BIS Statement informing of new Codes of practice from July 2012

[MARTIN3030]

As published by BIS in May,the codes will include;

 

a good practice customer charter explaining how the loan works and the costs involved;

a commitment to inform customers three days before money is withdrawn;

increased transparency about loan repayment so that consumers can make informed decisions and are not surprised by hidden payments;

more help for customers in financial difficulty by freezing charges and interest;

robust credit and affordability assessments to ensure loans are suitable for the customer’s situation; and

effective compliance monitoring by the Trade Associations to root out poor practice in the industry.

 

1. A Good Practice Customer Charter to be published by 25 July 2012 setting out in a clear, concise and user-friendly format what customers of payday and other short-term loans should expect from their lender.

 

This Charter will:

 

· highlight lenders’ key commitments to customers, including clear information about how the loan works, the price per £100 borrowed as well as the APR, and charges for extending the term of the loan (‘rolling over’) and default;

 

· explain how lenders will communicate with customers and how customers can contact them;

 

· explain how they assess if customers can afford a loan;

 

· explain how to complain if there is a problem and signpost customers to sources of free and independent debt advice and relevant helplines;

 

· sit along with each trade association’s individual Codes and be easily accessible via lenders’ websites or at business premises.

 

2. Increased transparency about loan repayments to help consumers make better informed decisions and making sure that continuous payment authority is not used inappropriately for those in financial difficulty. Lenders have committed to:

 

· only extend (‘rollover’) the term of their loan at the specific request of the customer and after reminding the customer of the risks of extending a short term loan;

 

· provide consumers with a clear explanation of how continuous payment authority works and how payments will be deducted from their bank accounts. This will help consumers decide whether this type of repayment is acceptable to them before they take out the loan;

 

· set out consumers’ rights to cancel a continuous payment authority before they take out a loan, reminding them that if they cancel they will still owe any outstanding debt and the need to provide an alternative method of payment on the due date to avoid going into default;

 

· always pre-notify consumers by email, text, letter or phone at least three days[1] in advance before attempting to recover repayment using continuous payment authority on the due date. This notice will encourage customers to contact the lender if they are in financial difficulties and cannot repay;

 

· Where customers have failed to make repayment on the due date, send further regular reminders to customers when a continuous payment authority is being used, providing a contact point for the customer if they are experiencing repayment problems;

 

· Repay any amounts recovered by the continuous payment authority if the customer is in financial difficulty.

 

3. More help for customers in financial difficulty: Lenders have committed to:

 

· freeze charges and interest if a reasonable repayment plan can be agreed, or after a maximum of 60 days of non-payment;

 

· engage sympathetically and positively with the customer and split the loan into realistic repayments to be repaid over a longer period, where appropriate;

 

· provide customers with a ‘breathing space’ of 30 to 60 days where they are making a genuine effort to agree a repayment plan.

 

4. Robust credit assessments: Lenders have committed to:

 

· undertake sound, proper and appropriate affordability assessments and credit vetting as part of each loan application and before the term of a loan is extended (‘rollover’);

 

· check the suitability of the loan given the customer’s situation

 

· remind the customer that the loan is only suitable for borrowing over a short-term and not over a longer-term.

 

5. Effective compliance monitoring of members by their trade associations to ensure improved self-regulation and root out poor practice in the payday and short-term markets. The trade associations have committed to:

 

· meaningful and enforceable sanctions in their Codes (up to and including expulsion from membership for serious non-compliance)

 

· delivering rigorous internal complaints procedures;

 

· taking a proactive approach to monitoring compliance with their codes and regular meetings with the OFT to discuss areas of concern in the market.

 

· undertake a review of the effectiveness of these changes to the Codes 12 months after they come into effect and in light of the OFT’s current study of the market and publish the findings.

 

Definition: Payday and other short-term loans include an agreement where you can borrow a small amount of money (usually between £50 and £800) and repay the loan over a short period (typically one or two months).

