Agenda item

This report provides an update on progress made on the recommendations from the Fair Access to Credit review which were agreed by Cabinet on 4 September 2012.

Discussion:

The Committee received a report setting out an update on progress made on the recommendations from the Fair Access to Credit Review, agreed by the Cabinet on 4 September 2012.

It was noted in particular that as of 1 April 2014, responsibility for regulating the consumer credit market passed from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA). While the FCA had carried across many standards from the Consumer Credit Act (CCA) and the OFT guidance, there were significant changes for payday lenders and debt management companies, including:

• limiting the number of loan roll-overs to two
• restricting (to two) the number of times a firm can seek repayment using a continuous payment authority (CPA)
• a requirement to provide information to customers on how to get free debt advice
• requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money.

The FCA had also published a factsheet for credit unions which could be accessed at:

http://www.fca.org.uk/your-fca/documents/factsheets/factsheet-no-032

On 12 March 2014, the FCA announced that payday lenders and other high cost short term lenders would be the subject of an in-depth, thematic review into the way that they collect debts and manage borrowers in arrears and forbearance.  This review would be one of the first actions that the FCA takes as regulator of consumer credit, and reinforces its commitment to protecting consumers. This was one part of the FCA’s agenda for tackling poor practice in the high cost short-term loan market.

The FCA would also look at how high-cost short-term lenders treat their customers when they are in difficulty including how they communicate, how they propose to help people regain control of their debt, and how sympathetic they are to each borrower’s individual situation. The FCA would also take a close look at the culture of each firm to see whether the focus is truly on the customer, or simply oriented towards making profit.

Beyond this review, as part of its regulation of the high cost short term lending sector, from 1 April 2014 the FCA would also:

• Visit the biggest payday lenders in the UK to analyse their business models and culture;
• Assess the financial promotions of payday and other high cost short term lenders and move quickly to ban any that are misleading and/or downplay the risks of taking out a high cost short term loan;
• Take on a number of investigations from the outgoing consumer credit regulator, the OFT, and consider whether it should begin its own for the worst performing firms;
• Consult on a cap on the total cost of credit for all high cost short term lenders in the summer of 2014, to be implemented in early 2015;
• Continue to engage with the industry to encourage them to create a real-time data sharing system; and
• Maintain regular and ongoing discussions with both consumer and trade organisations to ensure regulation continues to protect consumers in a balanced way.

The Committee discussed the report noting the changes outlined.

Decision:

a)         The Committee noted the progress made against the actions from the review and that the legal changes put in place since the Task Group have resulted in a much stronger national regulatory regime for controlling the practices of high cost credit providers:

b)         A briefing note be provided in 12 months time providing an update as to how the new systems are operating; and

c)            Officers undertake further discussions with the Medway Credit Union as to possible ways that the Council could support its work.