Comment: FCA’s new guidance on vulnerable customers

Following this morning’s guidance from the FCA to help firms do more to protect vulnerable consumers, Matthew Drage, Director of Consumer Finance at Huntswood, said: “This guidance couldn’t be better timed, given the fast-changing conditions that are exacerbating the financial challenges of consumers. This is clearly a high priority for the regulator.

“The difficulty with vulnerability is that it is a fluid concept, with a variety of causes that can change rapidly. These guidelines will provide some key insights into how firms should be adopting more proactive measures in their identification and fair treatment of those consumers experiencing vulnerability, some for the first time.

“The Financial Lives research provides a welcome reminder that call handlers require excellent communications skills to recognise the signs of vulnerability and to be sympathetic to customers’ needs. This is particularly important at times of crisis when call centres might be under pressure from high volumes of calls.

“Joining up data points across channels can provide firms with a more holistic view of each customer, allowing for improved identification of vulnerability and better outcomes for those experiencing it.”

Consumer eligibility for credit showing signs of improvement

Brits have a wider choice of credit cards and loans, because more lenders are returning to the market as the COVID-19 lockdown restrictions ease. Around half of lenders had previously withdrawn products.

Experian’s Credit Barometer shows that at the start of the lockdown, just one in four (25%) people searching for a loan found a product they were likely to be accepted for.1 In addition, 60% of those searching for a loan did not see any offers matching their credit needs.

Currently, 40% of consumers searching for a loan through Experian price comparison service will see a product they have a strong chance of being accepted for.2 Of these, around two-thirds (63%) will be pre-approved, meaning they are guaranteed to be accepted for that product.

Furthermore, the number of people that did not see a single loan product that matched their needs dropped to 38% in July.

The recent rise in consumer eligibility means people’s chances of being approved for a loan is now 60% higher than at the start of the UK lockdown.

Amir Goshtai, Managing Director of Experian Marketplace said: “Analysis from our latest Credit Barometer provides some welcome encouragement for people seeking loans. Eligibility ratings give people an indication of their chances of being approved for a specific credit deal. These ratings are now edging closer to pre-lockdown levels as lenders grow in confidence and start returning to the market, improving consumers’ chances of being approved for credit.

“At the moment, our panel of brands offering loans stands at 79% of what it was pre-lockdown, showing signs of improvement in the credit market.”

Credit card products have returned to the market at a slower rate to loans. More than one in four (26%) consumers did not see a single credit card they were likely to be accepted for at the peak of lockdown, compared to just one in ten (10%) that saw the same result at the beginning of March.

However, acceptance rates for credit cards are beginning to bounce back as over one in two (53%) are now likely to see at least one lender with a strong chance of lending to them, when searching for a card.

Goshtai added: “We understand this is a challenging time for many and not everyone will be in a position to attain credit. But people shouldn’t feel disheartened if they find their chances of being approved for credit are low. The market is changing daily and so is consumer eligibility. By building their credit score, consumers can put themselves in the best position to take advantage when lenders review their eligibility criteria.

“People looking for credit should regularly check their credit score and use comparison services such as Experian’s, to compare credit products until they find the right product for their needs. They can also be reassured that this won’t harm their credit score but give them the knowledge to apply confidently when their eligibility improves.

“And in the meantime, we will continue to work with lenders to understand their risk factors so people are better informed and help consumers share additional information that helps improve their chances of approval.”

As consumers’ employment circumstances began to change through lockdown, Experian added two new questions on employment status and sector for those searching for a loan. These insights give lenders a broader view of an applicant’s affordability, helping them to make more-informed lending decisions.

Experian’s comparison service matches people’s needs with lending criteria to show their likelihood of being accepted, and all without damaging their credit score. People can check their eligibility and compare credit products for loans, credit cards, mortgages and car finance at experian.co.uk.

