It will be interesting to see what the political shake up will have on the sustainability of various government initiatives to tackle the cost-of-living crisis and a number of reforms promised in the Queen’s speech. Whether some ministers, like ‘Levelling Up’, return under new leaderships remains to be seen. The Chancellor’s role is going to be critical in this and the consistency of policy thinking and execution.
Rising energy costs continue to loom large and Anjam Sohail, Director of Sonex Financial, featured this graph in a recent post that highlights the challenges ahead for consumers, debt advisers and creditors. This remains a core theme from FCA ‘Dear CEO’ communications to both firms and to consumers.
Cornwall Insight said that the typical domestic customer was likely to pay £3,244 a year from October 2022, then £3,363 a year from January 2023. The typical bill at present is about £2,000 a year. The £3,000 household bill figure, seen by the BBC, is £200 higher than predicted by energy watchdog Ofgem in May 2022.
Water social tariffs
Manu, CEO of IE Hub, has posted on LinkedIn the enhancements to InBest platform to include calculation of water social tariffs. I have attached details of the scheme.
Andrew Clowes, Head of Customer Experience at South East Water and recent winner of the Credit Award 2022 vulnerability strategy award, has posted on LinkedIn today around their data sharing scheme around social tariffs. They have a data share from local councils telling them of customers eligible for their social tariff. They will be focusing on getting more of these data shares over the line across Hampshire, Berkshire, Surrey, Sussex and Kent. They don’t want any customer to miss out if they are eligible for our discounted scheme and neither do the councils. Andy has confirmed that it is a great message for local communities that are already being helped in Maidstone and Tunbridge Wells.
FCA portfolio letter of 29/6/2022 to Lifetime Mortgage Providers
Along with mainstream consumer credit lenders and the debt advice portfolio, lifetime mortgage providers have received a ‘Dear CEO’ letter. Many aspects are common.
They have pinpointed the sale of lifetime mortgages through an intermediary channel and the need to supervise this carefully, where the intermediary may have the primary engagement with the customer, often face-to-face. Consumer education with the product remains critical, especially around interest roll-up.
The FCA has also highlighted a trend of lifetime products being increasingly sold to younger customers and with larger median loan values. They expect providers to have effective monitoring frameworks in place to ensure these products are sold to the identified target market and are delivering positive customer outcomes.
Firms should be able to demonstrate that their customers are treated fairly, particularly given the impact of cost-of-living increases and any associated increase in financial vulnerability across the UK.
UK Finance – July 2022 economic outlook
UK Finance discusses banks helping consumers get a better understanding of their finances. They propose that both incumbents and neobanks should put the right information in customers’ hands by ramping up their personal financial management (PFM) apps, This would help empower individuals to make better financial choices.
Aligned with the FCA release covered below, UK Finance states that consumers need to speak proactively to their lenders if they have a problem. This openness is something banks should encourage. These days, a frequent area for conversations may be buy-now-pay-later (BNPL) debt, which is reported to be rising fast especially among younger consumers. This is an area for the banks to keep a close eye on as an industry to ensure we’re not encouraging problems like over-indebtedness.
My recent experience of trying to contact my insurer by telephone regarding a policy renewal has confirmed widespread views that service quality has seriously deteriorated and that digital alternatives are just not able to deal with complex queries, increasing frustration when in the telephone queue listening to messages directing you to the online portal and the virtual assistant (both of which you have tried already). These may mature over time, but the constant “your call is important to us” and “we are experiencing exceptional call volumes” sit right in the bracket of poor customer service as identified in the FCA Consumer Duty non-handbook guidance. A number of firms only have 9 months to get this right.
Government seeks views on personal insolvency framework
In the latest call for evidence, stakeholders are being asked to share their views and give evidence on the effectiveness of the UK’s personal insolvency framework. There are further discussions around the mis-selling of IVAs next week that may feed this debate.
The government would welcome responses from people who have experienced debt, creditors and their representatives, trade bodies, debt advisers and charities, insolvency practitioners, recognised professional bodies, academics and any other interested parties. Responses will help to inform understanding and identify whether reforms are needed. The call for evidence closes on 24 October 2022. This covers England & Wales only.
The review will cover fees and funding, covering the current procedures within the personal insolvency framework (i.e. bankruptcy, IVAs and DROs) and how they are working. It asks whether there are underlying areas of concern about the framework, what motivates debtors to seek one particular insolvency solution over another and are there barriers to entry to certain insolvency solutions. No doubt the costs of bankruptcy will be raised relative to the cost in other legal jurisdictions.
