RESPONSE
PROPOSALS FOR A PRICE CAP ON
HIGH‑COST SHORT‑TERM CREDIT
Yvonne MacDermid OBE, Chief Executive Officer, and Craig Simmons, Head of
Strategy & Development, Money Advice Scotland
August 2014
About Money Advice Scotland
Money Advice Scotland is the national umbrella organisation in Scotland which
promotes and champions the development of free, independent, impartial, confidential
money advice and financial inclusion.
A registered charity, Money Advice Scotland was set up in 1989, and provides the
following services to its members:
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Standards and quality framework development
Qualifications
Training
Research and policy input
Annual Conference
Seminars and other events
Publications
Consultancy
Organisational audits
In terms of standards and quality framework development, Money Advice Scotland
has been at the forefront of raising standards in Scotland, and beyond. The
organisation was involved in developing a framework which underpinned the Debt
Arrangement Scheme Regulations, and gave assurance that the advice being given
to clients was of quality. The framework which was in place until 2011, the casework
of which was assessed by competent advisers who were also approved advisers
under the Statutory Debt Arrangement scheme. Due to a change in government policy
the scheme was changed.
Money Advice Scotland is an approved Centre for the delivery of Scottish Vocational
Qualifications in Advice and Guidance. It is currently working with the Institute of
Money Advisers in England and Wales to develop the Scottish version of the
Certificate in Money Advice Practice, which is near completion. Money Advice
Scotland is also working closely with the Money Advice Service in terms of the
development of a national money advice quality framework.
With regard to training of money advisers, the organisation has been using standards
to underpin its training for almost 20 years. In more recent times, the Scottish
Government in conjunction with the advice sector has developed the Scottish National
Standards in Information and Advice (SNS), and Money Advice Scotland was a pivotal
player in their development. These standards are enshrined in current training and
also help shape the Certificate in Money Advice Practice, together with the National
Occupational Standards in Advice and Guidance, and Legal advice.
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General comments
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Money Advice Scotland (MAS) welcomes the FCA’s proposed price cap,
incorporating both interest rates and all fees and charges. We believe the
proposed cap is set at the appropriate level.
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We do have concerns about consumers who are likely to no longer have
access or reduced access to this type of credit. We welcome the FCA’s
consumer research but question whether it fully captures the potential
impact on consumers. For example, consumers are unlikely to be fully upfront about use of illegal loans sharks.
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MAS believes it is inconsistent, unfair and not in the interests of competition
to have a price cap for certain credit products and not for others. We believe
consumers should be afforded the same level of protection from excessive
interest, fees and charges, whatever credit product they use.
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MAS believes progress on real-time data-sharing has been unacceptably
slow. We welcome the FCA’s comments that it will take action by November
should the industry not move this forward satisfactorily. We call on the FCA
not to be moved on this timeframe and to take strong and decisive action in
November, if required, to ensure real-time checks are taking place across
the board.
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One consequence of the price cap may be that firms start to use more
aggressive collection techniques to compensate for reduced revenue from
interest and charges. We call on the FCA to be vigilant about this risk.
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Given the likely reduction in the availability of credit, MAS recommends the
FCA, in conjunction with the Money Advice Service, undertakes a consumer
awareness programme highlighting alternative sources of credit, such as
credit unions, and alternatives to borrowing. We believe demand for this will
increase as welfare reform is further rolled-out.
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Responses
Question 1
Do you have any comments on our general approach to developing our proposals for
the price cap?
We welcome the intensive level of research that underpins these proposals; we
believe this has provided a comprehensive picture of the market. That said, given our
co-operation agreement with the FCA and our members’ experiences of dealing with
payday loan customers, Money Advice Scotland’s (and other consumer bodies’) input
on the consumer experience at an earlier stage may have been beneficial.
Questions 2 & 3
Do you have any comments on the proposed price cap structure?
Do you have any comments on the price cap levels?
MAS believes the initial cost cap of 0.8% per day is set at the correct level, as is the
cap on fixed charges of £15. This level will be effective in discouraging firms from
lending to those who cannot afford to make repayments in a reasonable timeframe.
We also believe the total cost cap of 100% is fair and protects consumers from
excessive escalation of monies owed.
We do have concerns about firms ‘gaming’ the rules by extending the periods in which
loans are repaid (and thus taking them outside of the definition of HCSTC). More
generally, we are also concerned about how firms might alter product offerings as a
response to the cap, to the detriment of consumers. For example, recent statistics from
the Financial Ombudsman show a spike in problems in a sector closely linked to
HCSTC, credit brokers. As always, the FCA should remain mindful of the risks that
emerge as a result of these changes.
MAS recognises that some consumers will, in the longer term, benefit from not being
able to access HCSTC. However, some consumers turn to this type of credit in
particularly difficult circumstances and in order to pay for absolute essentials, with very
few alternative options. This has become increasingly common in the wake of falling
incomes, rising living costs, welfare reforms and as more mainstream lenders
withdraw credit. The FCA, Money Advice Service and government must do more to
protect those at risk of illegal money lending and, more generally, poverty. Additional
support for the credit union movement may be part of the solution.
Question 4
Do you agree with our proposals on repeat borrowing?
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MAS broadly agrees with the proposals on repeat borrowing. Real-time data credit
checks is linked to this and we call for strong action in November if progress by industry
has not been effective.
We are concerned about inappropriate repeat lending which, in effect, could ‘game’
the HCSTC rollover limits. Further action / rules may be required to prevent this.
Question 5
Do you have any comments on the scope of the price cap?
MAS believes it is inconsistent, unfair and not in the interests of competition to have a
price cap for certain credit products and not for others. We believe consumers should
be afforded the same level of protection from excessive interest, fees and charges for
all products, including home-collected credit, pawn broking, log book loans, credit
cards and overdraft charges.
Question 6
Do you have any comments on our proposed Handbook rules?
MAS believes the proposed Handbook rules are appropriate.
Question 7
Do you agree with our proposals on unenforceability?
Yes, we believe that effective enforcement of the cap will be required, particularly in
the first two years following its implementation. We call on the FCA to ensure it
dedicates enough resource to consumer credit supervision generally, increasing the
fees imposed on firms to ensure this, if necessary.
Question 8
Do you agree that we should prevent UK‑based debt administrators from enforcing
HCSTC agreements on behalf of ECD lenders which include charges in excess of the
price cap?
MAS agrees with this proposed rule. The FCA and Treasury should do everything
possible to avoid online lenders from other EEA member states avoiding the price cap
rules.
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Question 9
Do you have any comments on the proposed approach to data sharing?
Real-time data sharing is crucial. We have doubts about there being sufficient appetite
within the industry to overcome the obstacles to effective real-time data sharing,
despite recent progress. It is our opinion that the FCA should consult on introducing
data sharing requirements as soon as possible.
Question 10
Do you agree with the costs and benefits identified?
No response.
Question 11
Do you agree with our assessment of the impacts of our proposals on the protected
groups? Are there any others we should consider?
Although not listed as a protected group, those who are digitally excluded may be
impacted by the reduced availability of HCSTC on the high-street. The FCA and
government should consider access to affordable credit for the digitally excluded, as
well as all other consumers.
In this particular case, however, we believe the benefits out-weigh the disadvantages
of a price cap for the digitally excluded.
Other relevant concerns
MAS is also concerned about consumer debt being sold on to third parties. When
managed inappropriately, this can result in confusion for consumers as well as
emotional hardship for those already in vulnerable circumstance. Although not true in
all cases, third parties collecting debt have been known to use particularly aggressive
collection techniques.
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