ANNUAL REPORT2014

RESTORING TRUST, REBUILDING REPUTATION

CONTENTSAbout the CFA

President’s Foreword – Caroline Walton

CEO Report – Russell Hamblin-Boone

CFA Council Directors

2014 at a glance

A year of regulatory reform

Shaping public policy: Our work with regulators

and government

Enhancing the reputation of the industry

Membership

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ABOUTCFA

The Consumer Finance Association (CFA) is the principal trade association representing the interests of major short and medium term lending businesses operating in the UK. CFA members are committed to responsible lending and driving improvements in industry practice through close engagement with the regulator. The CFA has always stood for high standards and openness as demonstrated by its voluntary Code of Practice that was the forerunner of statutory regulation.

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In February, the Financial Conduct Authority (FCA) finalised its rule book before formally taking over responsibility for regulating consumer credit in April. As an advocate of well-designed, well implemented regulation, the CFA worked proactively with the regulator throughout the design and implementation of the new rules, providing insight into the impact of the changes on both borrowers and lenders. This is a role it continues to fulfill now that the rules are in place.

The industry has been dogged by pockets of poor practice. Having introduced its own standards through a Code of Practice in 2012, the CFA’s goal in 2014 was to ensure that all lenders performed to the same high standards and consumers were protected. The FCA’s rules superseded the CFA’s independently-monitored Code of Practice, which was withdrawn in April. I am incredibly proud of

CAROLINE WALTON

After several years of political, regulatory and media scrutiny, 2014 was a pivotal year for the short and medium term lending industry and the Consumer Finance Association (CFA). As the trade association representing the best known responsible short-term lending businesses in the UK, the CFA was at the forefront of driving change in the market.

PRESIDENT’S FOREWORD

CFAthe Code and its achievements and I am grateful to the Short-term Lending Compliance Board – Seymour Fortescue, Nick Lord, Robert Rosenberg and Adrian Lloyd for their expert guidance and wise counsel. The voluntary Code paved the way for the FCA’s mandatory rule book and set high standards across the lending market.

During 2014, the Competition and Markets Authority (CMA) continued its market investigation into payday lending. The CFA had an important role advising the CMA on market developments and improving its understanding of customers and the market.

The other fundamental change for the industry was the introduction of a price cap. The FCA consulted through the summer of 2014 and in late November published the details of the cap which would define the industry in 2015.

There has been a seismic shift in lending behaviour following the introduction of the FCA rules and the cap. As the market adjusts to these changes, the CFA is well placed to continue its essential role in driving up standards across the industry.

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The perfect political, media and regulatory storm we experienced in 2013 started to give way to calmer waters. The FCA’s rules came into force that gave some certainty to lenders, borrowers and industry stakeholders. However, with the rules came dramatic change and during 2014 the lending landscape was completely transformed.

CFA members, with their commitment to providing responsible credit to UK borrowers, embraced the evolving regulatory landscape and focused on ensuring their businesses were fit to meet the stringent requirements of the new regulator.

The transformation was not a single event in the shape of the FCA’s rules. So, as the voice of responsible lenders and their customers, the CFA proactively pursued its objective to inform and engage with a wide range of organisations in order to ensure evidence-based policy making prevailed over emotional, historical or political views. With

With a new regulator taking over supervision of the consumer credit industry, 2014 was a challenging year with further scrutiny leading to significant changes for short-term lenders.

CEO REPORT

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RUSSELL HAMBLIN-BOONE

CEO REPORT CEO REPORTthe CMA market review, consultation on a cap on the cost of credit, the Consumer Rights Bill and campaigns around payday loan advertising the CFA had an important role to communicate the needs of borrowers and the need for a healthy and competitive market.

The CFA hosted fringe events at the main party conferences in collaboration with think tank, ResPublica. The panel discussions were chaired by senior politicians and involved a panel of experts who discussed a report commissioned by the CFA and written by ResPublica. The report, Climbing the Credit Ladder: Short-term loans as a path to long-term credit, was launched in Parliament in November and argued that by helping to improve the credit history of those in financial need, people can transition from short-term loans towards long-term credit products. This would lead to improved financial stability and could ultimately see those on lower incomes enter the property market.

As well as political and regulatory engagement, throughout 2014 the CFA had a high profile media presence as the primary voice for responsible short-term lenders. This was combined with a regular dialogue with a wide range of stakeholders including the Government, the regulator, debt advice charities, consumer groups and wider industry influencers.

The tougher regulatory regime prompted many lenders, including two CFA members, to leave the short-term lending industry. The increased profile and credibility of the CFA meant that the net size of our membership was unchanged as new members were recruited to the association.

