Financial Conduct Authority to crack down on ‘logbook lenders’

 

The Financial Conduct Authority (‘FCA’) has called for ‘logbook lenders’ to ‘dramatically raise their standards’ if they want to continue trading. Logbook lenders supply loans that are secured against a borrower’s vehicle.

Stemming from research conducted between November and December 2013, the FCA has found evidence of ‘poor firm behaviour, including little or no affordability checks’, with some applicants even being encouraged to manipulate details of their income on application forms. The FCA also came across evidence indicating that consumers were being pressurised and put on the spot to take out a loan without being informed about the existence of the statutory cooling off period. In other cases, borrowers had not been made aware of the total costs involved and that missed repayments could lead to their vehicles eventually being repossessed.

 

The FCA also found that many consumers had little knowledge of the concept of a logbook loan and what it meant in terms of, for example, the ownership status of their vehicle. Being desperate for the loan, many consumers also failed to shop around and were found to focus more on weekly payment amounts than the total sum of what they had agreed to repay.

 

According to the FCA, logbook loans range in size from approximately £500 to £50,000 and are often used by vulnerable consumers in difficult circumstances who have exhausted other means of potential credit. The loans usually last for about six to 18 months, with a typical APR of 400% or higher.

 

Christopher Woolard, director of policy, risk and research at the FCA said, ‘People who use logbook loans are often in difficult circumstances with few other borrowing options. The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found’. Woolard continued, ‘Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action’.

 

Responding to the FCA’s statement and accompanying report, shadow minister for Competition and Consumer Affairs, Stella Creasy, said, ‘Time and again this government has been too slow in recognising and reacting to dangerous practices in the consumer credit market…This research makes a damning case to show that there’s more than one toxic type of company out there causing serious damage to the finances of families’.

The FCA took control of consumer credit matters from the Office of Fair Trading on 1 April 2014 and this week’s statement on logbook lenders forms part of a swathe of new rules and standards for the consumer credit industry to adhere to and signifies a new, firmer approach to regulating the sector.

Is the new London Rental Standard a ‘meaningless gimmick’?

Last month, Boris Johnson launched the London Rental Standard (‘LRS’) in a bid to improve the conditions faced by tenants in London’s sprawling private rental sector. The LRS is a voluntary set of minimum standards expected of landlords, managing agents and letting agents operating in London’s private rental market.

 

The scheme brings together seven landlord accreditation schemes under a single framework and has been drawn up following extensive consultations, including a three month public consultation between December 2012 and February 2013.

 

Certificates of accreditation will be awarded to landlords and letting organisations that meet a number of core requirements, attend a one-day course, sign a code of practice and agree to a declaration stating that they are fit and proper. Many of the common problems experienced by tenants (and already covered by legislation) are touched on in the scheme, including written rental agreements, the need for clarity regarding agency fees, protected deposits and repairs. According to the LRS, urgent repairs should ‘wherever possible…be dealt with within three working days of a landlord being notified’. Additionally, landlords ‘should always be contactable and must respond within a reasonable period of time’.

 

Extortionate agency fees and disproportionately high rental costs are not the only problems London’s tenants are faced with. High costs often bear no relation to the cramped, dingy homes left in poor condition many Londoners have to put up with. Kings Cross based letting agency ‘Relocate Me’ faced a media backlash this month after posting an advert featuring a single bed crammed into a kitchenette, along with a wardrobe (which blocked access to the front door) and a dining room. Described as a ‘modern studio apartment’ in Islington by the letting agent, the flat was on offer for £737 a month and has reportedly been snapped up by one, presumably desperate, tenant.

 

Announcing the new standards scheme, the Mayor of London, Boris Johnson, said, ‘With more of London’s workforce and young families living in rented homes, this growing sector is vital to meeting the capital’s housing needs and must not be overlooked. The standard aims to improve the experience of everyone involved, from landlord to tenant, with a clear set of good practice rules’.

