UK - ECRC Partner CfRC launches its "Credit Notes" e-briefing service for 2014/15. Subscribe to stay informed

Welcome to Credit Notes Welcome to the first edition of Credit Notes, our new forthnightly e-briefing for CfRC subscribers for 2014.  Credit Notes is designed to provide you with a regular update on the latest policy developments alongside news and comment from the Centre.  The service is available to our annual subscribers through to 31st March 2015, and is being made available on a free trial basis to our full contact list until the end of May.  If you are not currently one of our subscribers but wish to continue to receive Credit Notes throughout the year, then please check out our subscription rates and place your order here. As well as producing Credit Notes, we shall shortly be publishing our first quarterly e-journal, The CfRC Credit Report, providing more in-depth articles from the Centre and external contributors. In addition, our subscribers and supporters also receive a 10% discount on delegate fees at all our events over the next 12 months.

FCA publishes business plan and announces credit card market study

The FCA, which took over the regulation of consumer credit from the OFT on 1st April, has published its business plan for the current year, and announced that it intends to conduct a study of the credit card market to assess whether or not competition in the sector is working in the interests of consumers. The credit card study will particularly focus on the nine million people that the FCA has identified as having serious credit card debt.

According to the FCA, more than a million of those (roughly four per cent of the total number of cardholders) make 12 or more consecutive minimum payments, and 2.3 per cent do so for two years or more.

CfRC reaction to the announcement was reported in the Financial Times on 3rd April. Director, Damon Gibbons, said:

Problems in the credit card market have been long standing. When consumers transfer balances from one card to another, the pre-existing account is not closed. This increases the amount of credit available to the borrower and can tempt people to build up significant levels of debt. As a starting point, the FCA should look at placing card providers under a duty to close an account where this has been cleared by means of a balance transfer. But there is also a need to look at other ways of preventing what should be a short-term credit product from becoming a long term debt problem. That could involve setting standards for lenders to pro-actively identify long term credit card debtors and provide them with a reasonable debt repayment plan, which includes the freezing of interest. Finally, we hope that the FCA will also look at the extremely regressive way in which credit cards are priced. Free credit is being provided to those that clear their balances in full each month and the costs for this are paid for by those who do not.

Other FCA priorities in the business plan include: the suitability of advice from debt management companies; the treatment of people in debt by payday lenders, and tougher enforcement of standards in the logbook loans sector. In the mortgage market, the FCA will implement the majority of its new rules arising from its prior Mortgage Market Review from 26th April. These tougher requirements to assess affordability, and over the course of the year the FCA is committed to reviewing whether or not lenders are complying with these. The full business plan is available here.

MAS publishes business plan for 2014/15

The Money Advice Service (MAS) has published its business plan for 2014-15. The key themes of the plan are:

• On money advice, to do more to help people stop and think about money as they are going about their daily life, and to reach them at key moments when financial decisions will have a big impact on the rest of their lives. The plan contains a target for 16 million people to use the service this year, and for 4.5 million people to take 'positive action' following their contact.
  
  
• On debt advice, supporting more people in debt to take control of their lives, principally through new three year funding arrangements with debt advice partners in England and Wales. These agreements will put in place consistent standards and evaluation to improve the quality and availability of debt advice, and MAS will be working with other funders to address gaps in provision. MAS is also looking at how it can better integrate financial capability with debt advice.
  
  
• Being a leader and influencer, principally through the Financial Capability Strategy for the UK which MAS wil develop and 'co-deliver' with stakeholders across the sector. The strategy will prioritise groups who are at higher risk of detriment because of low financial capability, and the first consultation document will be published in the summer. MAS will also look to enhance the way that financial capability initiatives are evaluated in order to better understand 'what really works' in changing people's financial behaviours.

The full business plan is available here.

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Newham consults on measures to tackle payday lending advertisements

The London Borough of Newham is consulting on measures it can take to tackle payday lending advertising on Council-owned property. The consultation proposes to add payday lenders to the list of businesses restricted from Council-owned advertising space and block payday lending websites from Council-accessed internet, such as those in publically accessed libraries and community hubs.

