Weekly Blog by Philip King, CEO of the ICM - 'Catching the bus'

It's been a busy news week. I was interviewed on Jeff Randall Live on Sky News on Monday evening about the government's proposals to cap the cost of Payday Lending.  A bit like buses though, news stories of interest tend to come in twos and threes, and I had a view on the three main news stories the programme was covering.

Firstly, the Lawrence Tomlinson report containing allegations that RBS had pushed healthy small and medium-sized businesses into administration to strip their assets and then buy them back cheaply to make a profit.  As the MP Mark Garnier said in his interview: "I'm not a lawyer, but these allegations, if true, look a lot like fraud to me." How many credit professionals are looking back at bad debts incurred where they thought their decision to supply had been reasonable based on their assessment of customer risk only to be caught with a bad debt when the customer went in to insolvency and wondering if the allegations might be true?  Apart from the obvious impact on the businesses forced into insolvency, what might the wider impact on their suppliers and the economy be?

Secondly, the government was selling £900m of student loans to a debt management consortium for £160m. The loans had been taken out by students who started courses between 1990 and 1998.  Part of the reaction to the news was that debt collection companies would act irresponsibly and aggressively in recovering debts that have so far not been collected.  The Student Loans company doesn't have the best record in managing its loan book and particularly the older elements of the portfolio.  We're told the terms and conditions of the loans are not going to be changed as a result of the sale and, if engaging third parties increases the recovery of funds to the public purse, then I'm all for it.  Perhaps the debt collection companies will just apply good credit management principles and collect money that is overdue from people who can - and should - be repaying it.

Thirdly, the Chancellor's announcement that government will impose a duty on the FCA to cap the cost of payday lending.  Setting on one side the suggestion that the announcement is one of political expediency, there are bigger questions to be answered. How will the cap level be determined?  The quoting of the Australian model with its cap of 4% per month seems to overlook the 20% arrangement fee that can be charged, and the punitive penalties for late payment that can be applied.  And the last thing we want is for the cap to make short-term lenders flee the market forcing borrowers to use loan sharks instead.

I'm not averse to the principle of restricting overt profiteering that can exploit the most vulnerable but let's not forget that payday lenders aren't the only guilty parties here.  As I said to Jeff Randall, I went online and looked at what £100 payday loan for a month would cost.  I'd have to pay back £137.15. If I took an unauthorised overdraft on my current account with a High Street bank the cost would be £5 per day, capped at £95 in a month.  On another current account I looked at, the cap would be £150, and both of these accounts would also charge transaction fees on top.  On this comparison, charges of £37.15 sound a snip!

Equally big issues with payday lenders are the opportunity for borrowers to take out multiple loans with multiple lenders, the availability of repeated roll-overs, and - as I've said in this blog before - the failure of lenders to carry out adequate affordability checks ahead of granting loans.

Back to my buses analogy, I guess next week will be devoid of any significant news and we'll be back to following the exploits of celebrities and their social lives!

 

Weekly Blog by Philip King, CEO of the ICM - 'End of term report: could do better'

Last week Professor Russel Griggs, Independent Reviewer of the Banking Taskforce Appeals Process wrote a guest blog and I'm grateful to him for sharing his thoughts ahead of the publication of his second annual report. It was an interesting blog and has prompted me to return to a theme I've written about more than once before: the need for greater awareness of the appeals process.

 

Despite the assurances I hear from senior bankers at government forums and elsewhere that the independent appeals process is being drawn to the attention of businesses who are declined loans, I hear too many examples where that clearly isn't the case. Not so long ago, I listened to a presentation by a regional bank executive who seemed unaware of the process at all and, more recently, one of our own ICM members shared his experience with me. After a 37 year relationship with his High Street bank, he was told that his overdraft facility was being withdrawn because it had decided to discontinue its relationship with all customers in that particular sector. He approached alternative banks and raised the issue with the Financial Ombudsman Service, several MPs, the OFT, and government ministers. Neither his nor the other banks, nor one of these parties pointed him towards, or made him aware of, the independent appeals process.

 

I've always said that banks must be free to make their own lending decisions and I've resisted all the voices suggesting that banks must be 'forced' to lend. I stand by that view. The appeals process was intended to create an environment in which businesses could be assured that a loan declined had been declined fairly or provide an opportunity for such decisions to be reviewed and reversed when appropriate.

 

I expect Russel Griggs' report to show the process is working well when it is used and this should be applauded, but it can't work if people don't know about it. The banks, and government, aren't doing enough to bring it to the attention of customers and the wider business, financial and political community. They must do better.

 

Weekly Blog by Philip King, CEO of the ICM - 'Whistling in the wind'

If you've read the latest (May) edition of the ICM's Credit Management magazine, you'll have seen mention of a survey finding that 42% of SME respondents had never heard of any of the current Government or bank-led initiatives to support small businesses. The recent news about funding through the Business Bank and the increase in length and breadth of the Funding for Lending Scheme is great news but only if businesses are aware of the help that might be available.

 

I was pleased that, of all the schemes, awareness was highest for Start-Up Loans. Regular readers of my blog will know that I'm privileged to sit on the board of Start-Up Loans and I know how much work has gone into raising public awareness, not least by James Caan (the Chair) who has used his personal profile and networks to such great advantage.

 

There have been numerous other initiatives supporting small business in recent times such as the National Loan Guarantee and Enterprise Finance Guarantee Schemes as well as the 17 introduced by the British Bankers' Association (BBA) Task Force in 2010. But none of these serve any purpose unless businesses, banks and others are aware of their existence.

 

One of the BBA initiatives was the creation of an independent appeals process for when loan applications were declined. Russel Griggs, who chairs this, has done good work and his reports show the effectiveness of the idea but I've seen recent examples demonstrating clearly that awareness is woefully inadequate.

 

I heard in the last few days from a business that had thrown in the towel after its current bank had withdrawn facilities despite a 37 year positive relationship, loan applications to other banks had been declined, and engagement with the Financial Ombudsman Service, MPs and numerous others had failed to have any impact. What astounds me is that at no point in this whole process was the business pointed towards the very appeals process that might have helped, or at least allowed it to understand the various banks' position.

 

Surely some of the parties involved would have heard of the appeals process and could have signposted to it? Not long ago I was at a presentation by a senior regional manager from one of the major banks and he was totally ignorant of it, so perhaps not!

 

In this age when we can communicate in so many different ways, and when instant communication is the norm, I find it sad and strange that getting important messages communicated and understood is so difficult. I guess it's incumbent on all of us to ensure we are well informed and up to date with what's going on in the business world and that we play our part in passing important messages on to those who might benefit from them.