 

However, Labour London Assembly member, Tom Copley, has criticised Boris Johnson for introducing a ‘meaningless gimmick’ and ‘wasting two years consulting on a voluntary standard that is not worth the paper it’s written on’. Mr Copley believes that the Mayor ‘should have been lobbying for government legislation to create longer tenancies as standard, caps on annual rent rises and a ban on letting agents’ fees for tenants’. Grainia Long, chief executive of the Chartered Institute of Housing, shares similar reservations. Ms Long hopes ‘that the voluntary nature of the scheme will not undermine its impact. Much work will need to be done to ensure it is not simply ignored by the worst offenders’.  

 A key shortcoming of the scheme is indeed the fact that it is voluntary. ‘Good’ landlords and agencies keen to enjoy the potential business benefits of being part of the scheme will be the ones applying for accreditation, while the ‘rogues’ in the sector are likely to steer well clear of it and continue to exploit prospective tenants desperate for a home in the capital.  Although a small step in the right direction, the LRS is not a failsafe solution for fixing the private rental market both in London and across the UK. 

New UK banking standards body to be launched later this year

A new voluntary standards body for British banks and building societies will be launched later this year to 'raise standards and competence' within the sector.

 

Funded by the banks themselves at a cost of between £7m and £10m a year and relying on voluntary support rather than statutory powers, the new body will be set up as a 'champion for better banking standards'. It will be underpinned by a 'voluntary and aspirational' goal based on the credo that the banking industry must raise its own game in order to win back public trust.

 

Richard Lambert, former director general of the Confederation of British Industry and author of today's 'Banking Standards Review' report, is under no illusions about the difficulty (and potential controversy) that the new standards body will face in influencing the ethical standards of the same institutions that are providing its finance. According to the report, the new body will have to establish its credibility and independence from the start and 'will have to show that it is willing to set demanding standards, and to speak out when appropriate'.

 

Britain's biggest banks and building societies, namely Barclays, HSBC, Santander, RBS, Lloyds, Nationwide and Standard Chartered, pledged to set up the body in light of recommendations made by the Parliamentary Commission on Banking Standards last year amid a series of scandals involving benchmark interest rates, breaches of anti-money laundering rules and the misselling of complex financial products and loan insurance.

 

The new standards body will require participating institutions to commit to improving their culture and practices and publically report on their finances each year. Standards of good practice will be set, which may include whistleblowing procedures, staff values and behaviours and managing high-frequency trading.

 

At the end of his report, Lambert charts the future face of a banking utopia in 10 years' time and hopes that by then, 'balance sheets of banks doing business in the UK have been restored to health', more bankers have qualifications of one kind or another and 'politicians will have found other footballs to kick'.

 

Recognising the feat of the challenges ahead, Lambert does however concede that 'Realising this vision will require an enormous amount of heavy lifting by the banks and building societies in the years ahead, and by everyone who works in them. It will also require a different approach to their customers, and a much broader view of their role in society. But this is what the public has the right to expect. And it is what the country needs'.

 

Keen to build on and accelerate 'present momentum' on the issue, Lambert says that work to set up the new body should start immediately, with the next step being establishing an independent panel to appoint the new body's Chairman and approve the Chief Executive.  

Housing crisis threatens London's future business prospects

According to a report published today by the London Chamber of Commerce and Industry (LCCI), London’s housing crisis could seriously undermine the city’s economic competiveness and lead to problems for both employers and employees. The LCCI’s report argues that businesses relying on easy access to a skilled workforce could face staff retention and productivity problems if employees continue to be priced out of the London housing market and are forced to take longer commutes into work.

To overcome the capital’s chronic housing shortage, the LCCI suggests that more land should be secured for development and more builders with the capacity to deliver these homes should be available. Specifically, the LCCI recommends that all brownfield sites in London should be registered by the Mayor of London and private land owners would then be given four years to start building on such sites before a compulsory purchase would be enacted. Public sector landowners would have to start building within two years of being registered.

