Money Advice Update - June 2019

Money Advice Update
June 2019

FCA announces radical overdraft reforms reported by Credit Connect

The Financial Conduct Authority (FCA) has confirmed it is introducing reforms to fix a dysfunctional overdraft market. These changes will make overdrafts simpler, fairer, easier to manage and will protect the millions of consumers that use overdrafts, particularly more vulnerable consumers. In 2017, firms made over £2.4bn from overdrafts alone, with around 30% from unarranged overdrafts. More than 50% of banks’ unarranged overdraft fees came from just 1.5% of customers in 2016.  People living in deprived areas are more likely to be impacted by these fees. In some cases, unarranged overdraft fees can be more than 10 times as high as fees for payday loans.

Today the FCA has announced that it is:

  • stopping firms from charging higher prices for unarranged overdrafts than for arranged overdrafts;
  • banning fixed fees for borrowing through an overdraft – calling an end to fixed daily or monthly charges, and fees for having an overdraft facility;
  • requiring firms to price overdrafts by a simple annual interest rate;
  • requiring firms to advertise arranged overdraft prices with an APR to help customers compare them against other products;
  • issuing new guidance to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments; and
  • requiring firms to do more to identify customers who are showing signs of financial strain or are in financial difficulty, and develop and implement a strategy to reduce repeat overdraft use.

The new rules will be in force by  April 6th, 2020, apart from the guidance on refused payment fees, which will take effect immediately, and the repeat use remedies, which will come into force on December 18th, 2019.

To read the full FCA ruling click here.


FCA publishes final rules on Buy Now Pay Later products

The Financial Conduct Authority has confirmed it will introduce new rules in the Buy Now Pay Later (BNPL) market, saving consumers around £40-60 million a year. The changes will be in force by November 12th, 2019. The measures are designed to reduce the harm experienced by some consumers who buy products using BNPL credit offers. A range of firms who offer BNPL as part of their credit offers; these include catalogue credit, store cards and retailers who offer finance at the point of sale (this can be in-store or online). BNPL offers tend to include a promotional period, typically up to 12 months, during which consumers do not have to make payments and are not charged interest. However, if the consumer does not repay the entire amount within this period, then interest will usually be charged from the date of purchase. Consumers who repay part but not all of the amount owed are still charged backdated interest on that part. Typically, over a third of consumers do not repay within the offer period, incurring interest charged from the date of purchase.

The proposals confirmed today mean:
  • Firms cannot charge backdated interest on amounts of money that have been repaid by the consumer during the BNPL offer period.
  • Firms must provide better information to consumers about BNPL offers. The information should be more balanced and appropriately reflect the risks as well as the benefits of the product.
  • Firms must give prompts to consumers, to remind them when the offer period is about to end, so that consumers are more likely to repay the credit before they incur interest.
To read the full FCA ruling click here.


Consumer credit slow reported the Credit Connect

Consumer credit increased by £0.9 billion in April. The annual growth in consumer credit continued slowing, to 5.9% from 6.4% in March – its slowest rate since 2014 – as households limited spending on credit cards and cut back on finance deals. The figures highlighted as part of the Bank of England’s monthly Money and Credit statistical release on lending. The report also highlighted that net mortgage lending was £4.3 billion in April, slightly higher than the average of £3.8 billion seen over the previous six months. Mortgage approvals for house purchases hit a three-month high in April, with the number of residential mortgages approved reaching 66,300. Net mortgage borrowing by households was strong for the second month in a row, hitting £4.3bn compared with an average £3.8bn over the previous six months.
To read the full Bank of England statistics click here.


Credit Strategy reports Government consultation on powers to fine firms that “exploit” consumer loyalty

The government is exploring powers for the Competition and Markets Authority (CMA) to fine directly those businesses who have broken consumer law. Firms that overcharge or mislead their customers could face direct fines without the need to go through a court. The powers would enable the CMA to intervene earlier and more quickly to tackle these failings and would include being able to directly impose fines on firms for poor business behaviour.

This will act as a powerful deterrent to firms that are harming consumers with misleading claims, unfair terms and conditions and hard-to-exit contracts - practices that are central to many ‘subscription traps’. The government also announced that it will legislate to give regulators, such as Ofcom and the Financial Conduct Authority, new powers to stop loyal customers being taken advantage of if their existing powers are insufficient. Other proposed measures in the response include legislating, if necessary, to ensure mobile providers end the practice of charging customers the same rate once they have effectively paid off their handsets at the end of the minimum contract period.


UK Finance mortgage market data

  • There were 2,440 new first-time buyer mortgages completed in Northern Ireland in the first quarter of 2019, 11.4 per cent more than in the same quarter in 2018. 
  • Additionally, there were 1,490 new home mover mortgages completed in Northern Ireland in the first quarter of 2019, 0.7 per cent fewer than in the same quarter in 2018.
  • There were 2,820 new homeowner re-mortgages completed in Northern Ireland in the first quarter of 2019, 24.8 per cent more than in the same quarter in 2018. This is the highest level of re-mortgaging in Northern Ireland since Q1 2009, when 3,280 re-mortgages were completed.

UK Finance launches UK Payment Market Summary 2019

We have seen a rapid rate of technological change and significant innovation in payment methods that have brought ever-greater choice. Smartphones have revolutionised many aspects of modern life in just one decade, and the advent of online banking, mobile banking and contactless payments in particular have had a significant effect on how we pay for things. In last year’s report, it was highlighted that debit cards had overtaken cash as the most frequently used payment method in the UK. Throughout 2018, the use of debit cards continued to grow. The popularity of contactless payments continued to bolster this growth. Primarily as a result of the increased use of debit cards and online payments, the number of cash payments continued their long-term decline during 2018. Nevertheless, cash remained the second most frequently used payment method in the UK in 2018 and is forecast to remain so until at least 2025.
To read the full report click here.


