BIS issues Call for Evidence - Review of Consumer Credit and Personal Insolvency

15 October 2010

BIS has issued its initial Call for Evidence, "Managing Borrowing and Dealing with Debt" to gather views and consider how consumer credit and personal insolvency could be further reformed.

The Coalition Agreement previously set out commitments on reforming the regulation of financial services and stopping unsustainable lending.  These are presented for feedback alongside other ideas.

The BIS Review of Consumer Credit and Personal Insolvency was announced in July.  It is expected the Review will run over the next year.  This Call for Evidence paper has been widely circulated to stakeholders directly.  A plain English version has also been produced for consumers, and a website poll, suggesting a similar engagement style will be taken as for the Review of Credit and Store Cards last year.

The paper acknowledges developments stemming from the Consumer Credit Directive and the publication of the OFT's Irresponsible Lending Guidance.  It also points to the future and the proposed role of the consumer protection and markets authority (CPMA) which following further consultation might take on responsibility for consumer credit matters. 

It is made clear that where possible regulation will be avoided in favour of solutions which draw upon increasing competition and transparency, and influencing how consumers act in relation to credit using behavioural economics so they can "drive a new culture of responsible borrowing."  Lenders will particularly welcome amongst the review objectives that is intended they should be "freed of unnecessary regulatory burdens."

The concepts presented for discussion include:

Lending

• If advertising regulations should be extended, or aligned with the FSA advertising rules for secured credit
• The expected effects of a 7-day cooling off period on store cards
• Views on the recommendations of the OFT High Cost Credit Review - including increasing the sharing of payday and rent-to-buy customer data with credit reference agencies
• Increasing data sharing to assist responsible lending - including utility, local authority and HMRC data
• More transparency about credit scoring and its impact on personal pricing
• A list of stakeholder proposals to reduce regulatory burdens on business
• If concerns about unarranged overdraft charges are being sufficiently addressed
• Interest rate caps on credit and store cards (the paper is quite specific that it is these facilities under consideration for this measure)
• The effectiveness of the changes driven by the Competition Commission in relation to Home Credit

Collections and Insolvency

• Possibility of reforms to court-based debt recovery
• A potential £25,000 threshold for charging orders and orders for sale
• Encouraging debtors to take control of their debt problems
• The range and effectiveness of the debt solutions options available
• Dealing with temporary income shocks
• Correct identification of debt advice and solutions
• Consistency of calculation of disposable income in financial difficulty
• Investigation and enforcement in relation to those applying for insolvency
• Need for a common entry point to formal insolvency

The Call for Evidence can be read in full here.  It closes on Friday 10 December.

When the review was announced, many involved in the consumer credit industry immediately questioned the need for yet further reform of regulation in this area, given the extent of the changes which are already in effect or in train. However BIS believes that nonetheless "there are some credit issues that need urgent attention."

Suggestions that data sharing could be extended will be encouraging for all with an interest in responsible lending.  As the OFT states in the Irresponsible Lending Guidance, "The process of assessing affordability is assisted by creditors registering accurate data with credit reference agencies". Potential sharing of local authority and utility data raises the prospect of a truly comprehensive understanding of a consumer's financial situation.   Callcredit of course offers well-established products to check affordability and confirm income level through the Over-Indebtedness Initiative, so an alternative to HMRC data sharing is already available.

Increasing transparency of credit scoring and its impacts is to be welcomed in terms of helping consumers to understand and engage with their credit file and what affects it.  However this can only apply to a point.  Excessive transparency on individual scorecards could both undermine intellectual property and encourage attempts at first party fraud.

BIS appears to have essentially accepted the recommendations of the OFT High Cost Credit Review, and the questions discuss rate caps only in the context of credit and store cards - a proposal carried forward from the Coalition Agreement.

 

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