7Access to lower-cost credit
212.As part of the Committee’s previous inquiry into Household Finances, the Committee took evidence on the lack of lower-cost credit available in the UK. The Committee recommended the Government “take a more strategic approach in coordinating what currently appeared to be piecemeal efforts across Government, regulators and industry towards promoting the expansion” of the credit union and community development financial institutions.193
213.In evidence to this Committee, Sian Williams, Director of the Financial Health Exchange, Toynbee Hall, suggested that there is still a lack of affordable credit:
I have been leading work for the Financial Inclusion Policy Forum around access to affordable credit and we have not yet got that range right. […] Having access to a small, no-interest loan that will not really increase their total outgoings but would allow them to not then get into trouble somewhere else with a higher-cost lender or to have to forego really essential items like food and fuel is really crucial. That is something that we know we want to take forward, and the Treasury and the Financial Inclusion Policy Forum are working on that with us.194
214.In the 2018 Budget, the Chancellor announced the pilot of a no-interest loan scheme to help consumers with problem debt.195 A feasibility study of the pilot was due to take place in 2019.196 However, at the time of writing this report, further details of this pilot had not been announced.
215.The Committee welcomes the Government’s announcement in the Budget of its intention to pilot a no-interest loan scheme and awaits the details of the proposed scheme with interest. When responding to this Report the Government should outline when these proposals will be brought forward.
Treatment from enforcement agents
216.In its Household Finances Report, the Treasury Committee concluded that:
[Local authority] debts are often pursued overzealously, and with routine recourse to bailiffs. In addition to local government, the Committee has heard reports that central government can take an uncompromising approach to debt collection. The public sector should be leading by example in its treatment of the most financially vulnerable; but the current approach risks driving them into further difficulty. The Committee welcomes the Economic Secretary’s acknowledgement of this problem, but it would like to see more evidence that the Government is tackling it as a priority. By bringing central government and local authority debt collection practices consistently into line with industry best practice, the Government has the power to make a significant difference to the burden of problem debt in a short space of time.197
217.In its response to the Committee’s report, the Government wrote:
Local authorities are responsible for the collection of council tax. 58 councils in England have signed up to the Council Tax Protocol developed by the Local Government Association and Citizens Advice. This offers practical steps to prevent people getting into debt. Central government has published guidance on enforcement action, which makes it clear that local authorities should be sympathetic to those in genuine hardship and proportionate in any enforcement action.198
218.In 2014 the Government introduced reforms to strengthen protection from rogue enforcement agents, by implementing Part 3 and Schedule 12 of the Tribunals, Courts and Enforcement Act 2007. The reforms provided legal protection by introducing a comprehensive code governing, amongst other things: when and how enforcement agents can enter somebody’s premises; the safeguards to prevent the use of force against debtors; what goods they can and cannot seize and, if necessary, sell; and what fees they can charge.199
219.However, the Committee received a number of written evidence submissions that consumers—including those who are vulnerable—continue to suffer unfair treatment from creditors. StepChange, a debt charity, told the Committee that there is evidence of vulnerable consumers not being treated appropriately and not experiencing positive outcomes in their interactions with financial services providers:
41 per cent of clients who identified as vulnerable, for example due to a health condition or visual or hearing difficulty, had experienced unfair treatment from a financial services provider they owed money to. This may have included, for example, being asked for unaffordable repayments, being contacted at times they asked not to and having fees or charges added to their debt even after their creditor knew they were in difficulty. This compared to 26 per cent of ‘non-vulnerable’ clients who said they were treated unfairly.200
220.Similarly, Baroness Tyler of Enfield told the Committee about the evidence the House of Lords Committee on Financial Inclusion had taken regarding bailiffs:
Just sending the bailiffs in, it seems to me, is often completely counterproductive. For some of the people in the most desperate circumstances, it is often going to be the state—i.e. central government or local government—which ends up picking up the cost of whatever happens when that person becomes homeless or whatever it is. We were surprised and quite shocked at some of the examples we heard about the bailiffs at the door being sent in by the local authorities.201
221.The House of Commons Justice Select Committee published a report on bailiffs in which it noted that bailiffs would not accept affordable repayment offers, they seized goods inappropriately and failed to take vulnerable circumstances into account. The changes to the regulations around bailiffs that had been introduced in 2014 did not properly deal with the vulnerability of the people bailiffs were dealing with.202
222.In November 2018 the Government launched a call for evidence for its second post-implementation review of the 2014 regulations. The call for evidence is now closed and the results have not yet been published.
223.The Committee welcomes the Government’s work in undertaking a second post-implementation review of the effectiveness of its 2014 legalisation on rogue enforcement agents. The Committee will consider the results of this review when it is published, but expects to see increased protection for vulnerable consumers.
224.Often, debt enforcement is a matter for local authorities. Many local authorities have already signed up to the Council Tax Protocol developed by Citizens Advice and the Local Government Association. The Committee recommends that local authorities sign up to the Protocol, and that the Government instructs them to do so.
Treatment of consumers with problem debt
225.The Money and Mental Health Policy Institute (MMHPI) has an ongoing campaign regarding the Consumer Credit Act 1974 and the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983, which require letters demanding debt payments to include words in specific formats that consumers can find intimidating:
Letters from debt collectors can be intimidating and hard to understand, full of complex legal language and threats of court action. And the truth is that the law doesn’t just allow lenders to get away with sending these threatening letters, it makes them do it. A law written decades ago sets out the exact wording that must be included in letters to people struggling with repayments for most types of credit (from overdrafts to credit and store cards, payday loans and personal loans). It includes phrases like:
“IF YOU DO NOT TAKE THE ACTION REQUIRED BY THIS NOTICE BEFORE THE DATE SHOWN THEN THE FURTHER ACTION SET OUT BELOW MAY BE TAKEN AGAINST YOU [OR A SURETY].”