Public sector organisations are estimated to own as much as 40% of all brownfield land in London. Over 653 hectares are owned by the Greater London Authority, while a further 29.4 hectares are owned by the London Fire Brigade, 45.9 hectares by the London Legacy Development Corporation and 103.3 hectares by the Metropolitan Police Service. Other bodies like the NHS, local authorities and government departments also hold brownfield land in London, but do not publish this data. The LCCI suggests that ‘excess public sector land’ should be sold for development.

One controversial proposal in the LCCI’s report recommends that local authorities work with the Mayor of London to evaluate the potential to reclassify ‘a proportion of poor quality greenbelt land’ within the Greater London area for housing. The LCCI states that although any proposals to build on greenbelt land will ‘stir strong emotions amongst residents local to affected sites, the creation of truly “garden” suburbs in a handful of formerly private greenbelt areas could secure the delivery of the homes that London needs for generations to come’.

Over the last decade, London’s population has grown by around a million, faster than at any other time previously, to 8.4 million in 2013.  However, not enough new homes have been built to cope with this increase, with around 20,000 new homes a year being built in London over the last 10 years. To ensure that developers are producing the homes that the majority of Londoners need (those earning less than £50,000 and in the low to mid-housing price range), the LCCI suggests that the Mayor of London should set a new annual target for the creation of homes affordable to those earning up to £50,000.

LCCI’s survey of London businesses also found that 59% of employer respondents believed that increased housing costs have led to a greater pressure to increase wages for three in five employees. Rising housing costs have, according to the LCCI’s survey, also diminished businesses’ ability to recruit and retain skilled workers, with 42% of businesses stating that increased housing costs have had a negative impact on recruitment. One third (33%) of London firms surveyed believed that the lack of affordable housing in London affected punctuality and productivity. LCCI says that ‘employees that regularly endure travel fatigue are unlikely to be as productive and motivated as they could be, as long commutes have been found to make workers less happy and more anxious’.

Speaking about the LCCI’s proposals, LCCI’s Chief Executive, Colin Stanbridge, says, ‘There is no magic wand that can change this situation overnight but we urgently need to start building many more homes that ordinary Londoners can afford to buy or rent, otherwise we could find the workforce that is the capital’s greatest asset under threat’.

HMRC proposes selling taxpayers' financial data to third parties

Under proposals currently being considered by HM Revenue & Customs (HMRC), anonymised financial data from taxpayers could be purchased by third party private companies, researchers and public bodies. Last week, a spokesman from HMRC stated that ‘no firm decisions’ had been taken on the issue, but that the confidentiality of taxpayers’ data would remain of the utmost importance. Despite such reassurances, former Conservative MP, David Davis, has branded the proposals as ‘borderline insane’. Indeed, HMRC does not have an unblemished record when it comes to dealing with confidential data. In 2007, HMRC lost computer disks containing confidential details of approximately 25 million child benefit recipients.

According to HMRC documents, plans for ‘charging options’ are being considered, meaning that firms may be required to pay HMRC to access the data. Consultations for the relaxation of HMRC data-sharing rules began last July, but concerns have been raised over such plans in light of a similar and currently suspended NHS initiative proposing the sharing of anonymised NHS medical records.

Speaking to the Guardian about HMRCs data-sharing proposals, David Davis said, ‘The officials who drew this up clearly have no idea of the risks to data in an electronic age’. Meanwhile, Emma Carr, deputy director of civil rights campaign group, Big Brother Watch, has said, ‘Given the huge uproar about similar plans for medical records, you would have hoped HMRC would have learned that trying to sneak plans like this under the radar is not the way to build trust or develop good policy’. A spokesman from HMRC, however, stated, ‘HMRC would only share data where this would generate clear public benefits, and where there are robust safeguards in place’.

Calling time on premium rate calls for consumers

 

On 14th April 2014, the UK Financial Conduct Authority (FCA) hit out against financial services firms, including high-street banks, charging customers premium telephone rates for after-sales customer care or complaints and announced its plans to launch a consultation on the issue later this year. Many financial services firms provide, particularly for existing customers, premium rate telephone numbers for consumers which can turn out painfully expensive when a simple query unexpectedly turns into a drawn out call where customers are put on 'hold' or passed to a different department or more senior call-taker (sounding familiar?).

