Is breathing space enough?
6th March 2018
One the 1st April 2014, the Financial Conduct Authority (FCA) took over the regulation of the consumer credit market from the Office of Fair Trading and found itself looking at the mammoth task of transferring over some 55,000 firms to the new regulatory regime. In a climate of big headlines about short-term high cost credit (where APRs went into 1000’s of percent) and grave concern about how those struggling were treated and the quality of advice out there, the FCA certainly had it’s work cut out. As we approach the fourth anniversary, the transition has been completed and a large number of firms have exited the industry.
Not one to rest on its laurels, the FCA is constantly looking at ways to improve standards. A cornerstone of the approach in the consumer credit sector has been the TCF Regulations (Treating Customers Fairly) which is designed to protect those most vulnerable (e.g. those whose only available credit is short-term high-cost, and those who are unable to pay their debts and require advice etc). As someone who has been through bankruptcy himself, I am all too aware of the huge stress you face when things go bad, and the harsh reality is that it does actually push some individuals to the point where they feel they have no alternative but suicide (we do find from time to time that we do now get referred those poor souls that have gone down this route) which is extremely distressing for all concerned.
I am delighted that most firms seem to have embraced the new TCF Regulations and some even go as far as providing specialist training to their staff to recognise the warning signs for those who are considering suicide – I for one believe that 1 suicide due to financial stress is 1 too many, but this is a massive step in the right direction.
On the 1st October 2017, the new Pre-Action Protocols came into effect. This means that the creditor has to provide a lot more information up front (including the new Standard Financial Statement) which provides a greater opportunity for debtors and creditors to come together pre-litigation and see if a solution can be agreed.
Most creditors when contacted by a fully authorised debt counsellor/debt adjustor will usually put matters on hold for 30 days or so (in the spirit of the TCF Regulations) to give the advisor time to collate all the information about the debtor’s financial position and explore solutions. There is now talk of a statutory period of “breathing space” where there would be a legal requirement for a moratorium. This all sounds great, but will it work?
In our experience, there are 5 key reasons that bring people to our door. Will these initiatives achieve the desired result which is to protect the most vulnerable? I believe they all represent a massive step in the right direction, there are always those individuals that will stick their head in the sand (the “ostrich effect”) at the first sign of trouble – how do you reach these poor souls? With an ever growing number of self-employed people in the country, there are micro-businesses that borrow from other sources such as the ABL market which largely remain unregulated and as such, do sit outside of these regulation/initiatives. Whilst there are still questions that remain, I believe that huge progress has been made in recent years and that as long as there is a genuine desire for both debtors and creditors to work together to get the best possible result, common sense will prevail.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.