Money Advice Update February 2015

Financial Conduct Authority (FCA) Update


FCA agrees card protection redress


The Financial Conduct Authority (FCA) has brokered an agreement with 12 leading card protection providers for approximately 2m customers to claim back compensation. The scheme needs to be voted on by eligible customers and formally approved by the High Court before compensation can be paid.


A majority of customers who vote will need to do so in favour of the scheme for this to happen, meaning compensation is expected to be paid later this year. About 2m customers will receive an initial letter from a company called AI Scheme giving more information about the process. AI Scheme has been set up to promote and deliver the scheme.


The six products that can be claimed on are Card Protection, Sentinel, Sentinel Gold, Sentinel Protection, Sentinel Excel and Safe and Secure Plus.


For further information on the scheme and who the 12 provider click here


Price cap for high-cost short-term credit firms comes into effect by FCA


On 2 January 2015 the price cap on high-cost short-term credit came into effect. People using payday lenders and other providers of high-cost short-term credit will see the cost of borrowing fall and will not have to pay back more than double what they originally borrowed.


There are three elements to the price cap:

  • An initial cost cap of 0.8% per day - interest and fees charged must not exceed 0.8% per day of the amount borrowed.
  • A £15 cap on default fees - if borrowers default, fees must not exceed £15. Firms can continue to charge interest after default but not above the initial rate; and  
  • A total cost cap of 100% - borrowers must never pay more in fees and interest than 100% of what they borrowed.


For more information click here



Debt management firm Harrington Brooks to pay redress to 4,500 customers


FCA has announced that Harrington Brooks will voluntarily pay over £185,000 in redress to over 4,500 customers after communications from the firm to creditors on customers’ behalf were delayed. Harrington Brooks is the first debt management firm to agree a redress package since the FCA took over responsibility for regulating the sector on 1 April 2014.


In September 2014, Harrington Brooks advised the FCA that communications with some customers’ creditors had been delayed, meaning customers may have been left with the impression that the firm had been in contact with creditors when it had not. The delay resulted in some people owing more in interest and charges than if the firm had contacted creditors sooner.


Harrington Brooks will write to affected customers to explain the situation and advise them of any redress that is due. Customers do not need to do anything, and should wait to be contacted by Harrington Brooks.



Credit card market study


In November 2014, the FCA has published the terms of reference for a credit card market study. The FCA announced the market study in April 2014 after its own research showed that the credit card market was not working well for some consumers.


The credit card market is one of the largest consumer credit markets that the FCA regulates. 30 million consumers have a credit card, accounting for £56.9 billion of outstanding debt.


The market study will enable the FCA to build a detailed picture of the retail credit card market, and will focused on, but not limited to, the following issues:


  1. How easy it is for consumers to shop around, compare cards and find one that best meets their needs. This includes:
    • the extent to which consumers drive competition by shopping around and switching
    • product complexity
    • transparency and fairness of terms and conditions
    • behavioural drivers

  2. How firms recover their costs across different cardholder groups and the impact this has on the market, for example whether certain customer groups are disadvantaged, the impact on innovation or whether it prevents new products coming to market.
  3. Unaffordable lending and whether particular groups of consumers are over-borrowing or under-repaying their credit card balances and the possible reasons for this, considering the best interests of consumers.



The Council of Mortgage Lending (CML) highlights things to look out for in 2015 and areas of concern


CML states that last year seen improvements in the mortgage lending industry and it was the first full year of market recovery. So, what does 2015 have in store for lenders?


  1. Preparing for higher interest rates

Despite the sharp decline in the Consumer Price Index earlier this month, 2015 could be the year in which interest rates increase. Many commentators now do not expect this before November at the earliest.  Encouragingly, the Bank has signalled that once rates do begin to move upwards, the pace of increase is likely to be slow and measured. It also expects that, after a series of gradual increases, rates will settle at a lower level than before the financial crisis.


  1. A general election in which housing will be a key issue

Publication of the manifestos may be three months away, but it is already clear that for each of the main parties housing will be a key issue in the forthcoming general election. There is a strong possibility that the forthcoming election will produce not only a second successive coalition, but one in which a range of smaller parties are supporting a future government. So, future housing policy may also be shaped by proposals from the Scottish Nationalist Party, Ulster Unionists, Plaid Cymru, the United Kingdom Independence Party and the Greens.


