The Analysis News & Opinions
Review published on unsecured market
The FCA has published a report on the unsecured consumer credit market following a major review. The Woolard Review sets out how
regulation can better support a healthy market for unsecured lending, taking into account the impact of the coronavirus (Covid-19) pandemic, changing business models and new developments in unregulated buy-now pay-later (BNPL) unsecured lending. The review sets out 26 recommendations
to the FCA including: l The regulation of unregulated buy-now pay-later – BNPL products which are now exempt from regulation should be brought within the regulatory perimeter as a matter of urgency. The use of BNPL products nearly quadrupled in 2020 and is now at £2.7bn, with 5 million people using these products since the beginning of the coronavirus pandemic. The emergence and expansion of unregulated BNPL products gives consumers an alternative to more expensive credit, but this also comes with significant potential for consumer harm. For example, more than one in 10 customers of a major bank using BNPL were already in arrears. Regulation would protect people who use BNPL prod- ucts and make the market sustainable. l Debt advice – provision of advice will be key to a sustainable market in the long term, especially through the recovery from Covid. Free advice services need secure, long-term funding as demand increases to as many as 1.5 million extra cases, following the pandemic. Funding must be in place to help the poorest pay fees when applying for debt relief orders. l Forbearance – the FCA responded quickly and effectively in the emergency phase of the pandemic, it needs to sustain this response through the recovery, for example by looking at if it should revise its rules and guidance to drive greater consistency in the type of support firms offer consumers struggling to pay. l Alternatives to HCST credit – a sustainable credit market needs alternatives to high-cost credit. FCA should work with government and Bank of England to reform the regulation of credit unions and Community Development
February 2021 Christopher Woolard
Finance Institutions. More should be done to encourage mainstream lenders into this space. l Outcomes focused – regulation should be driven by the outcome being sought and how consumers use products in the real world. Regulation should deliver similar protections where consumers face similar harms. In addition to making sure products are affordable, there should be an increased focus on lenders meeting consumers needs’ for as long as they hold the product. The FCA should review repeat lending. Reviewer and former interim CEO,
Christopher Woolard said: “Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.” Stephen Haddrill, director general of the
FLA, said: “The recommendation to bring unregulated buy-now-pay-later products within the scope of the FCA is welcome. We fully support the necessary legislative changes that will be needed to bring this about, but it is essential that government avoids a piecemeal approach, simply adding another patch to the already threadbare Consumer Credit Act (CCA). “What we need now is Parliamentary time
to review at the CCA in its entirety, with the aim of creating a workable, modern and intuitive solution that provides protection for consumers and certainty for lenders.”
www.CCRMagazine.com Opinion
‘Return of repossessions is unlikely to affect values’
The Financial Conduct Authority (FCA) has published updated final guidance, confirming an initial proposal, that as a last resort, consumer credit lenders would once again be able to terminate regulated agreements and repossess goods and vehicles. The change took effect from 31 January 2021. While the ban, which was introduced on
27 April last year, will have created some backlog of cases. We do not expect the re-entry of repossessions into the remarketing channel to have a pronounced impact on vehicle values. Repossessing a car is always a last resort
and the volume of cases involved are unlikely to be anywhere near those that are often implied by media articles assessing car finance. The reality is we see more people voluntarily terminating their agreement than us moving to repossession. These voluntarily terminated cars and other end of contract cars have continued to be made available through remarketing channels throughout the pandemic. Even though the pandemic has seen a
significant number of people benefitting from forbearance measures offered by finance companies, the incidence of repossessions here is likely to be limited. The reintroduction of repossessions for
goods and vehicles reflects FCA concern that extending the ban could see people owing more in the long term if repossessions are prevented as car values follow their natural depreciation route and as outstanding interest continues to accrue.
John Goodall Chief executive, Landbay,
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