BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

sigh....easier to change things from within though isn't it.

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

The UK Cards Association Call for Evidence Response

On 15 October 2010, the Department for Business, Innovation and Skills and HM Treasury published a Call for Evidence (Managing Borrowing and Dealing With Debt) in support of the Consumer Credit and Personal Insolvency Review.
The UK Cards Association is pleased to publish its response. This focuses on those questions of greatest relevance to the credit card industry, as follows:
- Q1 & Q2 on credit advertising
- Q5 & Q6 on data sharing and credit scoring
- Q7 on improvements to the consumer credit regime
- Q9 & Q10 on rate capping and re-pricing
- Q21 on a moratorium on creditor action for customers in financial difficulty
The comprehensive response calls upon extensive evidence. The credit card industry strongly believes that any decisions on the future of the industry should be on the basis of such robust evidence.
With regard to the other questions, which are more general across lending and debt matters, The UK Cards Association supports the submission made by the British Bankers' Association.

To view The UK Cards Association Call for Evidence Response as a PDF please click here.

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

Consumer Credit and Personal Insolvency Review

13 December 2010
Introduction

consumer_credit_and_insolvency ( 380kb)
Credit advertising
Citizens Advice agrees that the Government should extend regulations on advertising for credit products beyond the cost of credit and they should aligned with those which the Financial Services Authority (FSA) apply to secured credit. We believe that this is necessary to tackle the problems bureaux are seeing in relation to unsolicited offers of credit and debt management. This must include a ban on cold calling and prohibiting credit brokers from requiring up-front fees before a loan has been sourced.
Impact of a seven day cooling off period for store card on consumers and lenders
We are concerned that the proposed cooling off period for store cards might not have the desired effect of allowing consumers time to decide whether it represents a good deal and cancel the agreement without penalty. We believe that a more effective measure would be to ban retailers from offering retail incentives at the same time as the store card.
Implementing some of the OFT’s recommendations from the review of high cost credit
Whilst the measures under consideration in the consultation are worthwhile, we are concerned that these will at the most have a limited effect on the market. We strongly agree with the conclusions of the OFT’s high cost credit review that fundamental changes of approach are needed to tackle the deep-seated causes of concern in the high cost credit market.
Greater data sharing
Whilst we would agree that greater data sharing would encourage more responsible lending decisions, we believe that measures need to be put in place to ensure that the poorest and most vulnerable people are not charged more for credit or essential services.
Greater transparency on credit scoring
Citizens Advice agrees that greater transparency on credit scoring would benefit consumers.
consumer_credit_and_insolvency ( 380kb)