[…] In reality, however, most of us don’t know what a ‘surety’ is, or how to apply to a court, or have access to a solicitor. In truth, the most useful thing that you can do if you receive one of these letters and you can’t make your repayments, is to contact a debt advice charity. Yet the law dictates that, even if lenders choose to include this important signposting to help, it cannot be as prominent as the intimidating messages above which must be in bold, capitals or in red to stand out. With many people receiving multiple letters like this every day, it’s no wonder that so many are left feeling panicked and hopeless.203
The MMHPI recommended that the Government:
Change the out-of-date legislation dictating the content of these letters. In particular, new rules are needed to make the language easier to understand, and to prominently signpost people to help. We believe this reference to help will save lives.204
226.The Committee recommends that the Government amends the Consumer Credit Act 1974 and the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 to update the required terminology and phrasing of payment request letters to a form of words that would be clear and understandable for an individual with a low level of literacy, and mandate the inclusion—with equal prominence to the demand for payment—of information within such requests of how an individual can seek help with their debts. In doing so it must take account of consultations with debt advice charities and other stakeholders.
Creditworthiness Assessment Bill
227.The Committee took evidence which set out how consumers might be unable to access affordable credit owing to a lack of credit history. If consumers have a “thin credit file”—a credit file with few examples of a previous ability to take out credit and pay it back—this may act as a barrier to taking out credit to improve their score in the future.
228.The Lord Bird described to the Committee why the Creditworthiness Assessment Bill—which proposes to include rental payments into a consumer’s credit score—may improve outcomes for some consumers:
We have to grow customers’ financial files. One of the reasons that many people in poverty, near poverty or getting out of poverty find it very difficult to get affordable credit is because no one has an algorithmic or digital record of them. That is why I have concentrated on bringing in the Creditworthiness Bill, as a means of saying to people who are paying rent, “We live in a risky business world of finance and we want to take a risk on you, but we want to know that you have the ability to pay back”. All the evidence seems to suggest that about 80 per cent of people who are paying rent could easily be freed up. They could get what is called a “thick file” or a “thicker file”, which would mean they could then access the cheaper credit.205
229.In response to the Committee’s Household Finances report, the Government stated that it did share the aims and objectives of the Creditworthiness Assessment Bill, but it did not agree with the approach:
Lenders currently lack access to rental data in the majority of cases, and credit reference agencies lack a systematic or comprehensive record of rental history. Industry has therefore indicated that, were lenders newly obliged to take rental payments into account when assessing each borrower, they may be unable to process applications, or would incur significant delays in doing so. This could prompt firms to retrench their lending to rental tenants; at a minimum, they may pass on the additional cost to consumers in the form of higher prices.206
230.Instead, Government launched a Rent Recognition Challenge at the 2017 Autumn Budget which is:
A competition challenging the UK’s world-leading tech firms to develop innovative applications to enable tenants to record and share their rental payment data with lenders and credit reference agencies. Six successful firms received grant funding to develop prototype applications in March, and three of these received additional grant funding in August to bring their products to market no later than November 2018.207
231.In contrast to the Government’s argument, Equifax, a credit ratings agency, submitted written evidence supporting the principles behind the Creditworthiness Assessment Bill:
Equifax analysed over 27,000 real life credit files belonging to people who rent social or affordable housing. We modelled the impact on their credit scores if their rental payment data was included and they paid their rent on time. Our analysis showed that including rental payment data improved the credit scores of 33 per cent of tenants and made no material difference to the remainder.
Within our sample, around 6,600 tenants had two or fewer credit accounts in their name, which we would class as a thin credit file and a potential barrier to accessing credit. This thin file group benefited most from including rental payment data—the credit scores of 69 per cent of tenants paying social or affordable rent improved when rental payment data was included, with no material difference to the remainder.208
232.The Government’s Rent Recognition Challenge was designed to deliver a sufficient alternative to the aims of the Creditworthiness Assessment Bill in a timely fashion in the interest of consumers. However, the Committee has heard compelling evidence that including rental payments in credit checks would help individuals with “thin credit files”. The Committee recommends that the Government supports the Creditworthiness Assessment Bill through Parliament and expects the Government to confirm it will do so in response to this report.
193 Treasury Committee report into Household finances: income, saving and debt, 18 July 2018
195 HM Treasury, Budget 2018, October 2018
196 HM Treasury, ‘Budget 2018’, Para 5.57
197 Treasury Committee, Nineteenth Report of Session 2017–19, Household finances: income, saving and debt, HC565, Para 49 and 50
198 Treasury Committee, Seventh Special Report of Session 2017–19, Household finances: income, saving and debt: Government Response to the Committee’s Nineteenth Report, HC1627, page 4
199 Gov.uk, Crackdown to stop rogue bailiffs making lives a misery, 25 November 2018
202 Justice Committee, Seventeenth Report of Session 2017–19, Bailiffs: Enforcement of debt, HC1836, Para 22 and 23.
206 Treasury Committee, Seventh Special Report of Session 2017–19, Household finances: income, saving and debt: Government Response to the Committee’s Nineteenth Report, HC1627, page 7
207 Treasury Committee, Seventh Special Report of Session 2017–19, Household finances: income, saving and debt: Government Response to the Committee’s Nineteenth Report, HC1627, page 7
Published: 13 May 2019