  1. Planning for the European mortgage directive

Last year, the regulatory agenda was dominated by implementation of the Mortgage Market Review (MMR). In 2015, however, the focus will be on introducing the European mortgage directive.  The directive has to be implemented across Europe on 21 March 2016, and this is an immovable deadline and there is unfortunately potential for the directive to cause considerable disruption for lenders and their customers. 


  1. A review of the MMR – and other reviews

FCA is currently carrying out athematic review of the MMR, initially focusing on mortgage advice and distribution and in the second half of the year it will review responsible lending.

Other areas for potential review include, interest-only mortgages and banking and capital reform, including the impact of proposed reforms on the cost and availability of mortgages.


  1. The reform of pensions

In April, a major reform of pensions comes into effect, allowing many of those aged over 55 to take their pension pot as a cash lump sum.  A far-reaching debate has already started about what people may do as an alternative to taking out an annuity; but there will surely be consequences for the housing market. 

It is clear than 2015 will be a year of major opportunities and challenges for lenders. CML discuss some potential developments that firms hope will not disrupt mortgage markets.


  1. Greater fragmentation of markets and government schemes

With the forthcoming general election and given the drive towards greater devolution, there is also potential for an extended range of measures targeted at markets in different parts of the UK.


  1. Fresh problems in the eurozone

There are concerns about the stability of currency markets and risks of deflation in the eurozone. The revival of the UK economy over the past two years has coincided with improved household confidence and stronger employment. The short-term picture for the UK is resilient, but with risks from a deteriorating global economy this has the potential to reduce UK growth and affect consumer confidence, with consequences for housing and mortgage markets.


  1. Stumbling progress towards a more coherent, joined-up housing policy

CML support the broad aspirations of all the main parties to increase housing supply, but they would also like to see more progress towards the development of a co-ordinated approached to housing policy. 


To read the full article client here



25% more first-time buyers in Northern Ireland in third quarter than a year ago


New CML data on the characteristics of lending in Northern Ireland in the third quarter of 2014 show the market has had significant growth in first-time buyer and home mover activity compared to the same period in 2013.


Quarterly highlights:

  • First-time buyer loans totalled 2,000 in the third quarter in Northern Ireland which is an increase of 25% from 2013.
  • There were 1,500 home-mover loans in the third quarter, up 15% on the second quarter and up 36% on the same quarter in 2013.
  • Re-mortgage lending in Northern Ireland declined quarter-on-quarter by 15% and declined by 8% in number of loans compared to Q3 2013. 



Insolvency Changes in England and Wales


The Insolvency Service in England and Wales has announced plans to enable easier access to debt relief for financially vulnerable people. The consultation took place in autumn 2014, both Debt Relief Orders (DROs) and Bankruptcy rules were reviewed.

The changes which will come into force on 1 October 2015 include:

  • Bankruptcy creditor petition level to be increased to £5,000 from £750
  • DRO limits raised to £20,000 enabling some 3,600 more people with low level debt to use DROs instead of the more expensive and onerous bankruptcy process
  • DRO asset limits raised to £1,000, plus a vehicle (worth not more than £1,000)
  • The maximum surplus income a person can have to qualify for a DRO will remain at £50 per month
  • A light touch monitoring of the intermediaries to maintain consistency


The NI Insolvency Service has indicated that they will implement the same changes in line with England and Wales.



Debt judgment trend worsens in 2014 by Trust online


The number and total value of small claims debt judgments in Northern Ireland increased in 2014, against the trend of recent years. By contrast the number and total value of High Court judgments fell further.


The number of default and small claims judgments increased one per cent to 8,621 last year, following three consecutive years in which the number decreased. There were still significantly fewer judgments than in the recent peak year of 2010, when there were 11,220.


Commenting on the statistics, Malcolm Hurlston CBE, chairman of Registry Trust said: “Although judgments are only up one percent, the reversal of the trend gives cause for concern that the NI economy is less robust than elsewhere in the UK. It will make sense to watch developments closely.”



Lending Standards Board announces independent review of the Lending Code


The Lending Standards Board (LSB) has announced that Professor Russel Griggs OBE has been appointed to undertake an independent review of the Lending Code.


