Page 2 Contents

Page 3 Introduction / About the Money Advice Trust

Page 4 Introductory comment

Page 5 Responses to individual questions

The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle

their debts and manage their money wisely.

The Trust’s main activities are giving advice, supporting advisers and improving the UK’s

money and debt environment.

We help approximately 1 million people per annum through our direct advice services and by

supporting advisers through training, tools and information. We give advice to around

200,000 people every year through National Debtline and around 40,000 businesses through

Business Debtline. We support advisers by providing training through Wiseradviser,

innovation and infrastructure grants.

We use the intelligence and insight gained from these activities to improve the UK’s money

and debt environment by contributing to policy developments and public debate around

these issues.

Please note that we consent to public disclosure of this response.

We welcome the opportunity to comment on the FCA proposals in response to the CMA recommendations on high cost short term credit. In summary:

We are not convinced that price comparison websites will have a particularly beneficial effect for the high cost short term credit market as there is limited evidence that consumers shop around.

We have argued in our response to the CMA1 that if there is to be a price comparison website put in place then we would suggest that this should be seen as completely independent from the payday industry and seen as providing impartial, accurate information. We also suggested that the comparison site be provided by the Money Advice Service (MASe) as they are set up by Government and can demonstrate that they do not receive commission or any incentives for products. Such a website would need substantial promotion and advertising to have the hoped for effect.

All lenders that offer products that meet the definition should be required to

participate. We cannot see the point of the website if it is made optional for lenders to participate.

The websites should also clearly display a strong health warning about the risks of

payday lending with the FCA payday warning as a minimum and include clear signposting to sources of free, independent debt advice.

We have set our responses to the individual questions below.

1 Our response to the CMA market investigation into payday lending notice of possible remedies July 2014

http://www.moneyadvicetrust.org/SiteCollectionDocuments/Policy%20consultation%20responses/Unilateral%20responses/Money%20Advice%20Trust%20response%20to%20the%20CMA%20investigation%20into%20payday%20lending%20draft%20remedies%20consultation.pdf

We have long been concerned that the price comparison website (PCW) proposals will lead to too many products out there that will only serve to confuse consumers. We favoured the option that was unfortunately discounted by the CMA to establish one official FCA authorised PCW. This option would mean a restriction on other companies, preventing them from offering a PCW service. Having said this, we agree that FCA authorised PCWs which meet a set of minimum standards, will go some way towards improving the current situation for consumers as there are clearly concerns that standards are currently low. We would suggest that the FCA keeps the effectiveness of this strategy under regular review to ensure that the desired outcomes are achieved. In particular, there should be regard to whether there is evidence that consumer behaviour has changed and shopping around has increased. Given that the FCA is going for the option of multiple authorised PCWs, it would be sensible to catch as many companies as possible within the rules. We agree that there is no reason to exclude a firm who is offering a PCW which does not permit consumers to search for, re-order or rank products or personalise the results. It would be difficult for consumers to know that this service was different in essence from the FCA authorised PCWs so it is vital that all such firms come under the rules. It is important that all firms claiming to be a PCW operate according to the same standards. The website should also clearly display a strong health warning about the risks of payday lending with the FCA payday warning as a minimum and include clear signposting to sources of free, independent debt advice.

We strongly support the proposal to prevent PCWs from displaying information about HCSTC products on the basis of their own commercial relationships with the companies. It is clearly not desirable to allow PCWs to present a sub-set of companies offering loans to consumers where the PCW receives commission. This lack of transparency in the energy market is a source of consumer detriment that should not be repeated in this market.

We are concerned that the FCA does not propose to prescribe the format of the search results for PCWs. It appears to us that this is a market that is susceptible to unscrupulous lenders and brokers misrepresenting information to the potential detriment of consumers. We would support a much more prescriptive role for the FCA to ensure that the risk of consumer detriment in this area is minimised. We cannot comment on the effectiveness of the proposal that that there will be no requirement on firms to include payment structure such as the number of instalments into the PCW. It remains to be seen as to whether consumers will find a search based on value and duration of loans to be sufficient. This decision should be subject to review if it is found that consumers do not have adequate information to make a choice without further search criteria being put in place.

We support the proposals to rank the results of searches in ascending order of price according to the Total Amount Payable. This seems sensible if it has been demonstrated to have a positive impact on consumer choice.