The number of IVAs as a percentage of overall insolvencies has been increasing steadily over the past two decades. In 2002, bankruptcies were still considered the standard debt remedy at 79.42% with IVAs at 20.58%. By 2021 these numbers had shifted dramatically with IVAs making up 74% of all personal insolvencies. For the 5 years before the pandemic in March 2020, IVAs had averaged just under 60,000 per annum.
Average dividend rate in IVAs 2018 to 2022 (source TDX Group)
Eric Leenders, UK Finance Managing Director, Personal Finance, said:
“As part of a highly-regulated sector our members work closely with their customers, and with debt charities, to provide tailored support to those facing into financial difficulty. This support always aims to help customers without the need for insolvency solutions. However, where such solutions are used, they should be accessible, understandable and fair for both borrowers and lenders. As such we welcome this review and will be happy to contribute to the call for evidence.”
Peter Tutton, Head of Policy, Research and Public Affairs at StepChange Debt Charity, said:
“We know from our clients that personal insolvency remains poorly understood, a source of potential fear and perceived stigma, and in many cases expensive to access at the outset and risky if circumstances change. We look forward to using the evidence from our client experience to help inform the review. We would see success as delivering an agreed pathway, supported by Government, towards a personal insolvency framework that works with debt advice to deliver sustainable, affordable and fair debt relief for those who need it, under a well-regulated and effective supervisory regime.”
My thanks to Dave Holland of the IPA for advising of the Q & A session on Thursday 22 September 2022 with the FCA for the restructuring and insolvency of FCA regulated entities. The FCA aim is to help advisers give informed advice and act quicker when dealing with regulated firms that are experiencing financial difficulties and help insolvency practitioners who are appointed as office holders to deliver good outcomes for all stakeholders.
- Engagement with the FCA
- Behaviours we expect to see with examples
- Schemes of arrangement and other compromises
- Treatment of client assets and customer funds
- Q&A discussion
Perhaps one for Melanie to attend as the DEMSA resident IP. I have registered.
The FCA and MaPS have announced new Chairs
Matt Hammerstein, CEO Barclays UK, is now Chair of the Money and Pensions Service’s Advisory Group, effective from 1 July 2022, taking over from Vim Maru, who steps down after more than 2 years in the role.
HM Treasury has announced the appointment of Ashley Alder as the new Chair of the FCA. He will take over from Richard Lloyd OBE, Interim Chair of the FCA from June 2022. He start in January 2023 with a 5-year appointment.
FCA and MaPS encourage consumers in problem debt to seek help
The FCA and MaPS have been encouraging consumers struggling with their household finances to seek assistance, whether this be from their finance providers or regulated debt advice providers.
The FCA commentary has been backed by a survey of 2,969 UK borrowers in financial difficulty between October 2021 and March 2022. The June 2022 report has been published as part of the press release. There is some interesting consumer feedback, especially around barriers to contacting creditors and the reasons why there are delays in engaging in debt advice. There are some useful pointers to debt advice providers. ‘What happens to my credit file’ is a recurring theme and one that I have tried to address in my credit report training where consumers are in problem debt and how the impact of debt advice and debt solutions impact someone’s future objectives.
DEMSA continues to recommend that households concerned about their current or future finances should undertake a detailed review of their finances using a number of the available budgeting and income optimisation tools. This includes the timing of monthly costs to understand where the real pressure points are and that vital direct debits/standing orders are not at risk (e.g. mortgage, rent, council tax, utilities, key insurances).
Many consumers are concerned around directly contacting their creditors before they start missing payments. They also feel defensive if creditors pro-actively contact customers when someone is near overdraft or credit card limits. Terminology like ‘persistent debt’ for people who haven’t missed payments, but only pay minimum contractual payments with a high card APR, can also alienate or delay engagement despite references to support channels on the ‘persistent debt’ letters. Examples are used where customers have contacted creditors and had their overdraft facility reduced or removed.
I would recommend reviewing the Yonder research that can be accessed from the link below.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
“Anyone can find themselves in financial difficulty, and the rising cost of living means more people will struggle to make ends meet. If you’re struggling financially the most important thing is to speak to someone. If you’re worried about keeping up with payments, talk to your lender as soon as possible, as they could offer affordable options to pay back what is owed.”
Caroline Siarkiewicz, CEO of the MaPS said:
“We know many people are currently feeling increasingly worried about money as the cost of living rises and many may turn to different forms of borrowing to help. Talking about money is more important than ever and makes many realise that they are far from alone. Taking the first step in talking about money problems can be the hardest to take but in doing so can help those get the support they need to find a way forward.”
I suspect that this research along with the refreshed Financial Lives survey data will be used to shape the regulators thinking around the services provided by mainstream credit providers and debt advice providers.