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

Citizens Advice SCOTLAND -
http://www.cas.org.uk/Resources/CAS/...review_CAS.pdf


Question 8

Bank Overdrafts
Q8: Do you believe that the current voluntary, market-driven initiatives to address concerns about unarranged overdraft charges are delivering, or will deliver, sufficient improvements for consumers? If not, what would the wider implications of limited bank charges be? Please provide evidence in support of your views:
41. CAS does not believe that current market-driven initiatives are sufficient to address concerns about unarranged overdraft charges. Revenue from overdraft charges makes up a significant proportion of retail revenue for UK banks. It is not in the interests of the banks to see this revenue fall and it is therefore unlikely that voluntary initiatives will see a significant improvement in policy and practice. We therefore believe that it is essential that the Coalition Government take action to meet their commitment to end unfair bank and financial transaction charges.
42. The overdraft charges problem has existed for a number of years and is a situation that has not improved for customers despite the high profile test case brought by the OFT. It was hoped that the Supreme Court case regarding overdraft charges would help resolve the issue, but while the decision in favour of the banks may have brought clarity for bankers, it ensures that unclear and unfair overdraft charges continue to adversely affect millions of people.
Impact of bank charges on clients
43. Overdraft charges remain unfair and disproportionate, and are a significant problem for low income clients. This system of charges inherently discriminates against low income customers, where the level of charges is insensitive to the level of infringement. Many of these clients are in a vulnerable situation, such as having a low income, suffering from health problems, being a lone parent, or being a single pensioner.
An East of Scotland CAB reports of a client who incurred excessive bank charges for a small overdraft. The client is a mature student who works part-time. The client went 60 pence into his overdraft and was charged £28 and a subsequent charge of £38. Since then, the client has been unable to clear his overdraft. The client only earns £50 per week, and finds himself in an impossible situation.
A West of Scotland CAB reports of a disabled lone parent who was given an overdraft charge after exceeding her overdraft limit for one day. The client stated that she regularly checks the status of her account using the telephone services and was at no time made aware of a problem with her account. The client feels that the £28 charge is excessive and unfair.
Citizens Advice Scotland 16 Consumer Credit & Personal Insolvency Landscape
A North of Scotland CAB reports of a client who received over £60 of charges after spending £9 in a shop. The client cannot understand why the charges are so high for a very small overdraft, and is very upset at effectively losing a full week‟s income. An East of Scotland CAB reports of a client who was charged nearly £100 for an unauthorised overdraft of £7.30. The client complained to the bank about the high charges for a small overdraft, but is yet to receive a response. A West of Scotland CAB reports of a client who received £75 in bank charges for a £17 overdraft, despite crediting her account with £20 on the same day as she went into overdraft. An East of Scotland CAB reports of a client who received £47 of bank charges for an overdraft of 47 pence. The client phoned the bank to complain, but was told that if the charge was not paid she would be charged double next month. A South of Scotland CAB reports of a pensioner who incurred overdraft charges of over £1,000 in an eight month period. In one month alone, the client received over £550 in charges – the client only receives £600 a month through his occupational pension.
44. The variety of different types of overdraft and similar charges – insufficient funds charges, missed payment charges, and item charges, among others - mean that clients can receive levels of charges that are massively disproportionate to the level of infringement. It is not inconceivable that a client could slip into their overdraft unknowingly by a few pounds, miss two direct debits, and buy three items while over the limit.
45. In many ways, overdraft charges are effectively a form of short term high cost lending. For example, a client who goes into their overdraft by £2 for any reason will incur charges that they may not be able to afford. The upshot of this is that they continue to incur charges and the amount that the client pays for the initial „borrowing‟ of £2 continues to accrue.
46. The upshot of the variety of charges that clients can incur has resulted in a substantial cross subsidisation from those who incur charges and those who do not. According to the OFT market study, and supported by our evidence, this cross subsidisation is from low income, low saving clients, to high income, higher saving consumers. Indeed, the revenue made from the customers who incur charges is actually keeping the cost of an account low for other higher income customers.3
Disproportionate impact
47. CAS published the Fully Charged report in June 2010, which showed the disproportionate impact that overdraft charges have on clients with different
