The Analysis CSA
Raising the standard?
Will revised trigger figures, presented in the Standard Financial Statement, have unintended consequences for creditors, collectors, and consumers?
Peter Wallwork CEO, Credit Services Association
info@csa-uk.com
The Standard Financial Statement (SFS) was launched on 1 March 2017 and was described at the time, by the Money Advice Service (MAS), as a landmark development for debt advice in the UK, delivering, for the first time, a universal income-and- expenditure statement, together with a single set of spending guidelines. The tool is used to summarise a person’s
income and outgoings, along with any debts they owe. Primarily for people seeking debt advice, the SFS is mainly used by debt-advice providers and other relevant organisations. It provides a single format for financial statements, allowing the debt-advice sector and creditors to work together to achieve the right outcomes for people struggling with their finances. So far, so good. The thinking behind the SFS is laudable, but, as
is so often the case with such well-intentioned initiatives, the devil is in the detail. And the devil, in this case, centres around the ‘trigger figures’ and whether the increased figures, now being proposed, one year on, accurately reflect the customer’s true financial position. We are engaged with MAS as part of the SFS Governance Group
and the group was recently presented with a set of revised figures that saw increases of up to (and even more than) a startling 30% on the figures that featured in the 2017 guidance. Statisticians from MAS have used a method of calculation that
appears to differ from previous methodologies and is at odds with the methods used in Scotland, but they are adamant that their calculations are accurate and reflect the impact of inflation, Universal Credit, and households with a second adult. In fairness to MAS, it has sought to reassure creditors that the
revised figures are simply a guide and should not form the starting point for any assessment of expenditure. Only in circumstances where spending guidelines have been
exceeded, or where an adviser believes further reflection on expenditure is required, should they be used as guidance around levels of expected spending. But our question is whether the previous trigger-figure levels
really needed fixing at all? Was there anything broken in the way those figures were previously calculated, and was there any evidence that the existing arrangements were failing, or to the detriment of the customer? We have seen little or no real data to support the changes being proposed.
April 2018
Confidence and trust The challenge to MAS is that, if these new figures turn out to be wrong, advisors and creditors alike will quickly lose confidence in the system and stop using it. While the core triggers around household
expenditure, for example, appear to still be in line with the Common Financial Statement, rises in the communications and leisure categories, in particular, appear overly generous and difficult to justify to the levels being proposed. The disproportionate increases in the leisure and communications categories
might give out the message that a customer’s new iPhone or satellite TV is more important than becoming debt free, and that is an interesting social and cultural position for anyone to be taking. While we continue to support the SFS in principle, the accuracy
of these figures is essential. Whereas we accept that the figures are also only there as a guide, the danger – regardless of MAS’s steer – is that the some in the advice sector will still see them as an ‘allowance’, and that the customer’s true financial position becomes distorted. At best, this will reduce the volume and value of arrangements and offers from customers to repay their debts; instalment plans will be all but wiped out. In the worst case, however, customers could be advised to pursue
an insolvency route, which may often not be in their best interests. They will definitely not be in the interests of the creditor, and there is even a question mark as regards whether keeping a customer in debt for longer, by inaccurately assessing their financial position, is satisfying the FCA’s principles of a ‘fair outcome’. Customers generally want to settle their debts, and we have long
been on the side of the honest consumer. Supporting these revised figures without further scrutiny or challenge, however, or failing to consider the consequences – intended or otherwise – is not to anyone’s advantage, and we will seek to work with MAS, and other stakeholders in the group, to ensure this is done. Everyone wants to work from an agreed set of numbers that are
fair and appropriate, and we call upon all advisers to use the SFS in the spirit it was intended; any new figures must be given as a guide, and not an allowance. An early review and further scrutiny of the figures is essential to ensure the statisticians’ theories are actually proven in practice. CCR
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