CfRC Director, Damon Gibbons, appeared before the House of Lords Select Committee on Financial Exclusion on Tuesday 1st November.
The wide-ranging session included questions about the impact of the price cap on payday and other High Cost Short Term Credit lenders including the threat of illegal lending; how to ensure more responsible lending practice, tackle problem debt, and expand the provision of affordable credit.
Setting out the CfRC’s positions on these issues, Gibbons called for:
- Caps on the cost of credit to be expanded to other areas of the consumer credit market, including home credit (door to door lending), rent to own, overdraft, and credit card lending;
- Greater criminal sanctions for an offence of ‘illegal lending’ as were introduced in Japan in 2007 as part of the same package of measures which reduced the maximum permissible interest rate on consumer credit lending;
- Discretion over affordability assessments to be removed from lenders, and for limits, similar to those in place in many US states and Japan, to be set on the maximum amounts of credit that can be advanced to individuals relative to their income;
- Reforms to be made to the current landscape of insolvency and debt solutions, including:
- A procedure to write off part of the debts of people who enter debt management plans, and in particularly for this to apply to those debts that have been purchased by third party debt collection companies at a fraction of their nominal value;
- Protection for peoples’ main homes when entering bankruptcy procedures, and
- The abolition of the upper limit of indebtedness for people entering Debt Relief Orders.
- Banks to be subject to social and economic objectives similar to those enshrined in the US Community Reinvestment Act, and for all major consumer credit lenders to disclose details of their lending patterns in local communities;
- A national infrastructure to be created to support the expansion of credit unions and other forms of affordable lending, which:
- Enables credit unions and other affordable credit providers to pool assets and undertake joint ventures to develop new products and services and deliver national marketing campaigns;
- Provides for the securitisation of loans, and
- Directs dedicated, and patient, capital investment, to social entrepreneurs and agencies that are co-designing their products and services with low income households and communities.
- Government to bring together payment services providers, technology firms, utility companies, social housing providers and local authorities to find new ways to help low income households manage financial pressures without their needing to resort to credit use. This could, for example, include providing people with bill payment schedules that reflect their individual circumstances rather than require payments in regular monthly instalments.
The full evidence session, which also heard from Sue Lewis, Chair of the FCA’s Consumer Panel, can be viewed on Parliament TV here.