We agree with the FCA proposals on additional advertising. It is clearly sensible to prohibit companies to use a “featured product” filter which could easily confuse consumers, if they even notice that such a filter on results has been deployed. In our view, adverts where the PCW has any commercial relationship with the company should not be allowed either in the search filter, or in banners on the website.

We strongly support the idea that lenders should be required to provide a clear, upfront disclosure to customers of the total amount repayable if they fail to repay the loan in full and on time. It is vital that the additional fees and charges for late payment and/or rolling over of loans should be made more prominent. We are surprised that the FCA has decided not to require PCWS to include information about fees, charges and late payment charges in the results for each loan product.

We would suggest that such information is crucial at the point the consumer makes a product choice. It is not sufficient for the consumer to receive this information as part of the standard pre-contractual package as they will already essentially have made a choice of loan product by then. They will also not have any other tariff of charges for other loans to compare with at that stage, to enable them to decide whether the figures presented are industry standard or either unusually high or low. At the very least the fees and charges should be required to be displayed as an additional feature that the consumer can select as an option if required. We therefore do not agree with the FCA decision to leave this to PCWS whether to include this information or not. We do not agree with the FCA proposal to include brokers in the PCW results. We favour the CMA proposal to prevent brokers from being included in the PCW results. The inclusion of brokers will only serve to be confusing for customers. Why would a customer wish to go through to a broker rather than directly to a lender on the list? We would expect the inclusion of broker services to result in a consumer being led to a different website which would include a range of the broker’s own deals. This would undermine the point of a direct comparison of single products on the PCW. This section of the consultation is also silent upon the relationship between a broker appearing in the PCW results list and that broker’s ability to charge fees. If brokers are allowed to charge a fee for brokering the loan, then this it is unfair to include them on the results. How will it be clear and transparent on the PCW that fees will be charged and the amount each broker is likely to charge? There should be a prominent warning about brokers’ fees and charges against each entry where this applies.

Yes we agree with these proposals. It is important that PCWs disclose the names of lenders that they have included on their website. Any measures that promote transparency for consumers as to the market coverage of the PCW they have consulted must be encouraged.

The proposed start date appears to be sensible.

We welcome the FCA’s intention to carry out further research to understand and analyse the wider credit broking market. We recognise that the FCA has taken significant steps to control the credit broking market but consumer bodies still see instances where there is substantial consumer detriment caused by credit broking activities. We remain concerned, however, over credit brokers’ fundamental business model, which can see borrowers being charged a fee even in cases where no loan is arranged. We are also concerned that fees amounts are not sufficiently transparent.

The FCA should also look at the sale of customer data between firms without clear customer consent, which is another area of bad practice in this market. We strongly support any measures that would require credit-brokers (and other intermediaries such as lead generators) to state explicitly the nature of their business and the commercial relationship that they have with lenders in the market. We do not agree that existing regulation is sufficient to ensure that consumers are aware of the relationship between brokers and lenders. There remains a lack of transparency for consumers. FCA rules should be strengthened in this area. We hope that this research will be carried out as soon as possible to enable the FCA to act swiftly to block gaps in the current rules and to consider whether additional rules are required. Ultimately we believe that the FCA should consider taking the following action as suggested in our response to the CMA market investigation into payday lending notice of possible remedies consultation.2

We suggest that the FCA should amend the rules to prohibit cold calling and texting for credit broking, lead generation and lending purposes across all sectors. This should help to deal with problems of aggressive marketing.

We suggest that the FCA should amend the rules to prohibit lenders and brokers from

charging any upfront payment under any circumstances for arranging or setting up a loan. We are pleased that the FCA is looking a models of remuneration for brokers. If fees are to be charged to borrowers, they should only be charged in the event of a borrower securing a loan. Firms should be prevented from taking money from bank accounts using continuous payment authority (CPA) mechanisms.

High-cost short-term loan companies should refer applicants for free debt advice – not to brokers – if they are turned down for credit.

From the FCA findings in this area, we can see that there is some merit in enhancing the availability of quotation searches instead of requiring additional disclosure for credit checks. We agree that it is important that there is transparency for consumers in understanding how credit applications may have an impact on their credit score. However, it would not be beneficial for consumers if the effect is to encourage people to apply to the lower eligibility end of the market (with higher interest rates and charges) rather than shopping around for the best deal.

