Money Advice Update - October 2017

Money Advice Update 
October 2017

UK Finance

UK Finance was launched on 1 July 2017 and represents nearly 300 of the leading firms providing finance, banking, markets and payments-related services in or from the UK. UK Finance has been created by combining most of the activities of the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. The launch of the new organisation comes in response to a report by the Financial Services Trade Associations Review, which recommended consolidating the activities of six existing industry trade bodies into one single centre of excellence. 

If you would like to read more about UK Finance click here.

MAS launch the new Creditor Toolkit

The new Creditor Toolkit will promote clarity and consistency. The toolkit offers ‘how to’ operational support in several important areas including; customer affordability, debt advice referral strategies and engagement and partnerships. It recognises the commercial considerations of creditors and captures the organisational benefits of debt advice interventions.

The toolkit promotes seven steps for creditors for improved collaboration with debt advice agencies. These are:
  1. Debt advice interventions – creditors should track the benefits debt advice brings to customers, as well as their ability to collect arrears payments.
  2. Customer affordability – creditors should apply the Standard Financial Statement (SFS) spending guidelines or equivalent industry guidance when agreeing affordable repayments.
  3. Debt advice referral strategies – creditors can use this toolkit to review all customer channels and help appropriate customers to easily access independent debt advice.
  4. Creditor oversight of referral partners – creditors want to have oversight of what happens to customers post debt advice referral. Use this toolkit to agree an approach with debt advice referral partners.
  5. Engagement & partnerships – creditors have day-to-day contact with debt advice agencies. We provide guidance on getting the most from the relationship.
  6. Target specific customer cohorts for debt advice intervention – we share some examples and case studies of innovative partnership working with debt advice agencies.
  7. Align to the Money Advice Service ‘supportive creditor standards’ – we have summarised the difference between ‘Minimum standards’, ‘Good practice support’ and ‘Going above and beyond’.
 To view the toolkit in detail click here.

MAS publish the Opportunities and Challenges in the debt advice sector today report

This short report highlights some of the key findings from an extensive piece of research conducted in Spring 2017 by Revealing Reality and commissioned by the Money Advice Service. A comprehensive report will be published later in the year. The research was in-depth and qualitative, covering a wide range of different advice providers (from fee-paying to free-to-client, across different channels – including face to face, telephone and online). Researchers also interviewed advice recipients before and after they received advice, tracking their experiences over time and additionally conducted a number of follow-up interviews to explore clients’ retrospective attitudes towards, and understanding of, the support they received. 

To read the full report click here.

FCA set a deadline for PPI claims

FCA has set a deadline of 29 August 2019 to complain about the sale of PPI. If people have a complaint then their bank or other provider must receive your PPI complaint by 29 August 2019 – otherwise the complaint will not be considered. You should advise clients to act as soon as possible. Although 29 August 2019 is the general deadline for PPI complaints, people may have less time to complain about mis-selling if they:
  • received a letter from your provider about the way PPI was sold to you – most of these letters were sent between 2012 and 2015
  • made an insurance claim on your PPI policy that was rejected by the insurer
If people are unsure of how long they have to complain then advise them to ask their provider for more information as soon as possible.

For more information about making a PPI claim click here.

FCA publish High Cost Credit Feedback Statement

The Feedback Statement follows the Call for Input (CfI) that was issued in November last year. The CfI asked for views and evidence on potential areas of concern in the high-cost credit sector, including overdrafts. The paper outlines the decision to maintain the price cap on HCSTC at its current level. They will review the cap again in three years’ time to ensure that it remains effective as the market develops. Across the sector, there has been a consistent pattern of high-cost credit consumers’ credit ratings getting worse over time as they use the high-cost credit products. This will be a focus going forward. 

To read the full statement click here.

