Improving consumer outcomes in the credit markets The role of industry codes 11 March 2015 Robert Skinner

www.lendingstandardsboard.org.uk

Improving consumer outcomes in the credit markets

The role of industry codes

11 March 2015

Robert Skinner


We are not short of industry codes!

BBA/BSA/UK Cards Association Lending Code

Finance & Leasing Association (FLA) Lending Code

British Cheque and Credit Association (BCCA) Code of practice

Consumer Credit Association (CCA) Code of practice

Consumer Credit Trade Association (CCTA) Code of practice

Consumer Finance Association (CFA) Code of practice

National Association of Pawnbrokers (NPA) Code of conduct

Credit Services Association (CSA) Code of practice

Debt Managers Standards Association (DEMSA) Code of conduct

Debt Resolution Forum (DRF) Code of practice

Peer-to-Peer Finance Association (P2PFA) Operating Principles


What has been said about codes? (March 2013 consultations)

• FSA – We encourage trade associations to continue their work on codes,

and are keen to establish relationships with code owners to help us understand the key issues for particular industries when dealing with their customers

– We will have dedicated supervisory resource for monitoring firms’ compliance with our own regime and so are unlikely to place reliance on third parties to monitor firms’ behaviour

• HMT & BIS– Industry codes can play a valuable role in the regulation of the

consumer credit market – The Government is also keen to explore further the ways in which

voluntary codes can complement rules-based regulation under the FCA

• Feedback mixed but FCA and Government confirm they believe codes can play a useful role


Adding value

• Industry codes of practice can– Allow those providers who wish to differentiate themselves set higher

standards than statutory rules– Set standards in areas that are not covered by and may not be

appropriate for the statutory regime– Record and monitor voluntary agreements entered into by industry – Link regulatory requirements with good market practice– Address changes in the market and emerging concerns reducing or

delaying the need for statutory rules– Assist FOS in making determinations on good industry practice

• Codes should not just replicate statutory requirements• Codes can assist in achieving a consumer credit regime that has an

appropriate balance between consumer protection and the needs of a properly functioning competitive market


Key features of successful self-regulation

Lending Code

Strong independent governance Y

Robust standards Y

Effective monitoring and reporting Y

Meaningful and proportionate sanctions Y

Transparency Y

High market coverage Y

External consultation Y

Good working relationship with statutory regulator Y


The Lending Code

• Going beyond the statutory rules– Sale of debt – Financial difficulties– Lending to small businesses

• Industry best practice – UK Cards Association best practice guidelines

• Codifying voluntary agreements– ‘Opt-out’ from unarranged overdrafts– Lending to armed forces personnel

• Flexible and responsive– ‘Right of set-off’

• Tailored to market and products


LSB reviews

• Recently completed– Financial difficulties (incl oversight of outsourced collections)– Cost of calling help and information lines– Vulnerable customers– Pre-arrears– Annual statement of compliance (ASC)

• In course/planned– Credit card information provision (mystery shopping)– Oversight of outsourced activities/services– Lending to small businesses– Credit assessment– Further financial difficulties work


What are the risks to the future of codes?

• Lack of added value– For firms– For consumers

• Low visibility• Failure to ensure and demonstrate compliance• Lack of market coverage• Proliferation of codes

– Confusion• Lack of recognition by statutory regulators and policy makers• Failure to adapt


Development of the Lending Code

• November 2009 : Lending Code introduced. Broadly contained the previous Banking Code lending provisions, but included a number of enhancements– Breathing space for credit card customers– Support for customers in debt with mental health problems

• 2010 additions– Extension of breathing space provisions to all products– New Statement of Principles for small business lending

• March 2011 : revised Code issued following independent review– Over 43 major recommendations made including 21 in area of

financial difficulties• May 2012 : New rules introduced covering outsourcing of debt

collection and the sale of debt• August 2014 : Code subscription open to debt collection and debt

purchase firms


Independent review of the Lending Code

2014

November Professor Griggs appointed to undertake Code Review

December Invitations issued to interested parties and public call for submissions

2015

January Evidence gathering

to and

March consultation

May Preliminary conclusions to LSB Board

July Final report to LSB Board

Summer Negotiations with Sponsors on main rule changes in Code

Autumn New Code launched


The Lending Code review

• A need for change• Keen to hear views on

– Existing provisions that, with the benefit of experience, need to be revised or updated to ensure their intended outcome is achieved

– The identification of areas of potential detriment not presently addressed adequately by the Code or statutory rules

– Changes required as a result of market developments such as new delivery channels

– Changes that could improve the effectiveness and understanding of the Code and the work of the LSB

– How the wider benefits of the Code and the LSB regime can be increased


The Future

• There is a place for both statutory and self-regulation• The best outcome would be for them to continue to co-exist• An opportunity to build upon what exists today

The future of codes is in the hands of the industry


Improving consumer outcomes in the credit markets

The role of industry codes

11 March 2015

Robert Skinner

Documents

Improving consumer outcomes in the credit markets The role of industry codes 11 March 2015 Robert Skinner