2

http://www.moneyadvicetrust.org/SiteCollectionDocuments/Policy%20consultation%20responses/Unilateral%20responses/Money%20Advice%20Trust%20response%20to%20the%20CMA%20investigation%20into%20payday%20lending%20draft%20remedies%20consultation.pdf

We agree that a more informed consumer who has shopped around and knows their likely eligibility for a product and the likely price via a quotation search is more likely to make fewer but more successful actual credit applications which affect their credit file.

It does not seem fair to us that a consumer’s credit rating can be damaged by the very act of searching for credit. We value the advent of quotation searches as a way that a consumer may obtain an indication of whether they are eligible for credit and the price of the credit likely to be offered, without a consequent effect on a credit file. However, it is not clear how widespread knowledge of the availability of quotation searches has spread amongst consumers. It is also not a service available across sectors such as HCSTC where there is limited shopping around for credit. Any development of a quotation search facility would need widespread publicity and consumer education to work. We would value the FCA taking further action in this area and to consider turning the current guidance on quotation searches into a set of rules. There is also merit in considering the development of guidance on when the FCA would expect quotation searches to be offered and what the search would be expected to cover. The one risk we can identify is that where someone really needs debt advice instead of more credit, and is repeatedly turned down, the activity on their credit file can act as an early-warning sign that they are in trouble. However, unless this is used by lenders and creditors as an early warning sign and opportunity to refer their customer to free debt advice as part of an early intervention strategy, then presumably the consumer will just keep searching until they find sources of ever-more unsuitable credit that are willing to lend to them to stave off the inevitable.

We would like to see a comprehensive real-time database of loans supervised by the FCA which it is mandatory for all lenders to use, and records all loans, and helps deal with the problem of multiple lending to people who cannot afford to pay. We would like to see the FCA taking effective action in the area of real-time data sharing as the FCA sees “clear benefits” to real-time data sharing. However, we welcome the commitment to continue to monitor the developments in the sector relating to the adequacy of the real-time data sharing processes currently in place. The FCA recognises that challenges remain despite 90% of HCSTC lenders involved in some form of data sharing currently. We are also not convinced that it is acceptable for only 90% of lenders to be participating. This means coverage is neither comprehensive, nor is it compulsory for lenders to join a particular scheme. This should not be left as an optional business decision for individual lenders.

“However, as demonstrated by the CMA’s analysis, challenges remain. As we said in CP14/16, not all lenders report data to more than one CRA in real time. Furthermore, there is no standard industry definition of what constitutes real-time data sharing, and trigger events for reporting differ across some firms.” We are concerned that under current plans there will be a variety of industry based schemes that all have different rules and processes. We have consistently argued in favour of one real-time database to be put in place and follow rules set by the FCA.3 If the FCA was to control the activities of such a database and impose reporting requirements, this would ensure that accurate information on a common platform would be available across the sector. This would solve the problem of the lack of a standard industry definition of real-time data sharing and set common rules for reporting timescales for all firms. It is also not clear that any of the schemes will be required to report directly to the FCA or that the FCA will have a monitoring role to ensure that the schemes are functioning properly and as required. We would strongly support a regulatory solution where the FCA establishes a regulatory database and controls the implementation and reporting and monitoring functions from a single comprehensive entity. It should be mandatory for all lenders to use the database for lending decisions. Ultimately we would like to see a comprehensive real-time database of loans supervised by the FCA which all lenders are required to use, that records all loans, and helps deal with the problem of multiple lending to people who cannot afford to pay. Whilst a real-time data-base is not in itself an all-encompassing solution to this problem, it would be a step in the right direction.

We understand that the requirement for lenders to make available a summary of the cost of borrowing on existing loans in set circumstances to borrowers is under an order by the CMA. It seems reasonable for the FCA to support the work of the CMA in this area as proposed through its supervisory and enforcement powers.

We do not have any comments on the cost benefit analysis at this point.

3 Our response to the FCA Proposals for a price cap on high-cost short-term credit August 2014

http://www.moneyadvicetrust.org/SiteCollectionDocuments/Policy%20consultation%20responses/Unilateral%20responses/Money%20Advice%20Trust%20response%20to%20the%20FCA%20%20price%20cap%20on%20high%20cost%20short%20term%20credit%20consultation%20paper.pdf

We agree with the FCA initial assessment of the impacts of the proposals on protected groups. We do not have any comments on the impact assessment for this consultation.

The Money Advice Trust

21 Garlick Hill

London EC4V 2AU

Tel: 020 7489 7796

Fax: 020 7489 7704

Email: info@moneyadvicetrust.org

www.moneyadvicetrust.org