3 Personal Current Accounts in the UK July 2008 - http://www.oft.gov.uk/news/press/2008/84-08
Citizens Advice Scotland 17 Consumer Credit & Personal Insolvency Landscape
circumstances. The following figure shows the impact of the same charges on four different clients: one who has been made redundant and is claiming JSA, one who is unable to work due to illness and recieves ESA, a client in full-time employment on the minimum wage, and a client receiving an average full-time wage:
48. The figure shows that clients receiving JSA pay a proportion of their income that is six times higher than the average worker for the same charges – this means that the impact of bank charges is six times worse when a client loses their job. For many people struggling in the recession, this statistic is a reality and not merely theoretical.
Response from the banks
49. A number of banks have responded to widespread criticism of their overdraft charges through new policies. Work has been undertaken in conjunction with the OFT to ensure that all charges are transparent for customers. However, for those in financial difficulty, a better understanding of charges is unlikely to help them avoid such charges if they simply can‟t afford to.
50. At least two banks have implemented a daily charge for exceeding overdraft limits of around £5. This policy may be of benefit for customers who accidentally exceed their limit for one day, but for many customers in severe financial difficulty or on a low income this type of policy can be catastrophic. For example, a client who exceeds their limit, but does not have enough income to clear the overdraft immediately, could face charges of over £150 in
Citizens Advice Scotland 18 Consumer Credit & Personal Insolvency Landscape
a month. This can lead to an unsustainable cycle of debt for what may have been a small level of overdraft.
A North of Scotland CAB reports of a client who is being charged £5 a day for being in her unauthorised overdraft. The client is unemployed and her only income is Jobseekers Allowance (JSA) at £64 per week. The client has an overdraft of £150 and is being charged £5 a day until she pays this amount. The client can neither afford to pay off the total amount nor the £5 per day. More than half of the client‟s income is taken up by bank charges.
51. Following the judgement in favour of the banks at the Supreme Court in November 2009, the UK banks have been less receptive to customer concerns regarding overdraft charges, with a number of banks dismissing customer complaints. This has been a double whammy for customers – as the recession puts many into financial difficulty, their banks are free to continue imposing high charges on them to add to their difficulties.
A West of Scotland CAB reports of a client who has two bank accounts. One of the accounts was overdrawn by a small amount, incurring bank charges and the client now owes the bank £2,150. The client had challenged these charges and had an agreement with the bank to pay £20 a month towards the debt. However, since the Supreme Court‟s ruling on bank charges in favour of the banks the client has been told by her bank to pay off the full amount owed. The bank is closing both her accounts with them. The client feels that she is being victimized for challenging the charges.
52. CAS considers the policy responses from the UK banks to be ineffectual in solving the problem of unfair and disproportionate overdraft charges. With the threat of OFT legal challenge lifted, there is little incentive for banks to make changes to a system that has made them considerable revenue in recent years, despite the obvious detriment it causes to millions of customers.
53. It is therefore imperative that the Government honours its commitment to end unfair bank charges. In our Fully Charged report CAS outlined a number of remedies that banks should consider to improve their policies and practices:
Greater discretion in applying charges - taking into account a debtor‟s financial situation, such as other debts or benefit-only income, before automatically applying charges Proportional charging – charging clients on a scale according to how much they owe on their overdraft. Those in their overdraft by small amounts should receive small charges Helping clients repay their overdraft debts - overdraft charges and interest should be frozen when it becomes clear that the client does not have the ability to repay them – allowing the customer a chance of repaying them
Citizens Advice Scotland 19 Consumer Credit & Personal Insolvency Landscape
Opt-in overdrafts – giving customers the option of not going into their overdraft when they have run out of funds Warning systems – warning clients, through mobile phone messages, when they are close to or into their overdrafts and giving a time period to repay Buffer zones – allowing a small amount that customers can use to go into their overdraft in which they can repay without charges within a time limit
54. These remedies would go some way to ensuring that banks impose charges that are fair and more proportionate to a client‟s situation. It would also decrease the level of charges and number of customers incurring these charges, thereby giving vulnerable customers greater opportunity to control their finances and get back in the black.
Citizens Advice Scotland 20 Consumer Credit & Personal Insolvency Landscape

