Page 2 Contents Page 3 Introduction / About the Money Advice Trust Page 4 Introductory comment Page 5 Responses to individual questions Appendix 1

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2 Page 2 Contents Page 3 Introduction / About the Money Advice Trust Page 4 Introductory comment Page 5 Responses to individual questions Appendix 1 MAT comments: Debt Management Guidance and Debt Collection Guidance Appendix 2 MAT comments: Debt counselling definitions. Appendix 3 Priority debt strategy chart

3 The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust s main activities are giving advice, supporting advisers and improving the UK s money and debt environment. We give advice to around 140,000 people every year through National Debtline and around 30,000 businesses through Business Debtline. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK s money and debt environment by contributing to policy developments and public debate around these issues. Please note that we consent to the public disclosure of this response.

4 We welcome the opportunity to comment on the detailed proposals for the FCA consumer credit regime. We support many of the proposals outlined in the consultation paper and the draft CONC rules. We particularly welcome the payday package of proposals but as we have indicated in our response below, we do not feel these proposals go far enough at present particularly in relation to restricting the number of roll overs and the number of attempts to collect continuous payment authorities. The requirement for the industry to operate using a realtime database is one measure that could be usefully added to the proposals. We urge the FCA to see the implementation of these proposals as a step on the road towards tackling consumer detriment in the payday lending market. We have some particular concerns that we have outlined in our response. These centre particularly around the definitions of debt counselling included in the paper. We have commented extensively on this issue in our response to question 19. We also have concerns about the decision to grant insolvency practitioners an exemption under FSMA from the need for permission to carry on debt counselling. We have major concerns about the FCA approach to lead generation companies who introduce potential clients to fee-charging debt management companies. We feel that lead generation companies should be regulated directly by the FCA and come under the definition of regulated debt counselling. We are puzzled by the proposals in relation to giving the responsibility to debt management companies for the conduct of third party companies that they choose to work with. We are not convinced that these proposals will provide adequate protection for potentially vulnerable consumers seeking debt advice. We seek further clarification of the responsibilities of lead generation companies to provide accurate information on debt on their websites and in their marketing processes. We would like to see a much greater exposition in the rules of how the FCA intends to define vulnerability and how it expects firms to deal with customers in vulnerable or potentially vulnerable situations. This should focus on the outcomes that the FCA would expect to see in place for vulnerable consumers. Although the rules clearly require policies for vulnerable people in debt, we cannot find a rule that requires clear, effective and appropriate policies and procedures for dealing with all people in debt. We have included two appendixes in our response: A detailed comparison between the new consumer credit rules and the OFT Debt Management Guidance and Debt Collection Guidance. Our comments on the FCA table setting out examples of what constitutes regulated debt advice. We have also attached our priority debt chart to our consultation response to illustrate points made in our answer to question 19.

5 We do not have any specific comments on the way the FCA is applying threshold conditions to consumer credit firms. We welcome the approved persons proposals as they apply to not-for-profit providers of debt advice with limited permissions. We can see the rationale for the proposed changes to the requirements for not-for-profit providers of debt advice. It appears sensible for those that hold 1 million or more of client money to have a director or senior manager approved to carry out the client asset operational oversight function. This will only apply to one or two providers. We are not clear why profit-seeking debt management firms who hold less than 1 million in client money should be treated any differently to debt management firms that hold 1 million and above. We would not have supposed that the risk to an individual client s money is any the less. We understand that the FCA has taken this approach on the grounds of proportionality. However, we would expect this to be subject to review if further client detriment in relation to money held by smaller debt management firms was to occur. The working of the appointed representatives regime is not an area that we are particularly familiar with. We would urge the FCA to closely monitor the impact of the proposed changes to ensure that no unexpected consumer detriment is created by the implementation of the plans. We note that the proposal to limit appointed representative debt collection businesses to entering into one single-principal arrangement with a creditor or lender has been abandoned in favour of allowing appointed debt collectors to work for more than one principal. We understand from point 3.14 of the paper that this is due to a potential adverse impact on the operation of the sector in a way that could harm the interest of those being pursued for multiple debts in particular. We understand from point 45 of the consultation response that the FCA has been persuaded by the argument that this would be advantageous for those in multiple debt as they may only have to deal with one field collector in respect of many of their debts rather than dealing with numerous debt collection firms each pursuing debtors for different debts.

