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  • Lex Jones, Chief Executive, Registry Trust

Tuesday, 15th March 2022

Why we’re creating a Register of Partial Settlements

Registry Trust, the not-for-profit organisation which maintains the Register of Judgments, Orders and Fines on behalf of the Ministry of Justice, is working with several key stakeholders on a project which will provide ‘public data for public good’ on partially settled monetary judgments.

Thanks to our Partial Settlements Project Steering Committee for their active participation, expertise, experience and support, things are progressing well in line with our mission to continuously improve the quality and relevance of our monetary judgments data.

The Register of Partial Settlements will make a material difference to both creditors (helping them to recover affordable payments) and consumers (enabling them to re-establish their finances and improve future borrowing prospects).

The current process for partial settlements

There are currently 4.5m individuals in the UK with outstanding with county court judgments (CCJs), 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 4.5m are those who have made a partial payment which the creditor has accepted as a settlement. As an example, in the case where a CCJ is issued based on a ‘misunderstanding’ – for example, a tenant who moved house without the water company having a record of it – both parties may settle the debt for the duration of the tenancy which is less than the amount for which the CCJ is recorded. However, because 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 our public Register of Judgments, Orders and Fines.

This means that, even though the creditor has accepted a payment as a settlement and in the eyes of both parties the debt has been repaid, it remains as fully outstanding on the Register and on the defendant’s credit file. The CCJ record is therefore not accurate, which has a knock-on impact on the millions of lending and credit decisions that are made using our data.

There’s therefore little financial incentive to make partial payment, which is not in the creditors interests either.

The rise of unsecured credit

The UK unsecured credit market has evolved in its modern form since the late 1950s to become an integral part of how most consumers live their financial lives. Most will at some point rely on a credit card, loan, or overdraft.

More recently, there has been a marked shift in innovation including the rise and fall of payday lenders, unregulated 'buy now, pay later' products, and advances to employees. Store cards are in sharp decline but there are plenty of online retailers offering credit. Utility companies, phone operators, many service companies and even HMRC bill retrospectively and therefore all provide unsecured credit.

Increasing levels of financial inequality

The pandemic will have a considerable impact on credit. Our expectation is that inequality will be exacerbated. Much of the UK's workforce has been financially insulated through the furlough scheme and government-backed loans. The household savings ratio increased from 8.9% in Q1 2020 to 25.9% in Q2 2020, a record high. Deposits in bank accounts increased by £46 billion in Q2 2020; over the previous decade the deposit amount rarely exceeded £10 billion, and the average is close to £1 billion.

In contrast, a report by Legatum Institute shows more than 15 million are now in poverty. The report also calculates that the pandemic has pushed nearly 700,000 more people in the UK into poverty, with some 9.6 million people’s household incomes 25% or more below the official definition of poverty. The net effect is likely to be that some households struggle to meet existing credit repayments and there is a greater demand for short-term credit in low-income households.

The Woolard Review was commissioned by the FCA to look at regulation in the unsecured credit market. Doubtless there was mounting concern about high costs lenders and the unregulated rent-to-own retailers. Both sectors have since gone into sharp decline, but the Woolard review remains highly relevant with some key recommendations. One clear risk is that the demise of high-cost lenders will push more people into illegal and unauthorised money lenders. Woolard says that: "Credit information plays an essential role in supporting good outcomes in lending markets. Access to credit is often dependent on the availability of high quality credit information and changes in the way that information is recorded can take a long time to implement."

Improving credit information

One well-known blind spot in credit information is that information on partially settled CCJs is not recorded. Woolard recommends that the FCA should "consider the case for introducing rules to require creditors to report to courts when a CCJ has been satisfied or partially satisfied, to drive up the quality of existing credit information."

For many years, retail creditors have based their decisions on data and models supplied by credit reference agencies in combination with data they hold on the customer. This gives the high street banks a massive commercial advantage over new entrants. To create a more level playing field, the FCA introduced Open Banking. Open Banking makes it possible for a potential borrower to digitally share their banking data and thereby allow the lender to make a more informed decision. The overlap between Partial Settlements and Open Banking is that both enable better credit decisions.

The benefits of a Partial Settlements Register

The behaviour of individuals with debt problems is partly influenced by debt advice charities who offer advice to individuals in financial difficulty. Currently, as there is no material benefit to a consumer paying off a partial settlement, it is unlikely that a consumer would be advised to make a partial settlement of a debt, especially when other needs may appear more pressing.

The creation of a Register of Partial Settlements would create an incentive for consumers to repay part of what they owe, while not materially worsening the situation for those who cannot afford to make a partial repayment. Our analysis indicates that a fully implemented Partial Settlements database could create savings to affected borrowers of £5m to £12m per year. We expect these savings will take time to materialise. The challenge will be in ensuring that the long-term benefits of the new Register are not lost if the end-users are not able to see a short-term benefit.

We need as much support as possible from stakeholders across the credit, debt advice, and related sectors to bring the Partial Settlements Register to life and we will be sharing regular updates on its progress. Publicly demonstrate your commitment to fair lending practices and show your support for the project here.

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