The FCA's consultation will propose that rules relating to charges for customer services or complaints are standarised and capped at the cost of a basic rate telephone call. The consultation will also seek to examine a range of proposals aimed at improving complaints handling by financial services firms, and, amongst other points, look at issues regarding complaints records and respond to recommendations proposed by the Parliamentary Commission on Banking Standards last year.  At present, companies authorised by the FCA are required to provide customers with a free channel for making a complaint, however, this could be in the form of an email address or by post rather than a free telephone number. The FCA's announcement yesterday refers to a campaign led by consumer group Which? calling for principles relating to telephone calls outlined in the forthcoming EU Consumer Rights Directive coming into force this summer  to be applied to financial services firms used by millions of consumers across the UK.

 

Christopher Woolard, the FCA’s director of policy, risk and research said yesterday, ‘It is not fair that customers often have to use expensive phone lines when calling firms to ask for help or to complain...We would welcome companies looking again at the rates they charge for phone calls ahead of our consultation’. Which? executive director, Richard Lloyd welcomed the FCA’s announcements stating, ‘We're pleased the FCA agrees customers shouldn't have to pay a premium to talk to their bank or insurer. Changing the rules so financial firms can only offer basic rate helplines would be a big win for the 87,000 people who supported our campaign’.
 

9 million Britons in serious debt according to Financial Conduct Authority

The UK Financial Conduct Authority (FCA) watchdog has today, 1 April 2014, announced that approximately nine million Britons are in serious debt, with the problem spanning across all income levels. In a report called ‘Consumer credit and consumers in vulnerable circumstances’ (the ‘Report’), which publishes findings from the Government’s Monetary Advice Service, has also revealed that of the 9 million Britons in debt, only 1.5 million have sought advice on their debts and 1.8 million are in denial about the state of their finances.  

According to the Repot, over the last two decades, the UK population has become increasingly more indebted, primarily owing to a significant increase in mortgage debts. In its entirety, the UK owes approximately £1,476 billion, an average of nearly £56,000 per household, £6,000 of which can be attributed to consumer debts. The most common factors contributing to unmanageable debt are, according to the Report, a change in circumstances and high levels of accumulated debt. Low savings, income volatility and high debt/income ratios have all been found to reduce people’s resilience to income shocks and increase the likelihood of problem debt occurring. The Report categorises borrowers into three distinct types, survival borrowers (who use credit for their day to day expenses), lifestyle borrowers (who use credit for large and/or one-off events) and reluctant borrowers (who tend to limit their use of credit) and suggests that debt problems can be further compounded by an individual’s skills, knowledge, confidence and biases, as well as through a lack of access to credit. Indebtedness has also been found to have a detrimental impact on people’s health and well-being, particularly in respect of mental health issues including anxiety, stress and depression.

The Report has been published on the day that the FCA has taken over the regulation of the UK’s £200 billion consumer credit industry from the Office of Fair Trading. Over 50,000 businesses, including 500 payday loan companies will now be regulated under the FCA’s new rules aimed at ensuring customers are treated fairly and given the information they need to help them make informed choices. Martin Wheatley, the FCA’s Chief Executive acknowledged, “We have a big task ahead; it’s our job to make sure firms put their customers at the heart of their business and don’t just see them as an easy target or a profit line”. Wheatley also indicated the FCA’s approach to consumer credit providers who fail to follow their new rules, “We won’t shy away from taking tough, decisive action to make sure that the people who rely on these products are treated fairly.  There will be some firms that don’t get the message, or won’t play ball, those firms should know that we won’t let them carry on”. In the run up to today, the FCA has been assessing the market to understand where and how the worst financial detriment occurs and will use the findings from the Report to further develop its regulation of payday loan companies and the consumer credit industry as a whole.