6 We would support this proposal if we were to be convinced that this is what happens in practice. We can see that one collection agent working on behalf of many creditors could in theory take a more holistic approach to working out how much it is reasonable for the person in debt to pay to each of the creditors they are acting for. The collection agent could make sure that one creditor was not advantaged over another but that payments were distributed fairly on a pro-rata basis. In our experience, we have not come across agencies taking this approach. Instead, it is common for multiple collection agencies to try to collect the same debt simultaneously. We have not come across agents working on behalf of multiple creditors who try to deal with the debts together. It is more likely that they will be writing out separately on behalf of each creditor and making conflicting demands for payments under instruction from the originating creditor. The impression being given to the person in debt is indeed that of numerous debt collection firms each pursuing debtors for different debts. We have also witnessed many instances over the years of it being unclear if the agency is a separate body or is another name for a collection arm of the creditor. This practice causes confusion and can intimidate. As we have said before, it is very important that a consumer is not misled as to who the debt collection agency is acting for. Both the Lending Code and the OFT Debt Collection Guidance has tried to deal with such practices in the past. A more rigorous underpinning of the requirements on firms will be welcome and will hopefully, reduce instances of consumer detriment with all the associated cost benefits of fewer complaints to the Financial Ombudsman Service. As long as the FCA continues to hold the credit provider fully responsible for the conduct of its agents when carrying out business, then we accept the proposed approach. This needs to be subject to close scrutiny to ensure this arrangement continues to function and is not open to abuse by either home-collected credit firms, their own agents or agents that attempt to avoid having to be approved as a small business in their own right. We welcome the proposed regulatory reporting regime. We do not have any comments on the detailed proposals at this stage. Yes we agree with these proposals. It is vital for the FCA to start collecting this type of data on high-risk consumer credit activities such as these, as soon as practicable. We also welcome the intention to look at expanding the scope of the product sales data to cover other consumer credit products. We would suggest that other high-risk areas would include

7 loans secured by bills of sale and the emerging market for guarantor loans. We would also suggest monitoring of hire purchase and conditional sale agreements. We would also suggest that data collection should include the percentage of consumers making minimum payments only on credit cards. Although we understand that first mortgage product sales data is already collected, we would also urge collection of second-charge lending data and consolidation loans secured on property in particular. Looking at the product sales data table (4.2) in the consultation paper, we would suggest that the required information for companies to report should also include default information for the loan. This information is key to helping to establish if loans have been offered appropriately, sufficient affordability assessments have been carried out as well as the stated aim of identifying vulnerable client groups. We have included a detailed analysis in Appendix 1 which we have attached to this response. This compares the draft Consumer Credit Rulebook (CONC) with the OFT Debt Management Guidance and the OFT Debt Collection Guidance. We have concentrated on providing a detailed comparison in these areas as being the rules that are the most relevant to debt advice. We comment below on a selection of the areas particularly highlighted for feedback by the FCA in the paper. Misleading or otherwise undesirable names guidance The paper states that the FCA has carried across the core elements of this guidance at CONC to We are not content that this is the case. We would like to see greater inclusion of the OFT Misleading Names Guidance which we feel has not been sufficiently adopted in the rules. Second charge lending OFT guidance for lenders and brokers CONC 15 has some limited sections of the OFT guidance on second charge lending. The entire section 5 on post-contractual issues has not been replicated in the rules. This is puzzling as this section deals specifically with how the lender should engage with the borrower if they go into arrears, limitations on charges that can be added, harassment by lenders, and so on. We suggest that it is vital to include this section. We believe that second charge lending is a high risk area and there is a very high risk of consumer detriment. We think that second charge lending has played a significant role in overindebtedness, and because this is not lending for house purchase, we believe that the FCA could reasonably require more stringent safeguards. It also has unique features that are not covered elsewhere in the CONC rules. We note that section 6 of the OFT guidance is also missing. This deals with repossession, forbearance, and the necessity to follow the pre-action protocol for possession claims. General comments We welcome the recognition afforded to the Common Financial Statement (CFS) by its inclusion in the rules. ( G) and ( G). We would suggest that consideration is

