Mick McAteer, Chair, Registry Trust
Wednesday, 8th May 2024
Registry Trust recently held its AGM and Annual Review. As part of our overall strategy to provide Public Data for the Public Good, the theme of the Annual Review was discussing how stakeholders can collaborate to use data to improve consumer outcomes.
We had excellent speakers who gave us their insights on how data can be used to improve consumer protection, make credit markets work better, and promote financial inclusion by helping people back into the mainstream credit market.
Chris Leslie, CEO of the Credit Services Association, talked about how better data could improve how consumer credit markets work. We heard from Makedah Simpson, Manager at the UK Regulators Network on how the UKRN promotes the better use of data by the main regulators and regulated firms to protect vulnerable consumers during difficult times.
Registry Trust’s Chris Dick and Mark Sargeant spoke about the organisation’s achievements throughout the year and what we do to contribute to the challenges of promoting better credit markets and inclusion. Chris and Mark outlined our campaigns to have the name of the claimant included on the Register of Judgments, to ensure more judgments are marked as ‘satisfied’, and to have partial settlements included on the Register. More about the campaigns below.
Setting the scene
To set the scene, I summarised some of the key data to remind us of the extent of the challenge. On the face of it, there is actually some good news. The latest Financial Conduct Authority (FCA) Financial Lives[1] study, conducted in January 2024, found that the proportion of respondents who said they were not coping financially or finding it difficult to cope fell from 36% last year to 28% this year.
Yet, we should remember that the number struggling is still historically high. The FCA survey found that 7.4 million adults felt heavily burdened by bills and financial commitments. This compares to 5.8 million reported in the 2020 survey, before the cost of living crisis.
Registry Trust data found that judgments registered against consumers in England and Wales – the largest jurisdiction – rose by 21% between Q4 2022 and Q4 2023. Worryingly, the proportion of judgments marked as ‘satisfied’[2] remains very low at 13%. There are 4.6 million people and small/ micro businesses with at least one judgment against them.
Moreover, the very different experiences of different groups in society need to be recognised. The ongoing impact of the cost of living crisis and financial exclusion are not felt uniformly across society.
Previous FCA research found that Black adults (16%) were over twice as likely to be in financial difficulty as White adults (7%), and twice as likely as the national average to have high-cost credit or loans (20% vs. 10%).[3]
The FCA found that 55% of single parents were not coping financially, two and a half times the proportion of couples without children (20%). Half of renters were not coping financially, over twice the proportion of mortgage holders (24%) and nearly five times the proportion of those owning their home outright (11%).[4]
Research has established a vicious cycle between mental health and financial problems. People experiencing a persistent mental health issue (in three or four years out of four) are nine times more likely to find it difficult to manage financially than those who do not experience an issue. People experiencing long term financial difficulties are 5.5 times more likely to experience a mental health issue at the end of the period than those who did not have to deal with financial stress.[5]
According to the FCA, new lending in the high cost credit sector has halved since the regulator introduced tougher consumer protection and affordability rules on lending.[6] Growing numbers of people say they are being locked out of the mainstream credit markets, and rejection rates have risen.[7] Moreover, research published last year estimated that 10.7 million women were locked out of mainstream credit products. They were more likely than men to find it difficult to access mainstream credit, are less likely to be offered a good deal, and pay more for credit.[8]
Data that matters
So, there is no question we do face a major challenge if we want to ensure vulnerable consumers experiencing financial difficulty are protected and to increase access to sustainable consumer credit. This will take a combination of interventions.
The numbers of people now experiencing serious financial difficulties as a result of the cost of living crisis would be much greater if it wasn’t for the collective response of the main consumer protection regulators, debt advice charities, lenders and other creditors towards people in financial difficulty. This collective response shows what can be achieved if stakeholders collaborate to tackle major crises.
The immediacy and scale of the cost of living crisis (driven by the energy crisis) focused minds. As the cost of living crisis begins to attract less attention, can this same collaborative approach be maintained to meet the ongoing challenges of protecting consumers and promoting inclusion?
Protecting consumers will take appropriate regulation, and creditors treating people fairly and sympathetically. Building a bridge to financial inclusion and enhancing access to sustainable credit will require the effective use of data to encourage lenders to reconsider approaches to lending, and development of alternative sources of credit.
