Mick McAteer, Chair, Registry Trust
Tuesday, 5th November 2024
Better data could support better regulation
New rules and guidance from the main financial regulator, the Financial Conduct Authority (FCA), come into force this week aimed at strengthening protections for borrowers with consumer credit or a mortgage who are in financial difficulty.[1] The rules were contained in an FCA Policy Statement published in April of this year called Strengthening protections for borrowers in financial difficulty: Consumer credit and mortgages Feedback to CP23/13 and final rules.[2]
The impact of the Covid related financial crisis and the cost of living crisis hit vulnerable consumers hard. Consumers’ financial resilience weakened leaving them vulnerable to economic and financial shocks. Not surprisingly, the FCA as the main consumer protection body in financial services, prioritised taking action to ensure that financial services firms continued to provide support during these difficult times.
During the pandemic, the regulator introduced its Tailored Support Guidance (TSG) which made it clear how firms should treat borrowers in difficulty, taking into account their personal financial circumstances. The cost of living crisis exacerbated the position for vulnerable consumers. Follow up research by the FCA found that, while some firms while some firms were delivering good outcomes for borrowers in difficulty, others were not meeting the regulator’s expectations resulting in consumer detriment. So, the regulator consulted on strengthening the rules.[3]
The new rules cover a number of issues including: explaining more clearly to borrowers how any arrangements proposed to manage financial difficulties will be reported to the borrower’s credit files; greater clarity on what qualifies as a priority debts and living expenses so that any arrangements put in place for repaying debts don’t hinder the a borrower’s ability to meet priority payments; guidance that, where possible, firms should make available to the customer a record of any income and expenditure assessment that the firm has made so that the borrower can share the details with other lenders and debt advice providers; further guidance on treating fairly those borrowers in arrears, or approaching arrears; and further guidance to ensure firms support borrowers though the appropriate channels so that the borrower can engage effectively with the firm when in financial difficulty.
Protecting consumers in the near term, rebuilding finances in the longer term
These new rules and guidance should help consumers in financial difficulty. But, thought needs to be given to how to support consumers (who are able to come out the other side of the current crisis) in rebuilding their finances and getting access to mainstream financial products. So, at Registry Trust, we think the overall response to the cost of living crisis should address distinct but linked challenges:
- Helping financially vulnerable consumers deal with the ongoing cost of living financial crisis – for millions of consumers this is not going away any time soon.
- Vulnerable consumers will continue to be exposed to future economic shocks and unfair treatment by some market providers. So, robust, effective measures including those coming into force this week will be needed to protect them further financial harm.
- Consumers will need support with repairing their finances to ‘get back to square one’ and building longer term financial resilience to protect against future financial shocks.
- Helping excluded consumers back into the mainstream financial system. Particularly relevant for the FCA as a financial regulator is improving the access vulnerable, marginalised, or excluded consumers have to affordable credit and the quality of the choices available to them. Millions of consumers either have no choice but to apply for high cost, short term credit or cannot get access to legal, regulated credit at all.
Of course, the sheer scale of credit financial exclusion in the UK means that is a limit to what can be done to improve access and choice. Nevertheless, we remain positive that inroads can be made on each of the four challenges outlined above. This will take coordinated, concerted interventions by all stakeholders including policymakers, regulators,[1] regulated firms, consumer groups and debt advice charities, and data providers.
Good data, used by the appropriate organisations, will be critical to the four challenges. Registry Trust, as a trusted intermediary which operates a key part of the data infrastructure underpinning decision making in consumer credit and other markets, has a mission to provide Public Data for Public Good. We are keen to collaborate with stakeholders to harness our data to provide better insights into financial vulnerability, to help target policy and regulatory interventions and debt advice support where these are most needed.[2]
We also have three specific initiatives to enhance the utility, quality, and relevance of our data for policymakers, regulators, firms, and civil society organisations. These are to:
- Campaign to have the name of the claimant on the Register of Judgments for England and Wales (by far the largest jurisdiction);
- Address the problem of county court judgments (CCJs) not being marked as ‘satisfied’ on the public registers; and
- Create a partial settlements register.
These initiatives would help address the challenges outlined above. They could help regulators protect vulnerable consumers who continue to be affected badly by the cost of living crisis; and help repair consumers’ finances so supporting them back into the mainstream financial system.
Claimant data
As it stands, Registry Trust can publish the name of the claimant for Scotland and Northern Ireland judgments but not for England and Wales, which is by far the largest jurisdiction. Including the name of the claimant on the Register could provide an effective consumer protection tool for the FCA and other regulators who could use this real time data to monitor how regulated firms treat consumers in a vulnerable financial position.
Regulators could spot which firms within their remit are most aggressive in using enforcement action, and compare their stated treating customers fairly policies against their actual practices. It could also provide a helpful indicator of the quality of controls firms have in place and the effectiveness of policies intended to support consumers in financial difficulty. For example, if there is evidence that certain lenders are more likely to enforce CCJs than their peers, then this could trigger concerns that these lenders are not complying with the FCA’s Tailored Support Guidance (TSG) requirements.
Claimant data could also be a helpful corporate accountability tool for civil society groups. It would also help academics and other analysts obtain better insights into the source of problem debt within the economy. This would help target debt advice with more precision. It could also be a useful input for determining a fairer allocation of debt advice funding based on the harm caused. Including the claimant name on the public register would help the Government, the Money and Pensions Service (MaPS) and other stakeholders identify with more precision which activities, sectors, and firms are responsible for causing financial problems for consumers, and set funding requirements according to the ‘polluter pays’ principle.