8 given to the inclusion of the CFS into section 5.3 Conduct of business in relation to creditworthiness and affordability. The role of the CFS in establishing reasonable expenditure in a financial statement for people in debt could be expanded to have a role in assessing the affordability of credit and the sustainability of repayments. We particularly draw the FCA s attention to (G) (2) which states: The creditworthiness assessment and the assessment required by CONC 5.2.2R(1) should include the firm taking reasonable steps to assess the customer s ability to meet repayments under a regulated credit agreement in a sustainable manner without the customer incurring financial difficulties or experiencing significant adverse consequences. We are pleased to note the recognition of the MALG Mental Health Guidelines. However, we are concerned that the MALG Debt and Mental Health Evidence form has been omitted from the rule book. We would ask the FCA to look again at making sure assisted self-help for debt advice clients is recognised in the rules through inclusion of the CASHflow service. We would also suggest the FCA consider inclusion of the concept of breathing space into the rule book. We are puzzled by the proposals in relation to lead generation for debt management companies and the responsibilities of companies for the conduct of third party companies that they choose to work with. We seek further clarification of the responsibilities of lead generation companies to provide accurate information on debt on their websites and in marketing processes. Section 3.2 of the DMG states: In the OFT s experience, marketing used by businesses specialising in lead generation often contains misleading content apparently designed to induce consumers into providing their personal details. We feel the draft rules should be strengthened to deal with this issue more robustly. We assume that the OFT DMG Handling clients money section has been superseded by the new FCA rules for debt management firms holding client money under The Client Assets sourcebook (CASS). We have outlined our concerns about the discredited full and final settlement model adopted by some debt management companies and suggest that the FCA view of such activities is not clear in the rules. We are also concerned that the FCA needs to consider its views on what we would consider some of the sharp practices adopted by some fee-charging debt management companies who provide extremely expensive unnecessary services to assist consumers to go bankrupt or to get advice about a DRO and so on when free advice services are available. We have also previously voiced concerns over companies that suggest an IVA has been mis-sold and then offer an expensive service to assist with bankruptcy, and the practice of getting bankruptcies annulled by taking out bridging loan finance. We welcome the decision to align the supervision of consumer credit advertising with the supervision of the existing financial promotions regime.

9 We support the FCA plan to introduce new financial promotions rules in areas of potential harm to consumers. We welcome the proposals for a new risk warning for high cost short term credit. We have included detailed comments on this in our response to question 14. More generally in relation to high cost credit, we look forward to further action on the regulation of advertising and marketing particularly in relation to the protection of children and young people. We support the ban outlined in point 5.20 on the approval of a financial promotion in the course of a personal visit, telephone conversation or other interactive dialogue. However, if this is expected to have minimal impact on firms, we would suggest that this is not likely to have much effect on consumer detriment in this area. We suggest that the decision to reflect the OFT guidance on cold-calling and other unsolicited marketing activities and to align it with our other financial promotions regimes does not go far enough. We welcome the suggestion that the FCA might consider a ban on cold-calling in the future. We would urge the FCA to give very early consideration to a ban on cold-calling by lead generation companies for both credit and debt management and by debt management companies. Plenty of evidence on the consumer detriment caused by cold calling activities has already been supplied. This is an area where the FCA could take firm action. We recognise that the FCA has incorporated an element of the OFT Debt Management Guidance into rules setting out that debt management companies must not pass themselves off as a charitable organisation and so on. We would hope this leads to action in the area of misleading on-line advertising for debt management companies and lead generation companies - where there are some who masquerade as free services and give misleading information about debt solution services. In many cases such activities breach the OFT Debt Management Guidance and the OFT Misleading Names Guidance. However, the issue with the removal from regulation of lead management firms also affects financial promotions. In point 5.22 of the paper, the FCA states: Although we cannot apply rules to firms that generate sales leads for debt management firms (where they do not carry on regulated activity), we are proposing rules and guidance for debt management firms covering these relationships, which reflect the requirements of the OFT debt management guidance. This includes a rule requiring debt management firms, before they accept leads, to take reasonable steps to ensure that the lead generators websites and financial promotions comply with legal requirements. As we have stated elsewhere in this response, we do not accept that lead generation companies should be excluded from rules. We firmly believe that their activities should be seen as a regulated activity and supervised accordingly. We have little faith in the ability or willingness of fee-charging debt management companies to regulate the lead generation companies that generate their income. They have not done so up to now, and we see little reason to suppose they will do so in the future. We are also convinced that credit information and credit reference services should be controlled promotion activities. We have seen many cases over the years of National Debtline clients being persuaded by the dubious advertisements and claims made by credit repair companies, to believe that their county court judgments can be wiped out in a return for a fee, and so on. We would suggest that the Advertising Standards Authority has

