Guest blog by Charles Wilson FICM, Managing Director of Lovetts plc - 'Setting Clear Expectations'

Driving to work yesterday after the Easter holiday yesterday, I was listening to the Today programme on Radio 4. The meaning of the new Archbishop of Canterbury’s first Easter message was being debated. In his address, Justin Welby appealed to everyone to adopt realistic expectations for what institutions, or individuals, could achieve. In the end, all humans are fallible, he said. (I suspect even the new Pope might agree, who knows!)

Afterwards, commentators differed in their views. Was he sensibly advising us to manage our own expectations, including our expectations of him? Or was he abrogating, as one suggested, his own responsibility to give us a clear lead from the outset?

If you read the text of his sermon in full, it is pretty clear. He was urging us to be realistic in what we can all achieve, in these terms “Complexity and humanity are ignored, and we end up unreasonably disappointed with every institution, group and policy, from politicians to NHS, education to environment”.

In a time of economic uncertainty, and business difficulty, it is easy to think that others should, or even that we ourselves can, deliver a solution that is “perfect”. Whether you are a Prime Minister, a credit professional, or a business manager, in the end you always have to rely on others. You have to delegate a lot of things. You have to choose what NOT to do. You have to trust others, knowing they may fail.

Some business leaders never take holidays. I commend Philip King for doing so and hope he enjoyed his decorating over Easter. He is not abrogating his responsibilities to the Credit Industry, he’s not given up on us, or on Government, he’s just having a well-earned break!

In fact, it is only as we ‘let go’ of trying to achieve perfection, and subject our plans to human fallibility by sharing them with others, that our world enlarges through them.

As a lawyer, I could tell you all about the Jackson reforms of the legal profession, effective this week. Like the increase of the Small Claims’ limit to £10,000. But any search engine will give you more than enough to read on that.

Most important of all is that we set realistic expectations of what can be achieved by credit departments or third parties on their behalf. As lawyers recovering debt, we try our utmost, but keep realistic. If we don’t, we’re set to disappoint. Despite Government cutbacks, changes and reforms in the Court Service, we must nevertheless all keep trying to influence and effect change for the better. As Justin Welby said, “Setting people or institutions up to heights where they cannot but fail is mere cruelty”. I agree.

Extracts from Archbishop Justin’s sermon by kind permission of Lambeth Palace – see www.archbishopofcanterbury.org

Weekly Blog by Philip King, CEO of the ICM - 'Painting a grim picture of Payday lenders'

I've been inundated with government papers over the past few weeks such as the Insolvency Practitioners Fees Review, the Review of Pre-Pack Administrations, the Simpler Reporting proposals for Micro Businesses, the Money Advice Service proposals to improve the quality of Debt Advice, HMRC and DWP debt management strategies, the Treasury and FSA consultations on the transfer of consumer credit regulation from the OFT to the FCA, the proposed EU Data Protection changes, and a host more.  As a result, I've been a bit tardy in getting to read in detail the OFT's Payday Lending Compliance Review.  Its contents are shocking.

 

Let me make it clear from the outset that I am not in the 'outlaw all payday lenders' camp; I believe that such products have their place and when offered, and used, sensibly can be useful to a good many people.  But that doesn't excuse the findings in this review.  Among the highlights, or perhaps I should call them lowlights, the review reports that 28% of loans issued in 2011/12 were rolled over at least once, with at least a third of lenders actively promoting rollover at the point of sale and a number agreeing to rollover loans even after a borrower has missed a repayment.  By way of example, staff in two large high-street firms were told that rollovers were regarded as 'key profit drivers' and that staff were encouraged to promote them. In one case, this was even written into the training manual!

 

Equally worrying to me though is the absence of affordability checks.  Most lenders asserted that they undertook affordability assessments at the initial loan stage yet the vast majority were unable to provide satisfactory proof that they had applied such assessments in practice.  Only six of the 50 lenders visited were able to provide documentary evidence that they assessed consumers' likely disposable income as part of their affordability assessments.

 

The basic premise of credit management, whether the customer is a multi-national business, a small trader, or an individual, is to determine whether the customer is 'good' for the amount of credit being extended and whether it can afford to repay in accordance with the agreed terms. Furthermore, in the case of consumers, assessing creditworthiness is a requirement of the Consumer Credit Act and OFT guidelines.

I know the majority of the inspections were carried out before revised industry codes of practice and the sector-wide Good Practice Customer Charter came into force but the revelations of the report paint a wholly unacceptable picture.  The enforcement action already started and the 12 week deadline to address all areas of non-compliance is welcome, the proposed investigation by the Competition Commission makes sense, and the expectation that the FCA will take a more rigorous approach when it takes over consumer credit regulation next April is encouraging.

 

In the meantime I hope the OFT will live up to its promise that it will not gradually fade away but will continue to act vigorously in the period until it is replaced by the FCA.  A year is a long time in the consumer credit market.

 

I'll be welcoming a couple of guest blog writers over the next two weeks. Charles Wilson, Managing Director of Lovetts Solicitors, an ICM Fellow, and a member of our Technical Committee will be writing next week, and our own Debbie Tuckwood, ICM Director of Learning & Development, the week after.  I'll be decorating over Easter so will be looking forward to returning to normality thereafter!