THE LENDING CODE ENSURING CONTINUED EFFECTIVENESS

Robert Skinner

Chief Executive

Lending Standards Board

17 May 2011

IMA – assuring quality in the money advice profession

Outline

Outcome of the review of the Lending Code New provisions Working with stakeholders Monitoring and enforcement Increasing awareness of the Code The future of consumer credit regulation

The Lending Standards Board

Functions to: monitor compliance with the Code and take enforcement

action for material breaches assist subscribing firms interpret and meet the letter and

the spirit of the Lending Code identify gaps and deficiencies in the Code that could lead

to customer detriment and to advocate change oversee the Code review process – but final decision

on content remains with the Sponsors maintain a public list of Code subscribers

History

Lending Code broadly contained the previous Banking Code lending provisions, but included a number of enhancements risk adjusted re-pricing for credit cards breathing space for credit card customers support for customers in debt with mental health problems

2010 additions extension of breathing space provisions to all products new Statement of Principles for small business lending

2011 additions new credit card rules

Guidance issued in 2010 interest and charges concessions use of the right of set-off

Review of the Lending Code

Timetable Reviewer’s report and industry response published 28

February

New Code launched 31 March Consultation responses

33 submissions received

LSB and Code sponsors

Government departments incl HMT/BIS

Regulators incl OFT

Debt advice and consumer bodies

Others including Code subscribers, FOS, CRA’s, Royal College Psychiatrists

Outcome of the review

43 main recommendations 21 related to financial difficulties

Response from Code Sponsors 30 recommendations accepted in full 7 compromises agreed 6 rejected

19 less material changes recommended, the majority of which were accepted

New provisions

Promotion of the availability of quotation searches Strengthened credit assessment requirements Clear explanation if a credit application is declined Standards covering the promotion and operation of an ‘opt-out’

from unarranged overdrafts Pre-notification of overdraft interest and charges Prohibition on mailing of unsolicited credit card cheques Awareness of credit card charge back provisions Express consent to be obtained before a customer refused

credit is referred to another lender

New provisions: Financial difficulties

Pro-activity – identifying and contacting customers who may be at risk of financial difficulties

Early engagement – consideration of plans prior to default Customers should not be expected to increase their repayment at

review unless their situation has improved Repayments on a consolidation loan should generally be no more

than sum of existing payments Breathing space provisions to be available to ‘self-help’ customers Operation of account during breathing space Further 30 days breathing space to be agreed if progress is being

made towards a repayment plan Communications should be via customer’s adviser

New provisions: Financial difficulties (cont’d)

LSB standards on use of right of set-off and approach to interest and charges concessions

‘Token offers’ should be accepted CFS expenditure figures should only be challenged when

additional information available CFS creditor checklist to be subject to LSB monitoring and

enforcement Obligations on subscribers re CFS to extend to other similar

statements agreed by the LSB and Sponsors CASHflow statement to be considered in same way as a statement

submitted by advice agency

New provisions: Financial difficulties (cont’d)

Customers to be advised before debt is sold Enforcement methods must be relevant to jurisdiction of the

customer A number of new provisions covering debt and mental health

including: Subscribers encouraged to establish specialist teams Oral notification should be sufficient to suspend calls and

letters Customers to be informed how information about their

condition will be used Subscribers expected to consider DMHEF if presented

Outside scope of review

Commercial issues Pricing and level of charges Risk appetite

Products and customers covered by the Lending Code Monitoring and enforcement of Code

WHAT DO YOU THINK OF THE OUTCOME?

IMA – assuring quality in the money advice profession

So where now - ensuring continued effectiveness

Industry commitment Stakeholder relations Robust monitoring and enforcement Achieving increased awareness of Code (and LSB)

Industry commitment

Response to Code review recommendations has been very positive as has willingness to agree new guidance ahead of full review

Uncertainty about the future of consumer credit regulation must not lead to reduced support for current regime

Being seen to be responsive when potential detriment is identified

Minimum standards v best practice

Working with other stakeholders: approach, expectations and concerns

Government Other regulators Consumer and debt advice bodies FOS Industry commentators

WHAT CAN THE LSB DO BETTER?

IMA – assuring quality in the money advice profession

Robust monitoring and enforcement

No change to monitoring ‘mix’ Heavy reliance on themed reviews Investigations Annual statement of compliance (ASC)

LSB action will be proportionate Focus is on compliance Intelligence gathering Stakeholder desire for increased transparency needs to be

balanced against subscriber confidentiality

Priorities for 2011

Outstanding Code review issues Debt sale Mental health/mental capacity

Ensuring new Code requirements are embedded in policies and practices

Continued focus on credit assessment and financial difficulties Review of complaints data

Forward agenda 2011

Reviews planned Financial difficulties (in course) Credit assessment Q3 Unarranged overdrafts Q3 Credit cards Q4

Watch list Impact on customers of immediate reduction or withdrawal

of credit lines Treatment of customers during the ‘breathing space’ Clarity of communications issued to customers especially as

part of the collections process Use of unfair/inappropriate collections techniques Impact of increased credit card minimum repayments

Awareness of the Code

Consumer guides Available in branch and on-line now To be provided to new customers from July 1

LSB Bulletin and website Subscriber/Sponsor promotion Engagement with consumer and advice bodies

What does the future hold?

HMT/BIS response to recent consultation on consumer credit regulation not due until end July but ….

Future appears likely to be the FCA Is there a role for self-regulatory codes in an FCA world? LSB position For now and for some time to come, self-regulation via Lending

Code will continue - enforced by the LSB which we believe has the support of key stakeholders Transition to ‘target regime’ to be handled carefully LSB concern to ensure no reduction in consumer protection

during changes Importance of current Lending Code review

THE LENDING CODEENSURING CONTINUED EFFECTIVENESS

Robert SkinnerChief ExecutiveLending Standards Board17 May 2011

IMA – assuring quality in the money advice profession