10 insufficient powers or relevant experience in this area to provide an effective enforcement regime. Yes, in general we would agree with the definition set out at the start of the chapter. We would also add that without understanding why people take out high cost credit, and in particular payday loans, it will not be possible to resolve many of the issues that have arisen as a result of the sharp growth in the industry. There needs to be more thorough, independent research into the cause of the massive growth of the high cost credit industry as a whole to provide the widest possible context. Within this context we believe that a real time database (RTD) is essential. Making decisions based on instantaneously available data alone runs the risk of missing crucial information. Real time credit reporting could help here This technology will allow lending restrictions to be put in place to ensure that multiple loans are not taken out at the same time or to limit how many loans can be held at any one time. However, it is impossible to know how many multiple loans a customer may have if such a database is not in place. National Debtline case study The client was able to obtain two payday loans whilst in an IVA. The client has no surplus income so can't afford to pay either of them. We would suggest the FCA agrees with industry a short timescale for putting a real-time database in place and is prepared to take action to impose this if industry fails to do so of its own volition. We would also suggest that the FCA should consider the effects of not having a RTD on the ability of new firms offering lower interest rates to enter the market. We believe that rollovers should be strictly limited to one per loan. If a consumer s ability to repay is adequately assessed at the outset, there should in theory be no need at all for any rollover on an existing loan. However, we recognise that in practice there may be perfectly valid reasons for one rollover, albeit in only a small minority of cases, for example where immediate cash flow difficulties require a degree of flexibility in rearranging the loan. The key question is whether this restructuring of the initial loan, along with the extra charges and interests accrued, would act to the potential detriment of the consumer (especially those in more vulnerable or insecure situations). Rather than allowing two rollovers, we believe that after one rollover, consumers should be directed to free debt advice and encouraged to set up a sustainable repayment plan. This should include the freezing of all interest and charges so long as they make the agreed payments that they can afford. We believe that any subsequent rollover requests should trigger a reaction from the lender that includes a clear and effective referral to free debt advice, no further rollovers or use of

11 CPA, and a commitment to negotiate a sustainable repayment plan, including the freezing of interest and charges after a 30 day period. Consumers debts can easily be inflated through being rolled over one or more times, when they cannot make the initial repayment, incurring further interest and charges which may soon become unsustainable. There is also currently no way of monitoring how many loans a consumer has taken out at any one time. This contrasts with for example - many states in the US and Canada, where there are restrictions placed on both the number of rollovers and the number of loans. As we suggest in our response to question10 above, we feel that one rollover would be a more appropriate limit. The recent OFT Compliance Review highlighted the fact that a large proportion of the profit margins made by payday loan companies result from rollovers. We are hoping this will be explored further in the current Competition Commission investigation into market distortions in the payday loan industry. 1 In our April 2012 survey, 91% of those whose loans were rolled over said that no further affordability check was carried out at that point. Over one in three survey respondents (38%) said they had five or more payday loans at that point in time. We believe: there should be a limit of one on the number of rollovers offered to clients, with any rollover request treated as a clear indicator of financial difficulty; there should be a real-time database of all payday lending transactions that is developed in conjunction with credit reference agencies to ensure credit files are accurate and up-todate; in addition, payday lenders should be required to lodge all payday lending including new loans, and roll-over loans with the credit reference agencies who update their information on a monthly basis. This would complement the real-time checks through the payday lending database. National Debtline case study The client has roughly ten payday loans with companies and has rolled these loans over on multiple occasions. One payday lender started as a 100 loan and now with default and interest charges has escalated to over 706 and climbing. The client is only 19 years old and drawing a moderate income of 750pcm. 1