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

BUILDING SOCIEITIES ASSOCIATION
Response Managing Borrowing and Dealing with Debt

Call for Evidence in support of the consumer credit and personal insolvency review by the Department of Business, Innovation and Skills Contact: Chris Lawrenson
Date: 13 Dec 2010
Print page | Email
Introduction
1. The Building Societies Association represents mutual lenders and deposit takers in the UK including all 49 UK building societies. Mutual lenders and deposit takers have total assets of over £365 billion and, together with their subsidiaries, hold residential mortgages of almost £235 billion, 19% of the total outstanding in the UK. They hold more than £245 billion of retail deposits, accounting for 21% of all such deposits in the UK. Mutual deposit takers account for about 36% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches. The core building society products are mortgages and savings, but six BSA members provide current account and a number offer unsecured lending.
Background
2. The BSA welcomes this opportunity to respond to the call for evidence Managing Borrowing and Dealing with Debt (the call for evidence). The BSA is not in a position to provide detailed information or comments on some of the topics dealt with in the call for evidence, such as personal insolvency, which are matters essentially for debt management professionals, insolvency practitioners etc. Also, certain products discussed in the call for evidence (eg store cards) are not offered by our members, so we have not made specific comments in relation to them. However, we have a number of high-level comments that we hope will be helpful to BIS; we indicate in the text where these are material to a specific question in the call for evidence.
The Financial Mutuals Sector
3. Financial mutuals consistently provide high levels of customer service and value for money to their members. The reason they can do this is because they are owned by their customers, unlike banks that are run for their shareholders. Financial mutuals are not driven by external shareholder pressure to maximise profits to pay away as dividends. This normally enables them to run on lower costs and offer cheaper mortgages, better rates of interest on savings and better levels of service than their competitors.
4. It is inherent in the culture of financial mutuals to treat customers fairly as customers are members, and their success in doing so in practice is strongly indicated by a number of independent sources, including the recently published sets of complaints data, comparatively low repossession figures etc.
Decision to Borrow
5. The focus in the call for evidence on financial capability is welcome. Financial education is key to helping consumers make well-informed decisions and we welcome the forthcoming programme of work by the CFEB. The BSA has, for many years, been a strong advocate of the importance of delivering financial capability to young people. As such the BSA and the Building Societies Trust have contributed core funding to the personal finance education group (pfeg) for several years and, at times, provided a trustee on pfeg's board. We have also contributed to the FSA’s communication sub-group on financial capability.
6. As an important matter of principle and practice, the laws and regulations relating to consumer credit now require a lengthy period to bed down. The Consumer Credit Act 1974 was significantly amended by a series of regulations under the Consumer Credit Act 2006. It will have to be extensively amended again to incorporate the provisions of the EC Consumer Credit Directive (2008/48/EC), by February 2011.
7. After all this upheaval, consumers, businesses, regulators and all others concerned with consumer credit now deserve an extended period of consolidation in which the effectiveness of the many, complicated changes over the last four or five years can be tested. It would be very unfortunate if further significant amendments were to be made before this process can be fully completed and its effectiveness properly gauged. (Question 1)
8. Complexity of consumer law is now a significant problem in the UK for all concerned and we welcome the Government’s commitment to cutting red tape. The BSA has a policy on this matter -

Link to the BSA response

In addition, there is a serious risk that excessive regulation of mortgages (which is very much in prospect under the FSA’s mortgage market review - MMR) could drive consumers to borrow instead on a unsecured basis, where there are far fewer restrictions and safeguards. Secured loans via a second or subsequent charges are also outside of the FSA remit, so not only could the MMR drive consumers to unsecured borrowing, but it could also encourage them to other forms of secured credit as well. Therefore, longer term, there is a strong argument for examining the closer alignment of the rules relating to unsecured and secured lending, together with the responsibility for both areas migrating to a single regulator. (Question 2).
9. We support sensible, cost-effective measures to increase transparency in the consumer interest and a level playing field for providers of credit. Indeed, the BSA and our members that engage in consumer credit have been undertaking work with the OFT and, where applicable, the Lending Standards Board in developing new industry standards concerning transparency in relation to unauthorised overdraft charges, and the treatment of customers in financial difficulty. (Question 3).
Life of the Loan
10. On question 8, we maintain the position that we set out in our response to the recent BIS call for evidence on the forthcoming Consumer Rights Directive -

Link to BSA response

ie that, regarding personal current accounts and unauthorised overdraft charges, the call for evidence failed to make a valid case for any change in the law. It would be sensible to allow the transparency exercises being carried out by providers and the OFT to complete and have time to bed in, and for their effectiveness to be tested, before reviewing the matter further.
11. The introduction of a cap on interest rates on credit cards (referred to in question 9) would be anti-competitive in principle, and would be likely to have unintended – and adverse - consequences for consumers. For example, it would be likely to result in reduced competition, less choice for consumers and greater financial exclusion. Greater competition in the market is the key to better deals for consumers. A diversity of business models benefits competition, so it is also important that barriers are not greater for mutuals than other providers – see the BSA’s response to the OFT review of barriers to entry, expansion and exit in retail banking -

