Money Advice ScotlandAnnual Conference 2011

New Markets - New Opportunities?

The Lending Standards Board

Money Advice Scotland Conference

June 2011

The Lending Code

The Lending Code was introduced in November 2009 following

transfer of responsibility for regulating current accounts in credit

and savings products to the FSA.

The Lending Code covers o Overdraftso Unsecured loanso Credit and charge cards

It offers protection to o Consumerso Micro enterpriseso Charities

The Lending Code is owned by the sponsors (BBA, BSA and UK

Cards) and is independently monitored and enforced by the

Lending Standards Board

What the Code says – Key Commitments

Under the Code, firms agree to a number of key commitments• Advertising to be fair, clear and not misleading• Customers to be given clear information about how their account

works• Customers will receive regular statements and be told if interest

and charges change• Firms will lend responsibly• Deal quickly and sympathetically when things go wrong and help

when customers are in financial difficulties• Personal information will be regarded as confidential• Staff will be trained to implement the Code

What we seek to achieve and how you can help

We are seeking• Good compliance with the Code• Positive engagement with all stakeholders• Change by persuasion where possible• Spread good practice and highlight bad• Develop the Code where it is weak or silent

What we need from you• To work with creditors on behalf of your clients, constructively,

positively and openly• To make sure that lenders know when you have problems and to

register complaints formally• To let us know when things aren’t working or when the Lending

Code is not being applied

Review of the Lending Code

Consultation responses• 33 Submissions received• All significant stakeholders represented

Independent reviewer outcomes• 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 – majority accepted

Views on review outcomes

LSB View – good process and successful outcome against complex

backdrop

Key improvements• Financial difficulties

o Early identification and engagemento Treatment of self-help customerso Mental Health

• New consumer guides

Other stakeholders• Whilst not all suggestions were adopted, overall view is positive• Good level of support for the Code

Key Changes to the Code

• Better customer information• Broader Credit assessment criteria• Defined responsibilities for credit card providers• More help for customers in financial difficulties

Key changes to the Code – 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 repayments at• review unless their circumstances have improved.• Breathing space provisions extended to ‘self-help’ customers.• Operation of account during breathing space.• Further 30 days to be agreed if progress being made towards a• repayment plan.• LSB standards on use of right of set off and approach to interest and• charges.• ‘Token offers’ should be accepted.• Common Financial Statement expenditure challenged only when• additional information available.

Key changes to the Code – Financial Difficulties

• CFS creditor checklist usage subject to LSB monitoring and• enforcement• CFS obligations to be extended to other similar statements as• agreed by the LSB and sponsors• CASHflow statement to be considered in same way as statement• submitted by advice agency• Customers to be advised before debt is transferred or sold• Enfo rcement methods must be relevant to jurisdiction of debtor• Debt & Mental Health

o Subscribers encouraged to establish specialist teams

o Oral notification should be sufficient to suspend calls and letters

o Customers to be informed how information about their condition will be used

• Subscribers expected to consider DMHEF if presented

Robust monitoring and enforcement

• No change to monitoring ‘mix’o Heavy reliance on themed reviewso Investigationso Annual Statement of Compliance (ASC)

• LSB action will be proportionate• Focus is on compliance• Intelligence gathering• Senior management and business line engagement• Stakeholder desire for increased transparency needs to be

balanced• against subscriber confidentiality

Monitoring Agenda 2011/2012

• Financial Difficultieso Currently being undertakeno 9 Subscribers

• Credit Assessmento 8 Subscriberso Review of enhanced Code requirements

• Opt out of unarranged overdraftso Commitment to OFT

• Credit Cardso UK Cards best practice guidelineso Code enhancements

• Annual Statement of Compliance (ASC)o Evidence Check

Forward Agenda 2011/2012

• Debt Sale• Compliance Monitoring & Risk Strategy• Transitional, waivers and interpretation requests• 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

What does the future hold?

• Future looks likely to be FCA• Target should be at least as strong as the sum of current

regulatory regimes both statutory and self-regulation• Self-regulation has a number of advantages over statutory

regulation• LSB concern to ensure no reduction in consumer protection• Lending Code will continue until it is clear we are no longer

needed

Questions?

The Lending Standards Board

Money Advice Scotland Conference

June 2011