Today Toynbee Hall publishes its responses to consultations on the UK high-cost credit market and the creation of a new public financial guidance body.
The FCA had called for evidence to inform its work on high-cost credit, including a review of the high-cost short-term credit (payday) loan cap, while the government was consulting on proposals to combine three separate guidance bodies into a single financial guidance body.
Our response to the FCA’s call for input recognises the positive impact of the payday loan cap, but calls attention to the detrimental effects of other forms of high-cost credit, advocating for a consistent approach to consumer protection across all credit sectors.
Reviewing our data from the Capitalise debt advice partnership and surveying members of the Financial Health Exchange network revealed that increasing numbers of households are managing multiple types of credit from providers across different sectors. Our research has also revealed a number of issues associated with high-cost credit, which could be addressed by consistently applying the principles of the payday loan cap to the market in general.
For example, our advisers have raised concerns over the growth of the guarantor lending market. Although guarantor loans feature in a small proportion of our debt cases, there has been a noticeable increase since the introduction of the payday loan price cap. There is evidence that some firms may not be applying adequate affordability checks on either borrowers or guarantors. Additionally, we have found that many of our clients are unaware of their liabilities as a guarantor.
Additionally, we propose that the FCA create an obligation for firms to share data in real time, which would greatly improve the effectiveness of affordability checks. Much of the detriment for consumers in the high-cost credit market arises from multiple and repeat borrowing, where a consumer has multiple credit products with various providers. Real-time data sharing would allow lenders to see a more accurate and up-to-date picture of potential borrowers’ outstanding commitments.
The FCA should also consider requiring that firms hold a duty of care to their customers. According to the Financial Services Consumer Panel, there are numerous cases where the FCA principle of Treating Customers Fairly (TCF) is failing consumers, but where firms have not been breaking FCA rules.
In response to the government’s public financial guidance review, Toynbee Hall welcomed the decision to create a single financial guidance body (SFGB), which will replace the Money Advice Service, the Pensions Advisory Service and the DWP’s “Pension Wise” guidance. We believe this recognises the complexity of people’s financial lives and the need for relevant and timely financial guidance and advice that takes into account immediate and whole lifetime needs.
Our response also emphasises the importance of a strategic role for the guidance body. The SFGB would also be uniquely placed to identify national trends and to analyse multiple datasets across the whole population, and so conduct or commission research. We would like to see the SFGB be given a role in providing feedback, through the regulators, to the financial services sector on where the design of services and products undermines people’s ability to develop their financial capability effectively.
You can read our consultation responses here.