Debt advice in 2018 – my round up of the year

At the end of 2017 I wrote:

Persistent credit card debt and overdraft charges tackled, bailiffs brought under control, SFS being used by all creditors, and a breathing space that will actually work in practice – that would be a good 2018.

That would have been an amazing 2018 – I would have been happy with just a couple of those. But it is disappointing that none of them were achieved this year:

• I can’t see any sign that the complicated new CONC rules to tackle persistent credit card debt are helping. If you are feeling optimistic you may hope they will have a marginal effect over the next few years. But this round up of what has happened to credit card minimum payments from 2000-20019 shows that it could be hard to persuade people to pay more except by increasing the minimum payments.
• Nothing has happened so far on overdrafts. The FCA’s latest proposals in December, will prevent higher charges on unauthorised overdrafts, which is good, and some of the charges will be simplified, which is sensible. But nothing on limiting the excessive costs of authorised overdrafts – a huge missed opportunity.
• Yet another consultation on bailiffs has been started.
• SFS is now commonly used by commercial lenders but no progress has been made in getting it adopted by the DWP or Local Authorities.
• The Breathing Space has inched forward. I suppose we have to be grateful the proposed period has been increased to 60 days from six weeks. But without both major new funding for debt advice and major reforms to Universal Credit it is hard to see how 60 days can be made to work.

The 2018 bright spots

Wonga goes bust

No regrets from me about this. Not just because of their past history (horrible puppets, fake lawyer letters etc) but because of the poor way they handled complaints recently, refusing to look at loans over six years old or loans after 2015, despite Ombudsman decisions.

FCA moves to cap Brighthouse

The Rent To Buy sector is easily the most complex high cost credit market to reform. It will be interesting to see how effective the new FCA regulations will be in 2019 at preventing prices from being ramped up, fingers crossed…

FCA changes its mind on Buy Now Pay Later deals

The FCA’s research found that more than a million consumers a year fail to pay the balance in full for these deals. Many of them then get hit by backdated interest even on the amounts they have repaid. This is deeply unfair but the FCA’s original proposals in May on BNPL were just for clearer warning messages.

I was delighted to see in December that the FCA has listened to objections in the consultation:

Two excellent “Dear CEO” letters

The FCA’s Dear CEO letters on IVA lead generators and Payday Loan Refund Complaints were both very good.

If the FCA does follow up with action in 2019 it should bring much-needed improvements to those two areas.

If not… the combination of poor FCA-authorised IVA lead generators and a breathing space could mean even more people being mis-sold IVAs.

FOBT reduction to £2 to come in in April 2019

The cut was nearly postponed for another 6 months to save lost tax revenue, but the Chancellor was forced to do a U-turn.

Barclays refunds

The redress program that few people have heard of. It was quietly started in March and gathered pace at the end of the year.

It’s very good news, not just for the people getting compensation for being poorly treated when they were in arrears but because it seems safe to assume that in future Barclaycard will be freezing interest when its customers say they are in difficulty. A good example for other lenders to follow.

Good but should have been better

Payday loan refunds increase

FOS now expects to get 50,000 payday loan complaints in 2018/19, up from the 20,000 it had planned for. The increase in complaints has been mainly driven by Claims Management Companies and the publicity after Wonga’s demise.

FOS has decided that it can look at loans over six years old.

Good news for customers who have been taken advantage of… but there are three reasons why this isn’t in my list as a bright spot:

1. The slowness of FOS decision making and lack of back up from the FCA. It took more than two years to make the decision on the over 6 year loans.
2. The under-resourcing at FOS. Partly linked to (1) and partly to the dramatic increase in claims, but it is now taking 6 months to get simple cases through. And many easy cases take longer if the lender rejects the adjudicator decision.
   This matters. People making affordability complaints will, in general, be more vulnerable than most other FOS complainants. I can’t think of another FOS complaint area where people are routinely deciding to accept a low offer from a lender because they are desperate and the lenders are playing on this.
3. The failure by Citizens Advice to have any useful information on its website about affordability complaints and the failure by StepChange to inform its customers who have potential complaints against payday lenders.

And the black spots

The DWP and Support for Mortgage Interest

A poorly thought through policy, affecting tens of thousands of vulnerable people, introduced in a completely incompetent way by the DWP. The casualties will emerge slowly over the next few years.

The FCA, Vanquis and the botched ROP refund

This sounded like such a good move by the FCA in February. But in practice the calculations Vanquis is using:

• break the CONC rules on allocating monthly payments to the highest interest balance components first;
• are unfair in halting the refunds at a point where interest is still being charged on previous ROP fees; and
• don’t include the over limit fees which are directly caused by the ROP interest.

The program has been delayed and looks unlikely to be completed by February 2019. During this time customers are being charged interest at high APRs on balances that are too large and this extra interest is not being refunded.

I have no idea if the FCA was asleep on the job and agreed to the unfair Vanquis calculations or if it is just turning a blind eye to the poor implementation.

It is not reasonable to say that any customers can make complaints. Customers have no way of telling if the refund they have been sent out of the blue is wrong. Every complaint about over limit fees has resulted in Vanquis increasing the refund.

Universal Credit

It’s a disaster. And it will get much worse if the current rollout continues.

Low and negative DIs

Every report from Citizens Advice, StepChange and National Debtline tells the same story. Priority bills and debts are becoming more important, consumer debts comparatively less important, and people’s disposable income is dropping. Most of that is outside the control of Debt Policy Makers but they underpin the need for additional resources for debt advice (at a time where across the country cuts are being made), and more focus on the suitability and accessibility of insolvency solutions.

My hopes for 2019

I am an optimist. Let’s not lose sight of the fact that DWP, HMRC and local authority debt collections practices now look so poor because of the major reforms to consumer debt handling, including recognition of vulnerability, achieved over the last 15 years.

So here is my, admittedly ambitious, wish list for 2019:

• Universal Credit roll out to be halted whilst it is reformed root and branch (scrapping it would be simpler);
• better funding for debt advice;
• bailiff reform;
• DWP, HMRC and local authorities to adopt SFS;
• effective reforms introduced by the FCA and the Insolvency Service to prevent anyone who qualifies for a DRO being sold an IVA instead;
• the FCA to mandate common minimum affordability checks, including verification of income, and caps on interest charges across all short and medium term products.

Update – see my review of 2019 for how badly this all went in practice.