Weekly Blog by Philip King, CEO of the ICM - 'Measure for measure'

The Government has this week published its response to the BIS Select Committee's report on Debt Management published in March and it makes interesting reading.  The original report contained 23 recommendations and the government responds to each one in turn. The document can be found here and what pleases me is the measured and proportionate nature of the responses.

 

The timetable for the planned review of the regulatory framework, including the transfer of regulatory powers from the OFT to the FCA, is set out with the final transfer expected to take place by April 2014.  Having a clear timetable and plan including expected consultation dates is helpful.  The more interesting aspects, however, relate to payday loans and debt management companies.

On payday loans, the Government refers to the work it has been carrying out with the four main trade associations representing over 90% of the payday loan market to improve consumer protection in their codes of practice.  These improvements together with the OFT’s review investigating levels of compliance with the Consumer Credit Act are, in my view, the right approach before any more stringent measures are considered.  Furthermore, the codes include measures to address the issues of rollover loans, affordability assessment, and continuous payment authority, and the Government has undertaken to review how best to include high-cost credit transactions in credit files.

In summary, close engagement with the trade associations to introduce enhanced consumer protections into their codes of practice and their commitment to publish a common industry-wide Good Practice Customer Charter setting out in a clear, concise and user-friendly format what customers of payday and other short-term loans should expect from their lender is positive and encouraging.  One can never condone poor practice but I believe payday loans have their place in certain circumstances and meet a particular need.

With regard to Debt Management companies, the Government is working with stakeholders to develop a Protocol of best practice for debt management plans which will cover transparency of fees and costs (particularly where they are upfront), misleading advertising, and safeguarding client accounts.  Again, in my view, working with the industry and trade bodies makes absolute sense before considering legislation and heavier regulation.

 
It's worth also noting that – in both cases – the approach being proposed will deliver faster results than would be achieved by the introduction of legislation.  Finally, as an aside, I have to mention again my particular soapbox that Debt Management Plans should be reported in the insolvency statistics so that the published numbers are a true representation of personal insolvency levels.