12 Payday lenders need to make better and more responsible use of indicators of financial difficulty. Where an attempt to use a Continuous Payment Authority (CPA) fails, or a borrower requests a rollover this should be treated as a clear indicator of financial difficulty. We believe the use of CPAs to collect debts is preventing consumers from managing their own debt situation. The use of CPAs to collect debts means that some people miss payments for priority debts (mortgage, rent, council tax for example) and can empty bank accounts and incur bank fees and charges. This can quickly have serious consequences. Lenders and current account providers need to ensure customers can cancel CPAs quickly and easily, as is required in the FCA rules, and that they are given advance notice before a CPA is used on their account. Payday loan debts rarely exist in isolation; they will sit alongside other financial problems that also require urgent attention. The practice of using CPAs to collect debts is a way for the payday lenders to jump to the top of the queue, regardless of the consequences. In our April 2012 survey, 36% of respondents said their lender had taken money from their bank account when they had missed one or more payments, including 19% whose lender did this despite being asked not to. Taking money directly from someone s bank account to repay a payday loan debt might prevent that person making a payment on essential expenditure such as their mortgage, rent, or an energy bill which would put them at risk of losing their home or having their gas and electricity cut off. Additionally it might make it difficult for a parent to afford food for their family. National Debtline case study The client has tried to cancel a continuous payment authority but the payday lender has refused this request. They advised him they will continue to try to take the current payment due ( 80) three times per day and will continue to call for payment until the full amount of 400 is paid. CPAs should only be used for the agreed amount repayable. There should be a ban on partcollection by the lender, i.e. when it is not possible to take the full amount. In our opinion, repeated attempts to use CPAs to collect part payments constitute an attempt to use a payment instrument as a method of debt collection. A failed attempt to use a CPA should prevent any further use of CPAs for that customer and should be treated as an indicator of financial difficulty.

13 National Debtline case study The client cannot pay his payday loan in full and he is now being harassed for payment. The creditor has contacted his employer and encouraged them to sack him and have also told the client they will just have the money taken from his wages if he does not pay. The payday loan is for 213 and the client has offered them 100 per month but they have refused this offer. The lender told the client that because they are based in Scotland, they do not have to follow English law and can do what they want. We would welcome this initiative. A comment from our April 2012 telephone survey of NDL clients demonstrated that: Client reported 80 separate loans/rollovers taken out over few years. They said it was not clear how to find interest rates and information in very small print. Client found that once he had taken out a few loans he was constantly contacted by and telephone by other companies offering more loans for larger and larger amounts making it too easy to get into trouble. However, it must also be ensured that lenders responsibilities continue to be taken fully into account. Our experience makes us strongly convinced that an individual s ability to repay is best gleaned through a careful, budget-based, affordability assessment. Making decisions based on instantaneously available data alone runs the risk of missing crucial information. Real time credit reporting could help here, but is unlikely to resolve all concerns. The lender must be confident of the borrower s capacity to repay within the set terms and conditions. Where some payday lenders offer to deposit money in your account within minutes, we are not confident this represents a sensible practice. This could lead to a failure to assess financial circumstances such as how much disposable income is available. Failure to check documents such as payslips and bank statements means that there is no assessment of both affordability and the existence of other debts such as payday loans. Such a quick decision could also fail to assess how the new payday loan will affect the individual s financial situation overall. We would question whether such a quick process allows lenders: to draw on enough data sources to be able to form a sufficiently rounded picture of affordability (OFT). We suggest that the Consumer Credit Act 1974 should be amended to prohibit cold calling for credit broking and lending purposes. This should help to deal with problems of aggressive marketing. We urge further examination of the call on the Government to ban advertising for

14 payday loans. 2 BIS are currently considering research into effect of advertising, and there are hints that day time adverts may be banned. The recent campaign launched by Citizens Advice calls for action on irresponsible advertising by payday loan companies. 3 The FCA accepts that the advertising restrictions are not a magic bullet. Payday lenders advertising and marketing should be better regulated, particularly to protect children and young people. One recent example relates to marketing to children by football clubs that are sponsored by payday lenders. This can be argued to normalise payday loans to young people. We believe such advertising should be prohibited. Moving on to the wording of the risk warning itself, we would suggest that the following wording would benefit from greater clarity as to what sort of help is being offered to consumers. If you re struggling, go to for free and impartial help. The Money Advice Service website covers many areas of financial information. It also does not provide debt advice itself. It would be helpful to add in some extra wording that spells out for consumers what they are looking for, e.g. help with debt. If you re struggling with your money, go to to find sources of free and impartial help with debt. National Debtline case study The client advised the payday lender of a debt relief order (DRO) application and requested the account be put on hold. Two months passed, then out of the blue the debt was passed to a debt collector and they withdrew 100 from client s bank account (this represented all the funds available). There was no prior warning of this transaction and our client did not think that they still held her card details. 2 The government also wants to see tough action to clampdown on the advertising of payday lending, and will start immediate work on this. The government will work closely with the Office of Fair Trading, Advertising Standards Authority, Committees of Advertising Practice, and industry to make sure advertising does not lure consumers into taking out payday loans that are not right for them. 3