Tips

Here are four tips from Experian on how to boost your credit score:

  • Register to vote: As well as enabling you to have your say at the ballot box, registering to vote unlocks several additional benefits. Firms can use the information to quickly and easily confirm your identity, but it can also almost instantly add points to your credit score, because electoral roll registration is seen as a sign of reliability and stability.
  • Keep up to date with payments: It’s important that you keep up to date with all your financial commitments as missed payments are bad news for your credit score. If you are struggling to meet payments because of the impact of the pandemic, it’s crucial you speak to your lender as soon as possible. Many lenders are being flexible and offering support – such as reduced payments, payment holidays and credit limit increases – to help their customers through this difficult time.
  • Monitor your score: Regularly reviewing your score and checking your eligibility rating before applying for credit products are good habits to adopt early on. Not only will monitoring your score regularly give you an indication of how lenders may view you, but it also allows you to check how your financial behaviours are impacting your score.
  • Keep up to date with the market: These are new and uncertain times, so it’s understandable that many may be confused about what the virus can mean for their finances. Our dedicated Coronavirus Hub answers some of the most commonly asked questions and offers advice on payment holidays and managing debt. We’re also regularly updating customers on lender changes in the market and how their chances of being approved have changed through our weekly emails.

StepChange publishes new June debt analysis and comments on Bank of England data

Today’s Money and Credit data from the Bank of England shows an increase in mortgage borrowing, but a significant net decline in consumer credit.

Commenting on the trend, StepChange Debt Charity Head of Policy Peter Tutton says: “The Bank of England data out today shows large net repayments of credit on the part of the household data, but we shouldn’t make the mistake of thinking that means that household finances aren’t under stress.”

Today StepChange publishes its latest monthly report from StepChange on the trends the charity has been seeing among those seeking debt advice since the onset of the coronavirus crisis.

Key highlights in June:

  • StepChange saw around 331,000 website users – well up on a year ago, but users are now looking for broader information with fewer hits on the coronavirus and emergency funding hub pages
  • Around 13,000 new clients went through full debt advice – up on previous months, but still lower than a year ago, reflecting the “treading water” status of many households
  • Women and those aged under 40 are more likely to cite coronavirus as a reason for their debt
  • There is a gradually rising trend in those citing coronavirus as reason for debt – 16% in June, up from 13% in May and 9% in April (based on telephone clients).
  • 60% of telephone clients citing coronavirus as reason for debt were employed – against 45% of all clients.

FCA ‘right to challenge firms’ to improve on vulnerability

The Financial Conduct Authority has today launched a second consultation on its revised guidance for firms on the fair treatment of customers in vulnerable circumstances, alongside new research on the experiences of vulnerable consumers.

The regulator’s qualitative research concludes that while many firms perform well on vulnerability, “fair treatment of vulnerable customers is not yet being consistently embedded by all firms in their culture” – highlighting four key themes for firms:

  • Recognising vulnerability and understanding customers’ needs
  • The value of sympathy
  • The importance of empowered and knowledgeable staff
  • Meeting vulnerable consumers’ communications needs

The FCA also warns that coronavirus has “significantly increased the number and severity of issues affecting consumers” and that “now more than ever, firms should be paying particular attention to the needs of vulnerable consumers.”

Chris Fitch, Vulnerability Lead Consultant for the Money Advice Trust, said: “This revised guidance makes clear that vulnerability remains at the very top of the FCA’s agenda, where it should be. At a time when millions of peoples’ situations have been turned upside down by the impact of coronavirus, the FCA is right to challenge firms on what more they need to do to support vulnerable customers.

“We welcome the ‘common harms’ that the FCA has now set out, which should encourage firms to think beyond single issues and circumstances, and encompass the complexity of people’s real lives. This is also the first time the regulator has attempted to quantify the costs of responding to vulnerable customers, while balancing this with the benefits this can bring to firms and consumers alike.

“Much of what the FCA has outlined today needs addressing now – there is no time to lose. Fortunately, the financial services industry’s swift response to Covid-19 in recent months has shown that change can happen quickly when it needs to. We look forward to working with firms to help them implement the final guidance.”

