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THE LENDING CODE ENSURING CONTINUED EFFECTIVENESS
Robert Skinner
Chief Executive
Lending Standards Board
17 May 2011
IMA – assuring quality in the money advice profession
Outline
Outcome of the review of the Lending Code New provisions Working with stakeholders Monitoring and enforcement Increasing awareness of the Code The future of consumer credit regulation
The Lending Standards Board
Functions to: monitor compliance with the Code and take enforcement
action for material breaches assist subscribing firms interpret and meet the letter and
the spirit of the Lending Code identify gaps and deficiencies in the Code that could lead
to customer detriment and to advocate change oversee the Code review process – but final decision
on content remains with the Sponsors maintain a public list of Code subscribers
History
Lending Code broadly contained the previous Banking Code lending provisions, but included a number of enhancements risk adjusted re-pricing for credit cards 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
2011 additions new credit card rules
Guidance issued in 2010 interest and charges concessions use of the right of set-off
Review of the Lending Code
Timetable Reviewer’s report and industry response published 28
February
New Code launched 31 March Consultation responses
33 submissions received
LSB and Code sponsors
Government departments incl HMT/BIS
Regulators incl OFT
Debt advice and consumer bodies
Others including Code subscribers, FOS, CRA’s, Royal College Psychiatrists
Outcome of the review
43 main recommendations 21 related to financial difficulties
Response from Code Sponsors 30 recommendations accepted in full 7 compromises agreed 6 rejected
19 less material changes recommended, the majority of which were accepted
New provisions
Promotion of the availability of quotation searches Strengthened credit assessment requirements Clear explanation if a credit application is declined Standards covering the promotion and operation of an ‘opt-out’
from unarranged overdrafts Pre-notification of overdraft interest and charges Prohibition on mailing of unsolicited credit card cheques Awareness of credit card charge back provisions Express consent to be obtained before a customer refused
credit is referred to another lender
New provisions: Financial difficulties
Pro-activity – identifying and contacting customers who may be at risk of financial difficulties
Early engagement – consideration of plans prior to default Customers should not be expected to increase their repayment at
review unless their situation has improved Repayments on a consolidation loan should generally be no more
than sum of existing payments Breathing space provisions to be available to ‘self-help’ customers Operation of account during breathing space Further 30 days breathing space to be agreed if progress is being
made towards a repayment plan Communications should be via customer’s adviser
New provisions: Financial difficulties (cont)
LSB standards on use of right of set-off and approach to interest and charges concessions
‘Token offers’ should be accepted CFS expenditure figures should only be challenged when
additional information available CFS creditor checklist to be subject to LSB monitoring and
enforcement Obligations on subscribers re CFS to extend to other similar
statements agreed by the LSB and Sponsors CASHflow statement to be considered in same way as a statement
submitted by advice agency
New provisions: Financial difficulties (cont)
Customers to be advised before debt is sold Enforcement methods must be relevant to jurisdiction of the
customer A number of new provisions covering debt and mental health
including: Subscribers encouraged to establish specialist teams Oral notification should be sufficient to suspend calls and
letters Customers to be informed how information about their
condition will be used Subscribers expected to consider DMHEF if presented
Outside scope of review
Commercial issues Pricing and level of charges Risk appetite
Products and customers covered by the Lending Code Monitoring and enforcement of Code
WHAT DO YOU THINK OF THE OUTCOME?
IMA – assuring quality in the money advice profession
So where now - ensuring continued effectiveness
Industry commitment Stakeholder relations Robust monitoring and enforcement Achieving increased awareness of Code (and LSB)
Industry commitment
Response to Code review recommendations has been very positive as has willingness to agree new guidance ahead of full review
Uncertainty about the future of consumer credit regulation must not lead to reduced support for current regime
Being seen to be responsive when potential detriment is identified
Minimum standards v best practice
Working with other stakeholders: approach, expectations and concerns
Government Other regulators Consumer and debt advice bodies FOS Industry commentators
WHAT CAN THE LSB DO BETTER?
IMA – assuring quality in the money advice profession
Robust monitoring and enforcement
No change to monitoring ‘mix’ Heavy reliance on themed reviews Investigations Annual statement of compliance (ASC)
LSB action will be proportionate Focus is on compliance Intelligence gathering Stakeholder desire for increased transparency needs to be
balanced against subscriber confidentiality
Priorities for 2011
Outstanding Code review issues Debt sale Mental health/mental capacity
Ensuring new Code requirements are embedded in policies and practices
Continued focus on credit assessment and financial difficulties Review of complaints data
Forward agenda 2011
Reviews planned Financial difficulties (in course) Credit assessment Q3 Unarranged overdrafts Q3 Credit cards Q4
Watch list Impact on customers of immediate reduction or withdrawal
of credit lines Treatment of customers during the ‘breathing space’ Clarity of communications issued to customers especially as
part of the collections process Use of unfair/inappropriate collections techniques Impact of increased credit card minimum repayments
Awareness of the Code
Consumer guides Available in branch and on-line now To be provided to new customers from July 1
LSB Bulletin and website Subscriber/Sponsor promotion Engagement with consumer and advice bodies
What does the future hold?
HMT/BIS response to recent consultation on consumer credit regulation not due until end July but ….
Future appears likely to be the FCA Is there a role for self-regulatory codes in an FCA world? LSB position For now and for some time to come, self-regulation via Lending
Code will continue - enforced by the LSB which we believe has the support of key stakeholders Transition to ‘target regime’ to be handled carefully LSB concern to ensure no reduction in consumer protection
during changes Importance of current Lending Code review
THE LENDING CODEENSURING CONTINUED EFFECTIVENESS
Robert SkinnerChief ExecutiveLending Standards Board17 May 2011
IMA – assuring quality in the money advice profession