15 It needs to be recognized that many payday lenders are reluctant to negotiate sustainable repayment plans with borrowers, refusing to freeze interest and charges, and demanding full and final settlements rather than more affordable monthly repayments. We would strongly welcome this initiative to require lenders to provide information on free debt advice before the point of rollover. Mirroring the format and wording of the existing OFT arrears information sheet is a very sensible approach and represents a consistent approach with the requirements on other forms of lending. Furthermore, there needs to be enhanced transparency in relation to charges for all marketing. For example, there needs to be clearer explanations of interest rates including the total cost of credit, fees and costs as well as information on where to get free, independent debt advice. National Debtline case study The client mentioned worsening mental health over a ten year period. More recently this led to a complete breakdown and he is unable to address his debt problems alone. He mentioned that a payday lender sent a collector to his home to discuss his unpaid account and added 300 in charges for this visit. National Debtline case study Client has tried to negotiate with a payday lender, who has refused negotiation and continue to call the client s work and family. The creditor has advised they will contact the client s manager at work to tell his manager he is in debt and also the client s HR department to confirm his salary. This is all being threatened without the client s permission for any contact with third parties. The client has called the lender and asked to speak to a manager with the intention of making a complaint and has been advised he is not allowed to complain and they can do what they like, as the client owes them money. We welcome the recent announcement that the FCA will have a duty to introduce a price cap on the total cost for credit. This is an important control, although to work well, other measures such as a real time database (RTD) should also be introduced as well as the package of measures the FCA has already announced. Clearly this is a complicated issue and further research into the experiences of other countries who have introduced such powers will be required. We would urge the FCA to take immediate steps on gaining its formal powers to carry out further research and assessment to evaluate how price capping of the cost of credit could be a practical solution.

16 We suggest any assessment to decide on a suitable price cap should include issues of how much is charged in fees, charges, penalties for default and so on. We would also urge the FCA to gather data for assessment of price caps under its supervisory capacity. In order for this to take place, full data reporting by firms of the number and value of loans, default data and enhanced affordability data, rollovers, and so on is required. The FCA should also work towards developing increased transparency in relation to how the total cost for credit is displayed for potential customers so that the costs and charges are displayed in a meaningful way for consumers to enable comparison between products and hopefully a greater realisation of the true costs of the products on offer. It is important to recognise any cap should work alongside other measures to open up affordable credit to people with poor credit records or in need of a short term loan. We support developing credit unions and other forms of social lending for socially excluded individuals. We would also suggest exploring whether banks and other high street lenders can help to develop short-term lending alternatives. National Debtline case study The caller s daughter ran up several payday loans age 19. All but one of these loans has now been repaid. The debt has escalated from 80 (plus 20 arrangement fee) to over 1,000. The caller was very angry about the way the company has allowed the debt to escalate to this level and contacted our helpline as he wanted to register his disgust that this type of scenario can arise. It is sensible to make sure that firms have enough financial resources available to cover potential operational failures and to pay redress. We have no comment to make on the proposed prudential standards as they stand. It appears reasonable to apply a transitional approach to prudential standards for debt management firms. We do not have any comments to make on these proposals.