FCA announce to ban motor finance discretionary commission models – comment

Following the FCA announcement this morning to ban motor discretionary commission models, John Perez, Partner at DWF, said: “The concern for the industry will be how dealers will bridge the gap in loss commission sales. A point of sale motor finance transaction involves a number of different elements which dictate how a dealer makes their margin on a deal, commission making up just one element of this. The concern will be whether vehicle values will increase as a result of dealers protecting the margins that they’ve been accustomed to.

“I also see rate for risk pricing being more widely adopted. This could result in dealers earning more commission on deals being approved for customers with a poorer credit profile. The FCA have expressly stated that rate for risk pricing could be a compliant model provided the dealer does not directly affect their commission. There’s a risk here that a vulnerable consumer could end up paying more interest and consequently more commission to a dealer, if a lender’s commission model aligns commission to the interest rate offered.”

FLA comment on the FCA’s announcement to ban discretionary commissions in the motor finance market from January 2021

Commenting on the FCA’s announcement that it will introduce a ban on discretionary commission models on 28 January 2021, Adrian Dally, Head of Motor Finance at the FLA said: “This is a welcome announcement from the FCA as it provides clarity for the industry. We are also pleased that the regulator accepted our point about the need to monitor the consumer hire market as the ban on discretionary commissions does not extend to personal contract hire agreements.”

Foundation Home Loans completes fifth securitisation

Foundation Home Loans, the intermediary-only specialist lender, has announced the completion of its latest securitisation, Twin Bridges 2020-1 PLC, the fifth deal under the Twin Bridges platform which the lender established in 2017.

Foundation said the transaction was met with strong investor interest, allowing the senior tranche to price at 125 basis points over SONIA (the Sterling Overnight Interbank Average Rate).

The lender said this £350 million deal was the largest Twin Bridges transaction and its first non-publicly placed trade. The deal reinforces the company’s strong financial position, with over £1bn in warehouse funding in place to cover its lending targets over the next 12 months.

Hans Geberbauer, Chief Executive of Foundation Home Loans, said: “This securitisation is an excellent trade which bolsters our robust capital and liquidity position even further, allowing us to continue to offer competitive specialist mortgage funding to our intermediary partners.

“The excellent pricing achieved, and the long period to the call date for the securitisation, are a testament to the confidence investors have not just in the underwriting and origination processes of Foundation Home Loans, but also in our excellent in-housing servicing capability which proved invaluable in addressing the challenges thrown up by the pandemic. This would have been impossible to achieve without the quality and resilience of our staff generally and of our Treasury team in particular.

“It is great to see confidence and demand returning both in the securitisation and wholesale funding market and among customers, whether for buy-to-let or owner-occupied mortgages. We are emphatically open for business.”

Foundation Home Loans meets increased demand for shorter-term buy-to-let rates with reduced pricing and new product

Foundation Home Loans, the intermediary-only specialist lender, has today responded to an increase in demand for shorter-term buy-to-let mortgage products by reducing pricing on two products for standard property types, and introducing a new product with a flat arrangement fee.

These complement the existing two- and five-year rates already available. From today, advisers will be able to access the following reduced two-year rates within Foundation’s standard property range for both individual and limited company borrowers with an almost clean credit history:

  • An F1 3.24% fixed-rate – reduced from 3.39% – available at 75% LTV with a 2% fee.
  • A 3.49% fixed-rate – reduced from 3.69% – available at 75% LTV with a 2% fee in the F2 range.
  • A new F1 3.44% two-year fixed-rate product available up to 65% LTV with a flat £1,995 fee.
  • A new F1 3.64% two-year fixed-rate product available up to 75% LTV with a flat £1,995 fee.

Earlier this month, Foundation returned its buy-to-let product range to its pre-lockdown structure with the reintroduction of large loan, early remortgage and short-term let products.

The changes follow Foundation’s recent amendments to its HMO/multi-unit block product range which it says is also seeing strong demand for two-year options. It currently offers two-year fixed-rate options for standard and large HMOs.