 

[1] Where contact is being made by telephone, this timeframe will be influenced by the customer actually receiving the call.

 

Full details;http://news.bis.gov.uk/Press-Releases/Better-help-for-consumers-in-financial-difficulty-from-payday-loans-67a77.aspx

[renegadeimp]

Some vague wording in that. Lets see how many pdls actually adhere to it or even send the debt straihht to a dca to get around it.

[toptrapper]

Martin3030,

 

Whilst this incredibly light, how will this be adapted in practice in the lack of forceful regulation? Allowing a trade association to be regulating their members, creates conflicts of interest without any possibility of chinese walls as they will not serve in their self interest. Why don't (and don't laugh) invite the OFT and FOS to oversee their changes? Allowing self regulation will only limit transparency and accountability, something which has been clearly missing from the industry.

 

2 initial thoughts,

 

a commitment to inform customers three days before money is withdrawn; - is this a commitment or a guarantee? What's the comeback against the PDL if they fail to honour their commitment? Who by? Please don't say a "trade association" will be judge and jury?

 

not surprised by hidden payments; more help for customers in financial difficulty by freezing charges and interest; robust credit and affordability assessments to ensure loans are suitable for the customer’s situation

Fair enough for customers in the future. What retrospective action will be taken to deal with customers unfairly treated in the past? I presume (sadly) that this loose guidance for PDL's is only for future customers and will not shine a light backwards into the shoddy action already undertaken by PDL's.

 

Sorry, entirely unconvinced.

[renegadeimp]

Martin3030,

 

Whilst this incredibly light, how will this be adapted in practice in the lack of forceful regulation? Allowing a trade association to be regulating their members, creates conflicts of interest without any possibility of chinese walls as they will not serve in their self interest. Why don't (and don't laugh) invite the OFT and FOS to oversee their changes? Allowing self regulation will only limit transparency and accountability, something which has been clearly missing from the industry.

 

2 initial thoughts,

 

a commitment to inform customers three days before money is withdrawn; - is this a commitment or a guarantee? What's the comeback against the PDL if they fail to honour their commitment? Who by? Please don't say a "trade association" will be judge and jury?

 

not surprised by hidden payments; more help for customers in financial difficulty by freezing charges and interest; robust credit and affordability assessments to ensure loans are suitable for the customer’s situation

Fair enough for customers in the future. What retrospective action will be taken to deal with customers unfairly treated in the past? I presume (sadly) that this loose guidance for PDL's is only for future customers and will not shine a light backwards into the shoddy action already undertaken by PDL's.

 

Sorry, entirely unconvinced.

 

As i said, it's very vague. Most likely deliberately. Lets hope it isn't, although i'm not holding out much hope at all.

 

It's like asking a group of schoolyard bullies to police themselves instead of the teacher.

[MARTIN3030]

There is scope under CPUTR2008 since it is a breach for a firm or organisation if they fail to uphold codes of practices to which they are subscribed to.

Edited June 12, 2012 by MARTIN3030

[MARTIN3030]

In fact there is already scope under CPUTR as regards some of the points mentioned by BIS.

 

Re: What is a 'CPUTR 2008'

 

The key commitments are ;

 

• Subscribers will make sure that advertising and promotional literature is fair, clear and not misleading and

that customers are given clear information about products and services.

 

• Customers will be given clear information about accounts and services, how they work, their terms and

conditions and the

interest

rates that apply to them.

 

• Regular statements will be made available to customers (if appropriate). Customers will also be informed

about changes to the interest rates, charges or terms and conditions.

 

•

Subscribers will lend money responsibly.

 

•

Subscribers will deal quickly and sympathetically with things that go wrong and act sympathetically and

positively when considering a customer’s financial difficulties.

 

• Personal information will be treated as private and confidential, and subscribers will provide secure and

reliable banking and payment systems.

 

• Subscribers will make sure their staff are trained to put this Code into practice.