1.The Committee has asked, in relation to the above instrument, for a memorandum on the following point:
Having regard to paragraph 7.1 of the Explanatory Memorandum, explain whether commercial trading subsidiaries of registered charities (as specified in new article 36FA(2)(d)) and subsidiaries of registered social landlords (as specified in new article 36F(2)(2)) necessarily offer non-high-cost credit?
2.Paragraph 7.1 of the Explanatory Memorandum states: “Social and community lenders, which are specified in paragraph 2, and subsequently defined in paragraph 4, of the new article 36FA, offer alternatives to high-cost credit. Registered Social Landlords (RSLs) are key partners for these lenders, as their tenants are low income consumers who may struggle to access mainstream credit.”
3.The Treasury considers that the subsidiaries of charities and RSLs primarily provide non-high-cost credit products and the risk of these companies providing high-cost credit products is very low.
4.A subsidiary must either be wholly or majority owned by the RSL or charity, meaning that there is a layer of reassurance that they are fulfilling a social purpose. If a subsidiary were to offer high-cost credit products then this would be contradictory to their social purpose, and could attract penalties from the relevant regulator or supervisory authority if they deemed it necessary.
5.It should also be noted that the subsidiaries of charities and RSLs offering credit will be authorised by the Financial Conduct Authority (FCA) for credit lending and subject to their enforcement toolkit for a breach of any FCA rules or principles.
6.The Treasury has also considered which social and community lenders would be caught by this definition. At present, there are only two social and community lenders structured as a subsidiary of a charity or RSL; both of which offer alternatives to high-cost credit.
7.HM Treasury has worked with Industry and the FCA to consider the risks and benefits of including these subsidiaries in the scope of this instrument. This included the risk that a high-cost lender may restructure as a subsidiary of a charity or RSL to benefit from the exclusion in this instrument.
8.However, this risk was deemed to be minimal considering the significant impact it would have on the firms operating and governance models.
9.Whilst the market size for social and community lenders registered as subsidiaries of charities or RSLs is quite small, these lenders facilitate access to affordable credit for financially vulnerable consumers. It is important that RSLs have the flexibility to refer individuals to all potential sources of social and community lenders to allow individuals to make informed decisions.
10 September 2019
Published: 4 October 2019