Jeff Knight, Director of Marketing at Foundation Home Loans, said: “We are seeing a strong demand for our two-year products across the range and are always looking to enhance our competitive position where appropriate. These products are available to both limited companies and individuals. We are also able to offer these with generous ICRs, for example, 125% for limited companies and basic-rate taxpayers, which broadens our range and offers an extensive choice to meet the needs of buy-to-let landlords. At present, we are able to provide excellent levels of service, we have all our sales team working effectively from home and this has translated into a record number of new case enquiries in recent weeks. We would therefore urge advisers with landlord clients to speak to Foundation to see how our growing range of products might be suitable for them.”

FLA comment on launch of the Comprehensive Spending Review

Commenting on the launch of the Government’s Comprehensive Spending Review, which sets out longer-term growth plans for the UK – including commitments to develop technologies to support net zero carbon emissions by 2050, to level up national and regional economies, and to increase productivity – Stephen Haddrill, Director General of the FLA, said: “Confirmation of the longer-term growth plans are very welcome, and mirror those included in our recovery plan for the economy – Shaping the UK’s future prosperity: recognising the opportunities for recovery.

“What we need now is a commitment from Government to ensure that lenders are able to lend during the recovery. It is vital to rebuild consumer and business confidence at this point – and that confidence begins with the availability of funding.

“Unprecedented levels of forbearance are being provided by lenders in our markets, with the Financial Conduct Authority requiring that this is done without regard to firms’ commercial interests. Many of these firms are non-bank lenders with no access to Government funding schemes, so since the beginning of the crisis they have been supporting customers out of their own reserves.

“To ensure that they can lend again during the recovery, the Government must provide a Forbearance Liquidity Support Scheme, and reform the British Business Investment (BBI) Direct Lending Scheme so that it works for the wide range of specialist funders of SMEs and consumers which do not have access to Bank of England support.”

Europcar Mobility Group UK announces new Partnership with the Leasing Broker Federation

Europcar Mobility Group UK are pleased to announce a new strategic partnership with the Leasing Broker Federation.

Made up of over 170 broker members, the Leasing Broker Federation is an independent membership organisation supporting car leasing brokers and operators across the UK. The Federation provides a business community environment where Leasing Companies, Funders, Manufacturers, and Service Suppliers can build and maintain mutually beneficial business relationships.

Through this new partnership, Europcar Mobility Group UK is exclusively offering their suite of Long Term Solutions to broker members of the LBF in order to provide consumers with a multitude of options outside of traditional car ownership. With immediate availability to normal consumers, the products will also be made available to SMEs in the following weeks.

Whilst the leasing market is traditionally composed of lease contracts ranging from 2 to 4 years, Europcar Long Term Solutions are designed to complement these existing contracts by providing customers with a range of short and mid-term alternatives.

Falling under the Europcar Long Term Solutions product range, SuperFlex provides consumers with hire options from 28 to 84 days whilst Flex+ delivers a brand new vehicle for time periods anywhere from 3 to 18 months. These products spell good news for consumers who have an immediate need for a vehicle but are hesitant to sign up to a long term lease.

Clive Forsythe, Europcar Mobility Group UK Sales and Marketing Director said: “We are pleased to announce a new and exciting partnership between the Leasing Broker Federation and Europcar Mobility Group UK.

“Europcar’s portfolio of products aim to provide our customers with more choice and freedom when making their next mobility decisions. Our Flex+ and SuperFlex products present customers with the latest vehicle makes and models without the cost of ownership, hefty deposits or the burden of a lengthy lease.”

Leasing Broker Federation Relationships Director Graham Prince added: “We have worked hard alongside Europcar Mobility Group UK to launch the partnership with the Leasing Broker Federation and I am delighted that our Leasing Broker Members are now able to offer these products to their customers. This is a very important Partnership for the LBF and, with the launch of more products to come, this will continue to add value to our Members enabling them to deliver more services to their customers.”