The Financial Conduct Authority (FCA) is considering bringing back retirement interest-only mortgages reports Mortgage Solutions

FCA has issued a consultation paper canvassing views on the matter, explaining what has prompted the move: “Work for our forthcoming Occasional Paper on the Ageing Population has identified a regulatory barrier to a form of mortgage lending that could meet the needs of some older borrowers; in particular, older consumers with maturing interest-only mortgages and no repayment vehicle, and those seeking to release equity from their homes without the cost of interest roll-up.” The FCA has previously classified retirement interest-only mortgages together with lifetime mortgages, as part of implementing the Mortgage Credit Directive, effectively calling both ‘lifetime mortgages’. However, it is now proposing to separate them, not least because of the different risk characteristics.
To read the full article click here

FCA investigates Vanquis

Vanquis Bank was established as the credit card issuing arm of the Provident Financial Group in 2002. Its moto is ‘Vanquis Bank – helping people repair bad credit’. Vanquis is co-operating with an investigation by the FCA into the repayment option plan (ROP) ancillary product. Vanquis is the only dedicated specialist ‘low and grow’ credit card issuer in the UK credit card market.
The FCA indicated that it has concerns about the ROP product and is investigating the period from 1 April 2014 to 19 April 2016. Vanquis agreed with the FCA to enter into a voluntary requirement to suspend all new sales of the ROP in April 2016 and to conduct a customer contact exercise, which has now been completed. Vanquis Bank has also agreed with the Prudential Regulation Authority (PRA), pending the outcome of the FCA investigation, not to pay dividends to, or enter into certain transactions outside the normal course of business with, the Provident Financial Group without the PRA's consent.
To read more about this click here.

Provident Financial sees nearly £1.7bn wiped off stock market value reports the Guardian

Provident Financial has lost two-thirds of its stock market value in a day, after the doorstep lender was hit by a “quadruple whammy” of body blows. The company, which specialises in lending to people in financial difficulty, issued its second profit warning in two months, parted company with its chief executive and cancelled a dividend for shareholders. It also announced that it is facing a regulatory probe by City watchdog the Financial Conduct Authority into the sale of a product that allowed people to freeze their credit card debt.
The rapid deterioration in Provident’s performance, less than two years after it entered the FTSE 100, comes after a botched attempt to overhaul its 130-year-old business model by cutting staff numbers and ramping up its use of technology. Provident grew rapidly in the years after the financial crisis, stepping in to offer credit to people who could not secure it from banks, as they became more wary of risky lending.
Earlier this year it announced changes to its traditional business model of sending self-employed sales agents door to door, offering loans and collecting debts. In a move to embrace automation, Crook unveiled plans to do away with its 4,500 sales agents. It replaced them with 2,500 full-time “customer experience managers”, who would be connected to head office via iPads, their time managed more efficiently thanks to analytical software. The result has been a fall in its debt collection rates from 90% last year to just 57%.
To view the full article click here.
To read Provident’s media statement on this topic click here.

UK Finance publish report on 10 years of Contactless

UK Finance report that the UK is a world leader in contactless payments. The widespread adoption of contactless in the UK was a gradual process but over the past few years contactless use has grown exponentially. In just a decade, contactless cards have gone from a niche offering to becoming the first choice payment in all kinds of situations. Consumers have embraced the speed and convenience of contactless, with many using it as the preferred way to pay for everything from commuting to grocery shopping, for purchases up to £30. Between January and June 2017, £23.23 billion was spent using contactless. This is close to the total for 2016, when £25 billion was spent using contactless cards. This, in turn, is more than double the spending in the previous eight years combined (£11 billion). One out of three card payments is contactless
To read the full article click here.

CML publish NI lending statistics

First-time buyers in Northern Ireland up 20% in the second quarter of 2017. In the second quarter in Northern Ireland:
  • Home buyers borrowed £420m, up 17% on the first quarter of 2017 and 24% compared to the second quarter last year.
  • There were 3,800 loans taken out for house purchase, up 15% quarter-on-quarter and 15% compared to a year ago.
  • First-time buyers borrowed £230m, up 15% on the first quarter and 21% on the second quarter last year. This totalled 2,400 loans, up 20% both quarter-on-quarter and year-on-year.
  • Home movers borrowed £190m, up 19% quarter-on-quarter and 27% compared to a year ago. This totalled 1,500 loans, up 25% quarter-on-quarter and 15% compared to the same quarter in 2016.
  • Remortgage activity totalled £210m, unchanged on the first quarter 2017 and on the same quarter last year. This came to 2,000 loans, down 5% quarter-on-quarter and unchanged compared to a year ago. 
House purchase lending in Northern Ireland reached its highest second quarter level since 2007. First-time buyers continue to drive that growth, out-borrowing home movers since 2010. Affordability conditions are better than in the UK overall, and are assisted by attractive rates being offered by lenders and a wide range of product choice available in the market.
To read the full article click here.