We are extremely grateful for the support of CFA members throughout the transformation of the lending landscape. As a result of our combined communication and lobbying activity, we have been able to shift opinions and lead an open, constructive debate about the value of alternative lending and the need for affordable credit.

2015 will inevitably bring further change to the industry and we remain committed to informing and educating about the innovative industry that we represent. If you would like any further detail about the work of the CFA please don’t hesitate to contact me or a member of the CFA team.

Thanks,Russell

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Caroline Walton .........................................................................................Dollar Financial UK

Russell Hamblin-Boone .............................................Consumer Finance Association

Jason Wassell ............................................................ Axcess Financial (Cheque Centre) (resigned May 2014)

Kirsty Auchincloss ................................................Express Finance (Payday Express)

David Patrick ........................................... Cash Converters (resigned October 2014)

Marvin Gurevich ........................................................................................Enova (QuickQuid)

Andy LaPointe ............................................................................................Enova (QuickQuid)

Scott McCree ......................................................MEM Consumer Finance (PaydayUK)

Julian Graham-Rack .................................................................................. SRC Transatlantic (Speedy Cash, Wage Day Advance)

Matthew Hargrove .................................Dollar Financial Group, (Express Finance) (resigned September 2014)

Rajpal Singh ..........................................................................................Dollar Financial Group (resigned September 2014)

Gary Miller-Cheevers ................................................................................Ablemarle & Bond (resigned September 2014)

CFA

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ME

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SC

HA

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EN

GE

FCA CONC rules finalised

FCA regulation commenced

FCA Thematic review of

arrears and forebearance

APRILFEB

CFA COUNCIL DIRECTORS IN 2014

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AT A GLANCE

CMA provisional

findings announced

CMA proposed remedies

announced

Cap on cost of credit

confirmed by FCA

Consumer Rights Bill – proposed

restrictions on advertising

FCA deadline for real-time data sharing

CMA announced

changes to its proposed remedies

Applications for FCA

authorisation began for

payday lenders

New rules on rollovers, CPA and ‘wealth warnings’ on adverts came

into force

FCA commenced

consultation on proposed cap

on cost of credit

CFA campaign on impact of

cost caps

Call Credit launched real

time data solution, Moda, with support from CFA and its members

Credit Ladder report

launched

CFA Declined Applicant research revealed

constrained access to

credit

Amendment calling for

a ban on TV and radio

advertising before 9pm

was withdrawn.

Christmas loan websites - consumer

advice campaign

JUNE OCT NOV DECJULY

MAY

JUNE

SEPT

OCT NOV

DEC

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HCSTC firms were the test bed for regulations that were designed to be applied to all consumer credit providers. For example, credit applications became more rigorous with lenders assessing affordability, as well as creditworthiness. Forbearance measures were strengthened and debt collection methods were reformed.

The FCA introduced a new style of regulation that monitored conduct as well as processes. This was a fundamental change to the market operations and HCSTC firms were the first tranche of FCA regulated businesses to adopt this new approach.With just two months from the publication to implementation of the final rules there were inevitable teething problems for both the regulator and lenders as each adjusted to the practical application of the new rules, for which there was no formal interpretation. The CFA played an

In April 2014, the Financial Conduct Authority (FCA) took over responsibility for regulating the entire consumer credit market. The new regulator required all firms to reapply for permission to provide credit products. With an estimated 50,000 businesses to authorise, priority was given to those firms deemed likely to cause most risk to consumers. CFA members were captured within this group which the regulator termed high cost short-term credit (HCSTC).

A YEAR OF REGULATORY REFORM

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important part in communicating industry’s concerns and monitoring the impact of the new regulations on its members.

A similarly tight timetable was enforced when the Government performed a policy u-turn and announced that HCSTC would be subject to a cap on the total cost of credit. The consultation was published in July and responses were required by September. The structure of the cap was confirmed in November, in order for it to take effect on 2 January 2015 (see below for details).

In 2014 the Competition and Markets Authority continued its market inquiry. It published its provisional findings in the summer and in the autumn proposed remedies to increase price competition

and help borrowers to shop around.

The year closed with lenders, including all CFA members, applying for full authorisation from the FCA during the application window that ran from 1st December 2014 through to 28th February 2015.

It is too early to assess the full impact of the regulatory changes, but CFA members reported that the number of approved loans dropped by 68% in 2014. To accommodate the new regulations, lenders undertook fundamental reviews of their businesses and the products they offer to borrowers. By the end of the year single payment loans, or the traditional payday loan, had largely been replaced by short-term loans lasting several months.