The review will seek comments from all interested stakeholders on the content of the Code which sets standards of good practice in relation to personal unsecured loans, credit cards and overdrafts and lending to micro-enterprises. It is expected that a revised Code will be published in autumn 2015.


For further information click here



New service from Experian ensures fair treatment of those in debt


Experian® announced the launch of the Experian Collections Bureau, a new service designed to ensure that customers are treated fairly and responsibly, and allowing lenders to manage individual cases of customer debt with a personalised approach.

To date, most lenders only have a limited view of their customer’s overall financial situation. The Collections Bureau will allow lenders, for the first time, the ability to match their own customer data against a database of records from multiple partners, including credit reference agencies and debt collection agencies (DCAs). It will give lenders a unique insight into how many of their customers have existing debts with other creditors, which customers already have established relationships with DCAs or debt managers, the status of that relationship and who may need additional guidance in their repayment plans. This helps to create a much more holistic view of an organisations customers and their financial situation.

By combining these internal records, lenders not only ensure customers are being treated fairly throughout the collection process, but it also means that debts can be consolidated and managed via a single point of contact for customer repayments. This not only makes debt repayments easier for customers to handle, but also means that customers are not being unnecessarily contacted by a number of different organisations, reducing stress and improving their overall service experience.


For further information click here



One in four consumers worried about availability of credit


New research commissioned by My Credit Monitor, reveals a concerning picture of Britons’ understanding of credit management. The study, compiled in partnership with research specialists Conlumino, discovered that:


  • only 20 per cent of the British public know their credit score,
  • half (49.9%) admitted not knowing what to do if there was an error on their credit report,
  • almost 80% don’t know the length of time that personal information is held on their credit profile.
  • a large majority of Britons (88%) know what a credit profile is and have reasonable understanding of what a credit report is, however consumers lack understanding on how best to act on the information to improve their credit status and would greatly value more help and assistance from their bank. This lack of consumer knowledge means usage is infrequent with only 25% of people having looked at their credit report in the last year.
  • Alongside the low level of awareness about managing their credit profile, one in four Britons – rising to 40% of 25-34 years olds – are concerned about being able to access credit, despite the economy’s recovery over recent years.


The research reveals there is a considerable appetite from consumers to know more about managing their credit profile.



One in three UK adults believe that smartphone payments will outpace credit and debit cards by 2020


A new study published by Experian reveals that a third of the UK population (33 per cent) believes credit and debit card payments will no longer be the preferred method of payment in 2020, as paying with a smartphone will take over.


The Banking Moving Forward study provides a valuable insight into what expectations individuals have of lenders and how they view the financial landscape. It examines how people bank now and how they expect to bank in the future, and is a useful guide when developing services that meet the needs of their customers.


The findings show that while cash and card payments still dominate, people believe that alternative methods of payment such as smartphones will become more widely used over the next five years. In this timeframe, 67 per cent of respondents feel cash will decrease in popularity, while two in five (41 per cent) think there will be a decline in the use of credit and debit cards as they currently are.


However the main reason smartphone payments are not currently the preferred method of payment is a fear of fraud. Almost half of people surveyed (46 per cent) fear their identity may be stolen online. When asked about how other forms of payment could fare, four in five (80 per cent) said that secure online payment platforms, such as, for example, PayPal, that let people shop using their debit card, credit card or bank account without sharing their financial details will become more popular by 2020.


To read the full report click here



An Action Plan on Problem Debt by StepChange


StepChange recently published their action plan to highlight how government can reduce the social cost of problem debt.  They found that 6 in 10 Britons believe politicians should do more over the coming five years to help people like them stay out of financial difficulty.


Greater investment in free debt advice is key to helping deal with some of the social costs of problem debt. They set out six actions that the next Government can take to help prevent people from falling into problem debt, and offer more support to help people already in problem debt get back on their feet:


  1. Ensure that every family has £1,000 in savings to cover a sudden cost or income shock;
  2. Ensure all low income households can access low cost credit products;
  3. Scale up free debt advice so that it reaches the 1.4 million people who urgently need advice but aren’t getting it;
  4. Ensure everyone dealing with their problem debt gets the protection against interest, charges, enforcement and collections they need;
  5. Protect children and families from the harm of aggressive debt collection practices;
  6. Ensure debt solutions are fit for purpose, and do not have a disproportionate impact on people’s life chances.


To read the full report click here