Mortgage arrears and possessions fell again in the second quarter

CML report that the number of mortgages in arrears of 2.5% or more of the outstanding balance declined to 88,200 in the second quarter of this year, the lowest level since at least 1994 when this run of data began. The total was 5% lower than in the first quarter (92,600) and amounted to 0.8% of the more than 11 million mortgages outstanding in the UK. The second quarter also saw a fall in the number of mortgages across all arrears bands, including those with the highest levels of arrears. In the same period, the number of mortgages with arrears of 10% or more of the outstanding balance totalled 25,200, down 5% than the preceding quarter. This brought a welcome end to a period of five successive quarters in which this figure had edged upwards from 23,400 in the first quarter of 2016. The number of properties taken into possession also declined in the second quarter from 1,900 to 1,800 (accounting for 0.02% of all mortgages). The total was the same as in the final quarter of last year, and is the lowest figure since quarterly data was first published in 2008.
To read the full article click here.

The high court publishes its quarterly report

During the period April to June 2017:
The high court received 892 cases were into the Chancery division, a 16% decrease on the same quarter last year (1,057), and the lowest number received during the April to June quarter since the time series began in 2007. 797 cases were disposed of in the Chancery division during April to June 2017, a 22% decrease compared to the same period in 2016 (1,023). In total 39% were chancery cases, 44% were bankruptcy cases and 17% were companies’ cases. This is the lowest number of chancery cases received since the time series began in 2007
To read the full report click here.

The BBC report that there could be no interest rises

Many economists do not expect UK interest rates to rise until 2019 despite inflation remaining above target, according to a BBC snapshot. They believe that the Bank of England's Monetary Policy Committee (MPC) will be reluctant to raise rates during Brexit negotiations. Inflation stood at 2.6% in July - well above the Bank's official target of 2%. Last week, one MPC member, Michael Saunders, said a "modest rise" in rates was needed to curb high inflation.
How do higher interest rates curb inflation?
  • Borrowing becomes more expensive, meaning consumers have less to spend, so some prices are less likely to increase
  • The cost of some mortgages rises, reducing disposable income
  • Higher interest rates also encourage saving, rather than spending 
Analysis by Andrew Verity, economics correspondent, the last time interest rates went up was 5 July, 2007. They rose by a quarter of a percentage point to 5.75%. The next month the credit crunch struck, and so began a series of cuts, down to 0.5% in March 2009. These were supposed to be emergency measures. Then came the Brexit vote, and in August 2016 the official rate dropped to a fresh record low of 0.25%. That compares to a typical range of between 5% and 13% for most of the 1990s. Emergency rates are the new normal. That carries dangers. If we hit another slump, we've run out of road; there won't be much the Bank of England can do to help by cutting interest rates.
To read the full article click here.

Lloyds Bank brings in single overdraft rate in radical shake-up

The Guardian reports that Lloyds have changed all existing charges on 20m accounts to finish in November and be replaced by flat fee of 1p for every £7 overdrawn. Lloyds say nine out of 10 customers will either be better off or see no change.  Lloyds Bank is to radically change the way it charges for overdrafts on its 20m accounts, including those at Halifax and Bank of Scotland, in a move it claims will leave most customers better off – although one in 10 could pay significantly more.  All existing charges for overdrafts will be abandoned in November and replaced with a single fee of 1p every day for every £7 of overdraft used. It comes ahead of moves expected by the Financial Conduct Authority to cap “extortionate” fees for unplanned overdrafts, which critics say can work out as bad as the fees charged by payday lenders. Under current Lloyds rules, someone who goes more than £25 over their overdraft limit is charged £10 a day, and also faces a £10 fee for every payment that is bounced, called the ‘returned item fee’. They also have to pay 19.89% interest on the balance.
To read the full article click here.

Construction growth slumps to one-year low

Sky news reports that economists warn the sector is "flirting with another recession" as a rise in new homes is offset by a fall in commercial projects. The monthly survey of purchasing managers (PMI) showed a significant decline in building works, with a reading of 51.1 for last month - down from 51.9 in July. The reading - the weakest overall UK construction performance since August 2016 - was close to the 50-point mark which shows stagnation. A reading above 50 indicates growth. Economists had forecast a figure of 52. Firms reported a lack of new orders to replace completed ventures, with residential building the only area to buck the overall trend in August. However, a robust rise in house building was offset by the marked decline in commercial projects - dropping at the fastest pace since July 2016.
To read the full article click here.