The overall message has also been picked up by The Insolvency Service, where they urging people worried about the cost-of-living or their debt payment plans to speak with their trustees, insolvency practitioners or a debt adviser. I am sure that this message is being echoed by debt solution supervisors in terms of encouraging their customers to notify changes in circumstance.
Income Payments Agreements and Income Payments Orders
If someone has an Income Payments Agreement or Income Payments Order, they can ask for a review of their income and expenses to see if they are eligible for a reduction in payments or a payment break.
If someone is paying Advantis, the Official Receiver’s collection agent, they can be contacted on:
- phone: 01782 971 404
- email: email@example.com
Dylan Jones responded to the original ‘Dear CEO’ letters.
SDRP consultation – 5/7/2022
I have attached the questions from the HM Treasury event on 5 July 2022. Slides haven’t yet been published. The session objectives were set out below. The slides have yet to be shared.
The next event is on 12 July 2022 and DEMSA is attending.
Following the FCA release during the week with the Yonder survey data, it will be worthwhile looking at general improvements to DMPs where both debt advisers and creditors are aligned.
StepChange (Phil Andrew pictures with Alison Rose) and other leading debt advice organisations met with NatWest CEO, Alison Rose, last week. As the questions from the SDRP consultation suggest, the likes of UK Finance have indicated their comfort with how DMPs operate within the current regulatory framework. There are clearly areas of collaborative improvement between now and the intended launch of SDRPs at the end of 2024.
FCA – Interest rates and risk-based credit limits in the UK credit card market
The FCA has studied variation in interest rates and credit limits using data collected for the FCA 2015 Credit Card Market Study (CCMS). The dataset covers 74m credit cards used between 2010 and 2015 – approximately 80% of the market. Their main finding is that lenders managed credit card default risk using credit limits, not interest rates. It will interesting to see what the next steps are from this release given the data probably needs to be refreshed and I suspect that the risk-based approach will inevitably link up with progress on Persistent Debt and mainstream consumer credit lender appetites for risk coming out of the pandemic with rising interest rates and a cost-of-living crisis. We may continue to see credit limits being managed downwardly for some consumer segments.
The study compares 2 credit card providers, one with a slightly more sophisticated approach to assigning credit limits based on risk profile. An individual’s credit limit depended on their credit score. They have plotted 2 lenders’ mean credit limit for each of their proprietary credit scores (to 1,000).
Consumers tended to be swayed by promotional offers and points rather than interest rates and credit limits.
The remainder of this research, to be finished later this year, estimates an economic model of the UK credit card market. The model predicts the economic outcomes from different combinations of risk-based prices and risk-based credit limits. These predictions should inform ongoing policymaking on risk-based prices in credit markets. The timing will probably be aligned with the introduction of the Consumer Duty and be aligned with fair value and consumer outcomes.
The Financial Services Compensation Scheme (FSCS) publishes its 2021/22 Annual Report and Accounts and Class Statements
Among the highlights:
- For the second year in a row, FSCS had its most productive operational performance year to date
- Approximately 132,000 claims decisions were made resulting in more than 108,000 customers being paid compensation or helped to transfer to a new investment or insurance policy
- FSCS’s total compensation costs were £584m
- FSCS recovered £16m from the estates of failed firms
The FSCS reporting should be closely aligned with the FCA position around financial resilience and wind-down planning. It sometimes feels that the content of the ‘Dear CEO’ letters (e.g. debt advice portfolio letter) doesn’t seem aligned with the evidence from the FSCS annual reports or FOS complaint reports by product type (e.g. debt advice and debt adjusting), where the complaint levels are very low and uphold rates relatively low. There were no new debt management claims in FY 2021/22.
Congratulations to Sarah Lambert and the Ecospend team at Open Banking Expo last week. Ecospend took home the award for Best Third Party Provider UK, after the judging panel agreed “it is hard to find any other organisation that’s made such an impact over the past year”. It also won in the Best Use of Open Banking by a Non-Financial Services Company category – one of 3 new categories in this year’s Awards. HMRC was also recognised as part of the collaboration.
Aveni – Consumer Duty webinar on 5 July 2022
I attended the webinar hosted by Joseph Twigg around some of the high-level challenges around the FCA Consumer Duty and Quality Assurance Frameworks.
You can access the recording here.
The recordings to the 4 events are now available. Well chaired by Chris Warburton.
Sebrina McCullough of FWG discussed Customer Engagement. Craig Hinchcliffe from Perch, Sheraz Afzal from Quint and Andrew Alder from Paylink Solutions discussed Assessing Collections Risk. Nina White from Thames Water and Peter Munro from PayPlan discussed Propensity to Pay. Dale Williams of Telrock discussed the Future of Collections Technology.
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