The consultation runs until 17 April 2014 and the full details can be obtained here.

Pension rules claimed as reason for Council investment in WONGA

Last month, South Tyneside Council voted to block access to payday lending websites from council computers and to lobby the Government to provide them with the power to stop the proliferation of payday stores on their high streets. However, it has been reported that the same council also has £233,000 of its pension fund invested in shares in Wonga.

According to reports in local newspaper the Shields Gazette, the Council is unable to extricate itself from the investment in Wonga, because of local government pension scheme regulations which require it to seek the best possible return on investments and only allow consideration of social and ethical issues when they have a 'financial impact'.

Although the Pension Fund, which is administered by South Tyneside Council on behalf of four local authorities in the North East, has no direct investments in payday lenders, it does have a very small indirect holding via Pooled Investment Vehicles as part of its global private equity programme.

The revelation, alongside the previous embarrassment for Archbishop of Canterbury, Justin Welby, when the Church of England was also revealed to have unknowingly invested in the payday lending sector, demonstrates the need for greater control over pension and other investments. If, as stated, the local government pension scheme regulations do not permit the investment by North East authorities to be ended, then those rules need to be changed and local authorities should be campaigning for that to happen. Likewise, there is clearly a need for people to start to ask for more information about exactly where their pensions and savings are being invested.

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Should consumer credit firms be charged according to the 'harm' they cause?

A new Demos report ('The Borrowers') has been published which sets out a proposed 'harm index' for different types of consumer credit borrowing. The index is based on a basket of indicators suggested from interviews with debt advice practitioners, stakeholder workshops, and a poll of 2,000 members of the public. The results are not surprising, with payday loans and arrears on domestic bills featuring as particularly harmful forms of debt. However, the report goes on to make some interesting recommendations, including that:

• The Government should give borrowers a legal right to negotiate with their creditors, rather than rely on the voluntary agreement to provide a 'breathing space', which is currently contained in the Lending Code;
  
  
• There should be a 'traffic light' rating system on all credit products, which is used in their advertising; and
  
  
• The FCA should adopt a 'polluter pays' principle to the calculation of the fee that it levies to pay for money advice services from different types of consumer credit firms.

However, CfRC remains sceptical of levying the highest fees from, for example, payday lending companies, as these will often be in the least price competitive sectors of the consumer credit market. As a result they are often able (unless price capped) to pass on the additional cost of the levy to borrowers. It also ignores the fact that much of the demand for high cost and predatory products arises due to the failure of banks and other mainstream lenders to provide affordable and safer products to people on low incomes. It would therefore be preferable to rate the extent to which these are meeting the needs of poorer consumers and to link this to the level of Corporation Tax that they pay.

The full report is available here

Nottinghamshire County Council announces end of local welfare scheme

Nottinghamshire County Council has announced that its local welfare scheme, which replaced the Crisis Loan and Community Care Grant elements of the Social Fund last April, is to be brought to an end and the funding used to support the Council's Benefits Advice Team. In a letter to stakeholders, the Council cites a £154 million funding gap and rising demand for its services as the reasons behind the decision. It states that the Advice Team will work closely with District Councils to make people aware of the possibility of Discretionary Housing Payments, which may be able to assist.

However, the Independent reports that many local authorities have now exhausted their allocations of Discretionary Housing Payments. For example, Leeds City Council is reported to have spent 105 per cent of its budget of more than £2m by 12 February, and still had to turn away 2,200 people, almost 40 per cent of those who applied.

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Oxfam reports on growing wealth inequality

A new report from Oxfam highlights the growth of wealth inequality in the UK, pointing out that the five richest families in the UK are wealthier than the bottom 20 per cent of the entire population:

“That's just five households with more money than 12.6 million people - almost the same as the number of people living below the poverty line in the UK.”

Oxfam are calling for the government to 're-balance the books' by raising revenues from those who can afford it; by clamping down on companies and individuals who avoid paying their fair share of tax and by starting to explore greater taxation of extreme wealth - rather than relying on cuts to services that have a disproportionate impact on the poorest in society, some 13 million people who are currently classed as living below the poverty line.

The full report is available here.

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