17 We recognise that the FCA has tried to arrive at a set of proposals that are sensible and proportionate with regard to different types of debt advice. We are concerned however that the differentiation between generic advice and debt counselling may at best be illusory and that in the real world such distinctions do not exist. Note: money advisers in the free-to-client sector usually refer to what they do as, money advice or debt advice. For the purposes of our response, we have used the FCA s terminology and will refer to our work as debt counselling. Distinction between generic advice and debt counselling We have included Appendix 2 in our response. We have created this by adding an extra column to the table at 17.7 in the CP13-10 appendices document and have added our comments adjacent to each example. We hope this will help to explain our misgivings about the attempt to distinguish between generic advice and debt counselling. We feel that the fundamental problem is that debt counselling involves a mixture of focused advice taking into account the client s circumstances both now and in the foreseeable future; but, will inevitably involve some elements of generic advice and there will also be the provision of what is essentially just information. We therefore don t find the examples given at 17.7 very helpful in understanding how the FCA proposes to create distinctions between generic advice and debt counselling. This is because they are just fragments of what will be a much wider conversation with the client. We would also point out that if there are real organisations providing generic advice similar to that suggested in the examples given, this would be a cause for concern to us. This is because we do not believe it will always be apparent to the client that the advice they are receiving is not full holistic debt counselling. How will they know that they are dealing with an organisation that only offers generic advice? Also, particularly when dealing with a vulnerable person, to give generic advice that is interpreted by the recipient as full advice, is as potentially damaging as giving wrong advice. We therefore do not agree with the proposal in 8.3 that creating the distinction between generic advice and regulated debt counselling will provide the protection for consumers that we know the FCA desires. Regulated debt counselling We are largely in agreement with the basic definition of debt counselling but some of the scenarios in the table at 17.7 do not seem to us be exemplars of particularly good or holistic debt counselling. We refer you to our comments in the table for more detail. Regulation of insolvency practitioners As we have said, we are concerned about the decision to grant insolvency practitioners an exemption under FSMA from the need for permission to carry on debt counselling. We understand from point 2.18 of that paper that this includes: A person acting in reasonable anticipation of being appointed as an insolvency practitioner is exempt in relation to debt adjusting, debt counselling and providing credit information services.

18 We feel that this decision should be revised. We suggest that insolvency practitioners who are carrying on debt-related activities should seek full authorisation. This is because such activity is not incidental to the provision of professional services by that firm. We have come across many instances of consumer detriment in relation to debt management companies that offer individual voluntary arrangement advice as well as debt management plans (socalled IVA factories ). A requirement for full authorisation in such cases would be consistent with the FCA approach to commercial debt management companies. We strongly support the creation of a new regulated activity for peer to peer platforms. This should hopefully ensure that both consumers who borrow and those that lend are protected. We support the proposed rules for peer-to-peer lending platforms. We are particularly pleased to note that peer-to-peer lending platforms will be required to provide notices and information sheets to borrowers in arrears or default directing them to sources of free debt advice. This mirrors the existing OFT requirements under the Consumer Credit Act In our experience, the requirement to use the OFT information sheets with prescribed wording has worked well. We understand the reasoning behind the FCA s new requirement that client money rules should apply to not-for-profit debt advice bodies what hold large sums of client money. We will leave it to the advice providers who will be directly affected by these rules to make any specific representations as to how they will be unduly impacted, if at all. We support the proposals to make more requirements applicable to smaller debt management firms as well. We hope this will go some way to avoid client detriment in future. We entirely agree that clients of small debt management firms should receive an equivalent level of protection. As a result, we wonder if the potential advantages for clients of strengthening the client assets regime for all debt management firms would outweigh the perceived disproportionate costs falling on smaller firms. It is vital that firms segregate client money in ring-fenced client bank accounts to minimise the risk of any further cases of debt management firms absconding with client money. It is extremely important that client money is protected and cannot be siphoned off into the firm s own account. We also support the proposals to ensure payments to creditors are made within five business days of receipt and that client money is returned to a client within five business days of a written request to withdraw from a debt management plan.