EXTENDED DEBT? PAYMENTS PRICE ADVERTISING DATA

SECURITYLENDING

DECISIONS

Pre-2012

No rollover limit

Pre-2012

No rules on use of CPA

Pre-2012

No price cap

2012

CFA members commit to no advertising on

children’s TV channels

Pre-2014

Standard data protection laws

applied

Pre-2012

Lender’s discretion and risk

2012-2014

CFA 3 rollover limit

3 days notice before payment

taken

2012-2014

CFA Code – responsible use

of CPA

2014

CFA members commit to scheduling

and content guidelines

2012-2014

CFA Code requires affordability

assessment incl. credit checks plus appropriate checks

for rollovers

2014 onwards

2 rollover limit

2014 onwards

2x use of CPA

2015

Total cost of credit cap of

0.8% per day, and never more than

double

2015

BCAP review ‘no substance of pester

power’

Data security

2014

HCSTC lenders first FS providers to share data with

CRAs in real time

Lending decisions

2014 onwards

Thorough affordability checks as customer must be able to afford

the loan

KEY NEW RULES UNDER THE FCA:

FCA PRICE CAP FOR HCSTC LOANS

0.8%per day

When loans are taken out or rolled over, the interest and fees charged must not exceed 0.8% per day of the amount borrowed

If borrowers default, fees must not exceed £15. Firms can continue to charge interest after default but not above the initial rate.

£15default

fees

Borrowers must never have to

pay more in fees and interest than

100% of what they borrowed.

of amount borrowed

(applying to all interest, fees and charges)

100%TOTAL

COST CAP

CAP ON THE COST OF CREDIT

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OUR WORK WITH REGULATORS AND GOVERNMENT

Worked with the regulator and members to influence the design of the cap on the cost of credit. By providing insight into the impact of caps in other countries and highlighting the need to cap the total cost of credit, including default fees which cause greater consumer detriment than the headline interest rate, the CFA ensured the cap reflected the specific costs of lending in the UK whilst delivering the necessary consumer protection.

The CFA has always believed in taking an open and proactive approach to working with policy makers and opinion formers.

In 2014, we worked closely with the Government, regulators, consumer bodies, charities and our members to improve protections for consumers and promote a healthy, competitive market that meets the demand for short-term credit. The CFA:

SHAPINGPUBLIC POLICY:

Lobbied extensively in opposition to advertising restrictions by contextualizing the issue and providing an evidence base that proved lenders target appropriate audiences with relevant messages.

Highlighted in Parliament the positive role that short-term credit should play in building up a responsible borrower’s credit record in order to facilitate access to lower cost, mainstream credit.

Raised awareness of the dubious practices of some credit brokers and existence of web bandits – websites that look legitimate but operate out of reach of the UK regulator and offer no protection to consumers. Differentiating between legitimate, regulated lenders and rogue websites is important to protect borrowers and drive out bad practice which negatively affects the reputation of the industry.

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The CFA has established itself as the primary voice for responsible short-term lenders and is frequently in demand to give views to the media.

This role is critical for the short-term lending sector, which provokes a highly emotive response.

Appearing in the media reaches a mass audience with balanced and evidenced messages and

allows the industry’s views to be heard in febrile and highly charged environment.

In 2014, the CFA was mentioned in 1,700 pieces of coverage across the national print and broadcast media, online, trade and regional press. 87% of this coverage was neutral (i.e. an article balanced by a CFA key message and/or quote from a CFA spokesperson).

ENHANCING THE REPUTATION OF THE INDUSTRY

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With a strong track record in driving industry improvements and best practice, the CFA has become the principal trade body for short-term lenders. It has achieved credibility with regulators, politicians, consumer groups, debt advice organisations and the media. This has made membership attractive to alternative credit providers seeking longevity in the highly regulated UK market place.

In 2014 the CFA welcomed Speedy Cash and WageDayAdvance into membership whilst Cheque Centre and Cash Converters resigned.

The CFA is committed to protecting borrowers and its members are required to commit to the highest standards of conduct and responsible lending. Any lender that did not comply with the CFA’s Code (pre April 2014) or the FCA’s rules (post April 2014) is not eligible for membership. In 2015/16, full authorisation from the Financial Conduct Authority will become the benchmark.

MEMBERSHIP

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CFA

MEMBERS

IN 2014

Payday ExpressPayday UKPeachyQuickQuidSpeedy CashSunnyThe Money ShopWageDayAdvanceBaker & McKenzie LLP (Associate)Equifax (Associate)Cheque Centre (resigned April 2014)Cash Converters (resigned October 2014)

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Consumer Finance Association T: +44 (0)203 178 7408 F: +44 (0)203 170 5909 E: enquiries@cfa-uk.co.ukW: www.cfa-uk.co.uk