Link to the BSA response

What Happens When Things Go Wrong?
12. Building societies and other financial mutuals are responsible lenders; it is not in their interest to lend money which cannot be repaid. The BSA and its members support free, independent debt advice. Many have donated to their local CAB, National Debtline and the Money Advice Trust. The BSA is a member of Money Advice Liaison Group. The BSA has also produced a number of relevant consumer leaflets -

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

Trading Standards

Managing Borrowing and Dealing With Debt: Consumer Credit and Personal Insolvency Review: Call for Evidence (BIS) - TSI response - December 2010
TSI response (PDF 112KB). TSI takes the opportunity to state its support for the work being done in this area by BIS.
10 Dec 2010

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

Nothing yet on Consumer Focus or OFT (if they are responding)

[EXC]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

A new approach to financial regulation: Consultation on reforming the consumer credit regime

Open date: 21 Dec 2010
Closing date: 22 Mar 2011


Background

The Government wants to ensure that the consumer credit regime is fit for the future, flexible and able to keep up with a fast-paced, innovative market.
This consultation, conducted jointly by HM Treasury and the Department for Business, Innovation and Skills, considers the merits of transferring responsibility for consumer credit regulation from the Office of Fair Trading (OFT) to the new consumer protection and markets authority (CPMA - working title). The creation of the CPMA was announced by HM Treasury in July as part of a wider programme to reform the institutional framework for financial regulation in the UK. See link below: (A new approach to financial regulation: judgement, focus and stability)

The Government believes that transferring consumer credit regulation from the OFT to the CPMA would provide an opportunity to improve significantly the way consumer credit is regulated and to create a simpler, more responsive regime. However, a reform of this magnitude would also represent a significant change for many firms operating in the consumer credit market. The Government will ensure that decisions on whether and, if so, how to bring consumer credit into the scope of CPMA regulation reflect the needs of consumers and businesses.
This consultation is open to all businesses, consumer groups and individuals with an interest. The Government particularly welcomes views from firms currently subject to consumer credit regulation and their representatives, consumers and consumer bodies.


A new approach to financial regulation: Consultation on reforming the consumer credit regime | Consultations | BIS

[EXC]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

From: EXC
Sent: 04 January 2011 15:10
To: Haris Irshad
Subject: Consultation Response

Hi Haris

Is it possible we could have a copy of the OFT's response to the BIS Consumer Credit and Personal Insolvency call for evidence, which closed on 10 December?

It doesn't appear to have been published on the OFT site.


Kind regards

Nick


----- Original Message -----
From: Haris Irshad
To: EXC
Cc: PF-PCA UTCCRs
Sent: Wednesday, January 05, 2011 9:17 AM
Subject: RE: Consultation Response

Hi Nick,

Thanks for your email. We have not published our response to this consultation on our website. Given our role as regulator of consumer credit markets, we do not consider that publication would be appropriate at this time.

Kind regards,

Haris

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

FFS.

[EXC]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

To be honest I don't blame them.

Their answers - especially to Q8 - would essentially be a self assessment of their own work which they can't really be expected to make public.

I'll FoI BIS for it along with the banks responses.

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

Agreed, but still annoying, and they are the ones shouting about transparency.

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

I can't find Consumer Direct's Annual Review for 2009/2010...... You don't happen to be better at googling than me do you ? lol cheek !

Really want their positive impact assessment for 2009/2010.

[EXC]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

There's some stuff on the OFT site that comes up if you search for ''consumer direct annual report''. Do it from this page and make sure you tick the PDF option box http://www.oft.gov.uk/search?action=search

Are you sure Consumer Direct do their own annual report or is it part of the OFT's? Annual Report - The Office of Fair Trading

[Amethyst]

Re: BIS & HM Treasury Consumer Credit and Personal Insolvency Review - Consultation

Powered by Google Docs

and

Annual Review

(quick view versions)

but can't find any since 2008 so maybe they just did it in with the OFTs.

Thanks for having a look.