are estimated to be very significant relative to the size of the firms involved (i.e. those planning to administer SDRPs) and dis-proportionate to the volumes expected for their respective organisations. Taking referrals from those that don’t provide ‘continuing money adviser’ roles (e.g. National Debtline, Citizens Advice) also looks problematic. Aside from the set-up costs, there was a consensus from those administering DMPs that SDRPs will be more expensive to administer.
We should not underestimate the business readiness costs, not only training and QA, but a number of other factors where advisers may be uncomfortable with some of the new requirements identified during the consultation like the revocation obligations and requests for new credit during the course of the SDRP. Firms may look at the impact on complaint levels and how all of this is overseen between the FCA, FOS and The Insolvency Service. Clarity around oversight has been sought by UK Finance at 2 of the workshop so far.
Happy to hear any views as we start to complete the consultation responses. I have a number of calls next week with providers and system providers.
StepChange Breathing Space report
A fairly timely report from StepChange around their experience of the first year of breathing space where they have drilled down to look at the differences between consumers using breathing space and those that didn’t. There seem some interesting results that may provide useful input to the SDRP consultation, notably those with priority debts and/or facing enforcement action.
I have snapshot this from the report, which can be accessed from the link below. I am hoping to catchup with Peter Tutton next week. Some of the disposable income figures below highlight my point above around being very clear as to which consumers would be considered for an SDRP and what the disposable income for this group would be. Simply dividing £88 into £10,899 suggests the average DMP would be over 10 years. I am sure that this is not the case. The average disposable income figure we have used is closer to £150 and an opening debt figure of closer to the £18,354 used in the impact assessment, where we had variations either side of both metrics (e.g. DI in range from £110-£200, opening debt from circa £11,000-£20k+). The figure still comes out at around 10 year average projection for cases that aren’t deficit or token payments. DEMSA has highlighted the differences between DAS/DPP in Scotland and this was submitted to HM Treasury in early July.
As part of the SDRP consultation, DEMSA has posed the question as to why there aren’t differences in process between someone who has accessed breathing space and someone that hasn’t. Interestingly, StepChange make the point that 1 in 4 clients using breathing space said that a debt solution was not in place by the time their 60-day period had expired, and 2 in 5 saying 60 days wasn’t long enough for their situation to stabilise and to make progress with their debts. They agree that there is a need to understand impacts across the sector and consider recommendations for improvements to the scheme as part of the consultation process and ongoing dialogue with HM Treasury, the FCA and The Insolvency Service.
As previously reported, there were 69,613 Breathing Space applications in the first 12 months from May 2021 and StepChange delivered 46,050 of these applications.
Data Protection and Digital Information Bill
The Data Protection and Digital Information Bill was introduced to Parliament on 18 July 2022 following publication of the government’s response to the Data: a New Direction consultation. This primary legislation will harness the post-Brexit freedoms to create an independent data protection framework.
The ICO also launched its strategic plan 14 July 2022 and John Edwards’ opened the Data Protection Practitioners’ Conference 2022 on 19 July 2022.
They have set out a commitment to safeguard the information rights of the most vulnerable people, including regulatory work around AI-driven discrimination, the use of algorithms within the benefits system and the impact of predatory marketing calls.
I enjoyed the Collaboration Network virtual event last Thursday (21/7). Having spoken with Chris Fitch earlier in the week from his shed (best signal apparently), I think that I could recognise it in the background with the blurring on in his excellent keynote delivery. He posed a number of very important questions relative to the FCA Consumer Duty (which we expect to be published next week) and ‘knowing your vulnerable customers’. He majored on the FCA emphasis around outcomes and he looked at how the 6 TCF outcomes (under PRIN 6) will evolve under the new PRIN 12, where some of his questions will form part of the gap analyses that regulated firms are currently undertaking in advance of the new policy notice. Helen Lord, VRS, and Stuart Murgatroyd, Data on Demand, discussed their new collaboration and how this can enhance vulnerability assessments at a number of stages in the customer journey, including marketing.
I attended the FCA Innovation Day on 13 July 2022. The recordings are now available.
Elifinty, a debt management advice fintech provider and DEMSA affiliate, has joined forces with health equity non-profit ‘Impact on Urban Health’ and ‘Fair Money Advice’ to establish a financial resilience hub to help those most affected by the ongoing cost-of-living crisis. The partnership will create both a new innovative and accessible online hub and provide in person trusted advice through its community of expert debt advice partners transforming the debt advice and resolution experience in a compassionate tailored way for those most affected by the cost-of-living crisis.
Maysam Rizvi,CEO, Elifinty said:
“We set up Elifinty to help individuals and households struggling with debt, so we are excited to be developing a partnership with Impact on Urban Health to support communities in Lambeth and Southwark. Our aim is to revolutionise how people engage with their money and help them navigate the harsh challenges ahead. This collaboration is an important step on that journey.”
BSI webinar on consumer vulnerability (ISO 22458) – 26 July 2022
Join me at the webinar focusing on the BSI Kitemark for Financial Services and the benefits it can bring to your firm, your stakeholders and your customers.
Led by Natasha Bambridge, the agenda will cover:
- An overview of ISO 22458: Consumer Vulnerability and how it underpins the FCA drive to Treat vulnerable customers fairly
- Overview of the BSI Kitemark Inclusive Service for financial services and how this will benefit regulated firms
- A deep dive into BSI’s approach for testing outcomes and MI aligning to:
- FCA FG21/1 Guidance for firms on the fair treatment of vulnerable customers
- The new FCA Consumer duty
- How you can be part of the shaping group who are first to achieve the Kitemark
Register your place https://attendee.gotowebinar.com/register/6346333160916310540
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