In time, no doubt innovation such as Open Banking and AI will make a difference in consumer credit markets. Some firms are using innovation to good effect. It is far too early to tell what the impact of AI might be. But, with regards to Open Banking, it has to be said that for now the impact appears to be limited. It seems that, for the most part, consumers who already had access to good deals are getting better deals. But, the technology and data allows lenders to more easily profile consumers and identify consumers that are less profitable and higher risk (according to their risk metrics).[9]
Until the time comes that innovative tech and data can make a significant impact, we will need to make better use of existing data to protect vulnerable consumers and promote better credit markets and inclusion.
Risk models are becoming more sophisticated and complicated by the day. We are deluged by data in financial and consumer markets. So, it is important to identify the data that matters. Despite all the innovation, the data that Registry Trust stewards remains one of the most critical anchor data sets in credit decision making. However, the data is somewhat binary – people either have a judgment against them or not. This is why Registry Trust is working on three initiatives to enhance the data we steward to further enhance the utility of our data for the market, policymakers, regulators, and civil society.
The initiatives are to:
- include the name of the claimant on the public register;
- address the problem of county court judgments (CCJs) not being marked as ‘satisfied’ on the public register; and
- create a partial settlements register.
Claimant data
Registry Trust has been asking the Government to include details of the claimant as well as the defendant on judgment records. As it stands, we 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 would be another small step that could have a big impact.
Lenders and other service providers could gain a better understanding of the nature of the debt outstanding and be able to make a more nuanced assessment of a potential borrower’s credit risk.
Consumer protection regulators 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 lenders have in place to prevent irresponsible lending or, for utilities and telecoms providers, the effectiveness of policies intended to support consumers in financial difficulty.
Claimant data could also be a helpful corporate accountability tool for civil society groups. Academics and think tanks could obtain better insights into the source and nature of problem debt within the economy. It could also be a useful input for determining the funding of debt advice based on the harm caused. The Money and Pensions Service (MaPS) and other stakeholders could identify with more precision which activities, sectors, and firms are responsible for causing financial problems for consumers and adjust funding requirements accordingly. This would be a fairer way of funding debt advice based on the ‘polluter pays’ principle.
We were pleased that the Ministry of Justice recently consulted on including the claimant name on the Register. We await the outcome of the consultation with interest.
Satisfactions
We estimate that 4.6 million consumers and small/ micro businesses have at least one outstanding judgment against them. CCJ data, as well as being a lagging indicator (in that a judgment is enforced when arrears and debts have not been managed), can be a leading indicator of consumers’ ability to access affordable products and services. A judgment stays on the Register for six years so this can affect consumers’ ability to access affordable credit in future, leaving them financially vulnerable. 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. Judgments are also used by landlords and employers so this can affect more than consumers’ rights of access to affordable credit.
Yet, currently, just 15% of judgments are marked as ‘satisfied’ on the Register, and this proportion has been falling over time. It is not well known that for a judgment to be 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. As outlined above, people in debt can face a vicious cycle 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 judgment has not been marked as satisfied. This problem could be addressed in a number of ways including raising awareness of the issue amongst consumers. 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. This should be seen as part of a firm’s 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 help build a bridge back to financial inclusion.
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 judgment, there is currently no requirement or process in place for the 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 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 our data. 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 houses repair and rebuild their finances.
Conclusion
The response to the cost of living crisis shows what can be done when industry, regulators, and civil society collaborate to protect the well-being of consumers. While we have seen some encouraging data on the numbers of people struggling financially, there is no room for complacency. Millions are still struggling with the effects of the cost of living crisis and remain excluded from mainstream markets.
We need the same collective effort to tackle the ongoing challenges of protecting consumers, making credit markets work better, and promoting financial inclusion by helping people back into the mainstream credit market.
As part of our Public Data for the Public Good ethos we are keen to collaborate with stakeholders to enhance our existing data resource to better inform and target interventions aimed at protecting financially vulnerable households and promote better credit markets.
[1] Financial Lives cost of living (Jan 2024) recontact survey - Summary | FCA
[2] For a judgment to be marked as satisfied, the outstanding debt has to settled and the defendant has to contact the courts with proof of payment.
[3] financial-lives-survey-2022-key-findings.pdf (fca.org.uk)
[4] financial-lives-cost-of-living-jan-2024-recontact-survey-findings.pdf (fca.org.uk)
[5] Always on your mind? Long-term money and mental health problems
[6] portfolio-letter-firms-high-cost-lending-2022.pdf (fca.org.uk)
[7] Inclusion Report 2023 (plend.com)
[9] customer-data-access-and-fintech-entry-early-evidence-from-open-banking.pdf (bankofengland.co.uk)