Government has consulted on including the claimant name on the Register. We are expecting to hear the conclusions from the consultation soon.
Satisfactions
We estimate that 4.6 million consumers and small/ micro businesses have at least one outstanding CCJ debt. CCJ data is a lagging indicator in that a CCJ is enforced when arrears and debts have not been managed so clearly measures to protect consumers have not been effective. The data is also a leading indicator of consumers’ ability to access affordable products and services. A CCJ stays on the Register for six years so this can affect consumers’ ability to access affordable credit and insurance in the future. This makes them financially vulnerable in the future. So, it is very important from a consumer rights perspective that information held on the Register is a true and up to date record of a consumer’s financial position. But, there are wider implications. CCJs are also used by landlords and employers so this can affect more than consumers’ rights of access to affordable credit.
Yet, currently, just 16 percent of CCJs are marked as ‘satisfied’ on the Register, and this proportion has been falling over time. It is not well known that for a CCJ to marked as satisfied, it must be settled in full and proof of payment sent to the courts by the defendant. Consumers may neglect to inform the courts with proof of payment, for a number of reasons, not least because of the stress and anxiety caused by having to deal with problem debts. People in debt can face a vicious circle of mental health issues making it more difficult to manage finances, while getting into financial difficulty can exacerbate mental health issues. At times of severe stress and anxiety, understanding that there is yet another step to take of having to remember to inform the courts and sending proof of payment can be difficult.
Whatever the reason, many consumers who have already repaid their outstanding debt could still be penalised if the CCJ has not been marked as satisfied. This problem could be addressed in a number of ways. The most effective way would be for regulators to introduce a rule or issue guidance to firms within their remit to notify the courts when a debt has been settled. FCA regulated firms should be required to do this as part of complying with the regulator’s flagship Consumer Duty initiative. But, other regulators could also apply this requirement to firms within their remit as part of treating vulnerable consumers fairly obligations. Notification could be done by email on receipt of settlement of the debt so would not impose any difficult requirements on firms.
Notifying the courts that a debt has been repaid would not be onerous for firms. It would be a very simple step that could have a big impact. It would show that firms are taking all reasonable steps to support vulnerable consumers through what can be a very difficult period in their lives. It could also help consumers repair their credit files and household finances, and recover more quickly from a difficult financial position. Improving the information on the register could enable access to more suitable and affordable products and services. Overall, we think this could contribute to the challenge of rebuilding of household financial resilience especially if the FCA required regulated firms to look positively on satisfied judgments.
A register of partial settlements
As mentioned above, there are 4.6 million individuals and small/ micro enterprises with at least one outstanding CCJ, either because they have not been paid in full or been paid but not formally marked as ‘satisfied’ within the six years since being issued. Within this 4.6 million there are consumers who have made a partial payment of an outstanding debt which the creditor has accepted as a settlement.
However, as the amount paid is less than the recorded debt on the CCJ, there is currently no requirement or process in place for the CCJ record to be amended on the Register. This means that even though the creditor has accepted a partial payment as a settlement, and in the eyes of both parties the debt has been settled, it remains as fully outstanding on the Register and on the consumer’s credit file.
The CCJ record therefore does not fully reflect the true financial position, and this can have a knock-on impact on lending and other business decisions made using Registry Trust data. The result is that there is little financial incentive for consumers to make a partial payment, which is not in creditors’ interests either. It also seems unfair that consumers, who have tried to repay at least some of an outstanding debt, do not get recognition for this.
To address this, we are hoping to create a Register of Partial Settlements, in conjunction with stakeholders from both the credit information and debt advice industries. We think this would benefit consumers who are able to repay part of their outstanding debt, while protecting the interests of those who cannot afford to make a partial payment. Again, we see this as making a contribution to the challenge of helping households repair and rebuild their finances.
Conclusion
The new FCA rules and guidance coming into force this week should help vulnerable borrowers by ensuring that lenders treat them more fairly and sympathetically. Yet, the sheer impact of the cost of living crisis means more needs to be done to protect vulnerable consumers in the near term.
Moreover, we need to look through the current ongoing cost of living crisis to address wider challenges such as the scale of the chronic financial exclusion crisis in the UK. Financially vulnerable consumers will need support with repairing their finances and excluded consumers helped back into the mainstream financial system. Access and choice of credit products needs to be improved for vulnerable, marginalised, or excluded consumers. Millions of consumers either have no choice but to apply for high cost, short term credit or cannot get access to legal, regulated credit at all.
Of course, the sheer scale of the challenges means that is a limit to what can be done. Nevertheless, Registry Trust remains positive that progress can be made on each of the challenges outlined above. Policymakers, regulators, regulated firms, consumer groups and debt advice charities, and data providers will need to collaborate to coordinate interventions. Good data, used by the appropriate organisations, will be critical to the four challenges. Registry Trust would welcome the opportunity to collaborate with stakeholders on how to better use our data to identify vulnerable consumers and target policy and regulatory interventions. Small changes such as our initiative on satisfactions could have a big impact.
[1] Firms covered by these new rules issued in April 2024 were given just over six months to implement the changes.
[4] Financial problems experienced by vulnerable consumers are interconnected. For example, if a consumer has a debt judgment enforced against them for an outstanding utility bill this can affect their ability to get affordable credit. So, it will take a holistic approach by all the main consumer protection regulators, not just the FCA.
[5] See, for example, Using County Court Judgments and Geographic Data Science to understand patterns of over indebtedness in England and Wales, and A New Approach To Data