Ofcom reports Britain's biggest broadband and phone firms to put fairness first

The UK’s biggest broadband, phone and pay TV companies have committed to put fairness at the heart of their business, after signing up to Ofcom’s new Fairness for Customers commitments. Ofcom has developed the commitments to strengthen how companies treat their customers. They aim to help ensure people are always treated fairly by their provider whether they are signing up to a new deal, trying to fix a problem or switching to a new company. All of the UK’s biggest providers have signed-up to the commitments including: BT; EE; Giffgaff; O2; Plusnet; Post Office; Sky; TalkTalk; Tesco Mobile; Three; Virgin Media and Vodafone. This covers the vast majority of broadband, mobile, pay-TV and home phone customers.
To read the Fairness for Customers commitments in full click here.


BBC reports World Bank warns of weaker global growth

Trade tensions between the US and China are weighing on global economic growth. The global economy is weakening, according to a new assessment from the World Bank. The bank said it now expects growth of 2.6% for 2019 edging up to 2.7% the following year.  The slowdown is widespread, according to the Bank's economists, affecting many countries. In January, the World Bank changed its outlook for 2019 from 3% growth to 2.9%.  China's growth is expected to continue to slow. In the three decades up to 2010 the annual average was 10% and the forecast for this year is 6.2%. That partly reflects a deliberately encouraged slowdown which the Chinese government has sought to achieve, believing as most economists also do, that the earlier growth rate could not be sustained much longer.
To read the article in full click here.


This Is Money reports Tesco Bank can't guarantee customers' home loans will be sold to an active lender, as MPs express fears over 'mortgage prisoners'

Tesco Bank has refused to guarantee that its mortgage customers will not be sold to a 'vulture fund or inactive lender' - leading to fears they could become 'mortgage prisoners'.  Some 23,000 customers were left in the lurch as Tesco Bank announced it was exploring the sale of its mortgage book after ceasing all new lending. Tesco Bank has since come under pressure from MPs to guarantee it will only sell its mortgage book to a regulated and active lender - amid fears that otherwise it would trap some borrowers on deals they cannot switch away from. Tesco Bank became the highest profile casualty of the mortgage price war last week.
To read the full article click here.


Wonga may be no longer but beware new firms looking to rip you off: Loan sharks are circling again with rates of 200%

Out of the wreckage of payday loans, a new breed of loan shark is emerging – and it is preying on the most cash-strapped and vulnerable. A Mail on Sunday investigation reveals that many short-term lenders are demanding that borrowers pay back loans with crippling interest charges. Last week, we sought to find out how much a £1,000 loan would cost a borrower from 12 lenders promoting their wares on the internet. The information was hard to find, but once uncovered the results were shocking. They reveal that borrowers are being asked to repay anything between £1,237 and £2,000 – the maximum permitted under current regulations – for a short-term loan, typically of six months. The results of our investigation have shocked some debt experts, who went on to say that such easily obtainable loans are fuelling a debt crisis among the young. They believe regulation of these loans is too lax and that the current system, overseen by the Financial Conduct Authority, is 'not working'. The Financial Ombudsman Service recently revealed that complaints about these new lenders had risen 130 per cent in one year, with many acting in 'unacceptable' ways. It said some operators were lending cash to already vulnerable, debt-ridden people, making their situation worse.
To read the article in full click here


Christians Against Poverty launch their annual report

The report demonstrates the great ongoing need. Poverty has an impact right across society - on health, relationships, children and communities.  As highlighted:
  • One in three (31%)of clients are behind with one household bill and seven in ten clients (71%) took out credit to pay a household bill or another debt
  • More than three in four (77%) said their mental health deteriorated because of debt worries.  Three in ten (31%) found their physical health suffered
  • More than four in five (86%) Northern Irish CAP clients in relationships said debt had caused arguments, causing complete relationship breakdown in about a third (34%) of cases
  • Three in ten (28%) lived without carpets and/or curtains in their home and 45% cannot buy basic toiletries.
To read the full report click here.


Credit Connect reports lenders account for 37% of NI debt judgements

New research analysis by The Registry Trust has found that lenders accounted for 37 percent of judgments, ahead of the government sector on 27 percent and housing bodies on six percent of debt judgment information in Northern Ireland during 2018. Uncategorised claimants (which include insurance brokers, debt collectors and personal claimants) made up a further 27 per cent. A total of 7,580 judgments with a total value of £11.2m were issued in Northern Ireland during 2018.  Among lenders
  • The most active claimants were Arrow Global (339) and Amigo Loans (275 totalling £1.9m). The total number of lender claims was 1,589
  • Government accounted for 1,129 judgments worth £1.3m, led by Debt Management (£599,269), part of the Department for Communities, whose 618 judgments gave it first place among all the top 50 claimants. The Registrar of Companies was second in the government sector with 412 (£346,798.)
  • Housing organisations accounted for 273 judgments, with the Northern Ireland Housing Executive responsible for 196 judgments worth £167,714.
  • Utilities made up one percent (118), led by Power NI and NI Water.
  • Leading the other claimants were Abbey Insurance Brokers with 608 (£420,740) and debt collection agency, Asset Collection Investigations on 478 (£370,414).
To view the full article click here.