19 All the additional proposals for an annual independent client money audit, additional record keeping and regular reconciliations appear to be extremely sensible. We suggest that it would be a good idea for an early decision to be made as to whether customers of failed debt management firms can access the Financial Services Compensation Scheme (FSCS). Although the money management requirements all appear sensible, it is not clear that these requirements will be sufficiently robust to prevent the need for further consumer protection and the security for clients of failed debt management companies of access to the FSCS. We are not convinced that such a decision should wait until We would also suggest that the capital requirements should be brought in immediately and not wait for the full permissions regime in Any delay in implementing these measures adds to the risk of further consumer detriment. We have no comments to make on the proposed implementation timetable. We do not understand the rationale for the proposals that firms will not have to report data to the FCA regarding second charge loans, apart from complaints data. Money advisers frequently report speaking to clients who are in a downward spiral of multiple personal debts. Many consumers are temporarily insulated from falling into mortgage arrears by record low interest rates, but this does not apply to those with subprime and / or high interest second charges. It is very hard for consumers in financial hardship to make appropriate choices and there must be adequate protection against the sale of inappropriate products. Over the years the free-to-client advice sector has seen many instances of inappropriate consolidation loans taken out to consolidate unsecured debts, or mortgages taken out with no repayment vehicle in place. Any down-grading of reporting requirements for second charge lenders runs the risk that the FCA will not become aware of consumer detriment and may prevent effective supervision of such firms. We do not support these proposals. We support the proposal to allow all micro-enterprises to complain to the ombudsman service about consumer credit activities from 1 April 2014 under the compulsory jurisdiction. This appears to be an extremely sensible proposal.

20 We welcome the proposals for not-for-profit debt advice providers to be covered by the Financial Ombudsman Service under the compulsory jurisdiction rules. We have previously expressed our support for these proposals in our response to the FCA high level regime consultation paper. These proposals should provide an assurance for clients of an element of free, independent scrutiny for complaints in the sector with the added assurance of free redress if wrong advice is given. This approach will also be an advantage for our sector as a more transparent complaint handling process could help to drive standards in the sector even higher. We would also support the FCA plans to consult further on proposals to exempt not-for-profit debt advice providers from the ombudsman service general levy. In addition, we would very much support consideration of exemption for such bodies from ombudsman case fees. It could be extremely challenging for smaller advice agencies with fewer resources to find the money for ombudsman case fees. It is vital that the FCA and the ombudsman ensure that both the costs and administrative and reporting processes are proportionate for free-to-client agencies. We support the proposals on recording, reporting and publishing complaints. Free-to-client debt advice agencies are mostly required to retain information on the number of complaints received already under the Advice Services Alliance Advice Quality Standard or under other commonly used quality standards in the sector. It should not be onerous for such agencies to meet the requirement to annually report the number of complaints they have received. We have not identified any issues we wish to raise in relation to the specific costs and benefits identified. This is not within our area of expertise. We agree that there is already strong evidence of consumer detriment associated with payday lending. We welcome the conclusion in the cost benefit analysis summary in Annex 5 that delaying action to gather further data would be likely to lead to continuing and growing consumer detriment among a significant number of payday borrowers. Action needs to be taken in this sector as soon as possible from April 2014 when the FCA powers come into force. We agree that the reforms proposed for the high-cost credit sector should derive substantial benefits for consumers in relation to affordability and other proposals such as the requirements to refer to free sources of debt advice. However, we suggest that the benefits would be greater if the FCA proposals were to go further in the areas of rollovers and the use of continuous payment authorities and enhanced by a real-time lending database requirement.

21 When looking at the costs of restricting rollovers on the individual consumer, we suggest the following is taken into account. Although an individual consumer who can afford the payday loan and is prevented from rolling over a loan as many times as they wish may perceive this as a detriment, this is unlikely to be the case. If they can really afford to pay it off, why incur the further fees and charges for the convenience of repeated rollovers? We agree that the costs to most consumers far outweigh such a perception of a lost benefit for this group. We agree that the reforms proposed in the debt management sector should also result in considerable consumer benefits, particularly in relation to the proposals to protect client money and restricting up-front fees. However, we suggest that an outright ban on coldcalling should be considered as we are not convinced that there are sufficient protections built in. We also have continuing concerns about the activities of lead generation firms and it remains to be seen if the current proposals will be sufficient to rein these in. We agree with the FCA assessment of the likely impact of the proposals on protected groups. We agree that the proposals in relation to high-cost credit should have a substantial benefit for consumers in protected groups. However, we suggest that if the FCA proposals were to be enhanced in certain areas such as rollovers and use of continuous payment authorities, then the impact would be greater. We have outlined our suggestions in relation to the high-cost credit proposals above. We welcome the FCA commitment to undertake a post-implementation review of the consumer credit transfer after April We strongly support research to assess the impact of the changes on protected groups within 12 months of the new regime taking effect and to further monitor the impact going forward. Research into how vulnerable groups struggling with debt are impacted by social and financial exclusion would also be most welcome.

22 The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: Fax: