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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

15 MAY 2009

Mr Gareth Thomas MP speaking at the Credit Today Credit Summit on Personal Lending

Mr Gareth Thomas MP has given an interesting speech on consumer lending activity at the Credit Today Credit Summit. It will make interesting reading for anyone who has mulled on the idea of irresponsible lending practices in the past. For a discussion of this issue see here. Here is the text of the speech:

"During such difficult economic times we have a responsibility to work together - industry and government - to ensure that we have the right response in place to alleviate the impact on families, consumers and offer real help now.

But we also, together, need to address the longer term challenge of creating the right framework for sustainable consumer lending that will drive future economic growth.

It is these two challenges that form the backdrop to my agenda at the moment.

I want also to touch on three other issues: international comparisons, the place of individuals’ own responsibilities and lastly the Consumer White Paper which the Government will publish before the summer.


Let me give some context first.

The growth in consumer lending and personal debt in the UK over recent years has been phenomenal, with unsecured debt rising from around £125 billion at the start of the decade to £233 billion by the end of 2009.

We started to witness a slowing of that growth even before the financial crisis, but it is clear now, that we are entering a new and changed environment.

Levels of new unsecured lending are falling and we are seeing evidence of flight to less risky customers. The monthly net flow of new lending was negative in February 2009 for the first time since at least 1993.

This is clearly driven by changing behaviour as consumers become more cautious about taking on new commitments, and also by the funding gap left as foreign banks withdraw capital.

At the same time risk costs and bad debts on unsecured portfolios are rising.

This tough economic climate is prompting departures from the sector.

For example, our analysis shows a 20% reduction in branch-based providers of unsecured personal loans from April 2007 to April 2009, and a 50% reduction in ‘direct’ or non-branch suppliers over the same period.


Our first priority in Government has been, and remains, to act quickly to help and protect the most vulnerable in our society.

We have taken steps to protect vulnerable families from losing their homes.

On access to credit, the Budget announced an additional £270 million investment in the Social Fund and a further £19 million to enable credit unions and other community-based lenders to make a further 45,000 loans over the next two years to consumers who struggle to access mainstream credit.
This sits alongside the work we are doing to tackle the illegal lending sector, which to date has benefited more than 6,000 victims of illegal lending in some of our poorest and most vulnerable communities, saving them an estimated £14 million.

Just as Government has a role so too does industry have its part to play.

Credit card issuers and the debt collection sector have shown some leadership in offering customers who are willing to engage with their lenders on a breathing space.

Other creditors must now follow the lead set by credit card issuers and debt collectors.

We recognise that problem debt is not just the result of consumer lending - other creditors such as utility and telecoms companies also have a responsibility to exercise forbearance where it is due.

Despite these welcome moves, there remain inconsistencies in the treatment of customers in financial difficulties.

We continue to hear about cases of some creditors failing to treat customers, who are willing to pay, positively and sympathetically.

Further rapid improvements to change that situation are needed.

I want to see improvements in the operation of the Common Financial Statement so that we can reduce the time spent by lenders and debt advice agencies in agreeing repayment plans.

So I do want to ensure that the commitments in the Banking Code and the FLA Lending code to use the Common Financial Statement as the basis for calculating offers of repayment are honoured.
It is not right that the majority who play by the rules should be disadvantaged by a handful of creditors.

And I welcome the constructive work which is going on to address this.

Earlier this week I received a commitment from the members of the Consumer Finance Forum to work together to agree positive ways to help those borrowers whose budgets fall outside of the “trigger figures” in the CFS to find a stable solution to their problems.

We’re also supporting the work which Citizens’ Advice are leading to develop a consistent set of standards for debtors who choose to represent themselves in dealing with their creditors – the so called “self-helpers”.

Working through the practical challenges which these issues present together, we can deliver improvements which will make a real difference to families trying to make their way through, a sometimes, confusing and stressful process.

So there is an important immediate agenda around helping people with problem debts. But we must also look to prevent these problems before they emerge and we must tackle, head on, the concerns of all borrowers in the face of changing economic conditions.

We have seen evidence that some consumers may be risking getting themselves into trouble using expensive credit card cheques –without a clear understanding of the costs.

That’s why we have announced our intention to legislate on this at the earliest opportunity.
We are also concerned about the way in which market conditions are leading to rising interest rates for consumers, especially on their credit cards.

The fair principles for risk-based re-pricing agreed by the credit card industry were a major step in addressing these problems, but there remains some real issues for the industry.

The challenge today for credit card lenders is to ask yourselves what more you can do to respond to the concerns of your customers and the wider public.


At the same time we must look to the future.

I want a viable, competitive and innovative industry; one that does deliver continuing access to credit and financial stability, whilst helping people to stay in control of their finances.

We have to ensure that our thinking and our actions to address current challenges take account of the future.

We want to build and position the UK economy to make a strong and rapid recovery.

Both industry and Government must respond to the failures of the market that have harmed the interests of consumers.

Now is the time to take an objective look at the role played by banks and lenders in driving up levels of borrowing, sometimes to excessive levels.

The goal must be to achieve the right balance between risk and responsibility in the long term.
We need a more vibrant debate with all the key constituents of the market – creditors, regulators, consumers and their representatives – about what the future looks like and should be for the consumer credit market and its regulation.


Our consumer credit market has its similarities to other countries’ markets but there is no one direct parallel.

I know that uncertainty about the direction of regulatory reform is a matter of concern to many in the industry. Some commentators are drawing parallels with developments in other markets and calling for the UK to follow.

Of course, it’s important that we examine these ideas. I am interested in exploring with you whether product regulation of credit cards, for example, can help ensure fairer outcomes for consumers and a more transparent basis for competition between providers.

And of course there may be advantages in adopting a common approach which enables UK firms to compete effectively in foreign markets and to apply the same systems and standards across different markets - for example in accounting for bad debts.

But it is not simply a matter of cherry-picking the best bits of credit regulation from around the world.

We need to ensure that our system is built on a clear understanding of the nature of the UK market and UK consumers.

My view is that some further reform will be necessary.


It is not just the actions of industry that must come under scrutiny.

We must ask tough questions of ourselves as individuals too. Have we as consumers taken our responsibilities as borrowers seriously?

We need to consider whether there is more that can be done to help less capable consumers better understand what they can afford and how their behaviour can enhance or restrict their access to credit.

And how do we ensure that consumers are getting the right messages, rather than being seduced by those offering an apparently easy way out of their responsibilities?


I will address these questions for industry and consumers in a White Paper this summer.
The White Paper itself will look wider than credit and debt, setting out a strategic approach to the post financial-crisis consumer world.

The credit and debt aspects of the White Paper will have a dual focus.

First, we will continue the essential work we have been doing to offer real help now for consumers
Second, we will set a long-term direction for regulation of the sector, learning the lessons of recent events in order to deliver responsible consumer credit markets, continuing access to affordable credit, enhanced consumer protection and financial stability.

We won’t have all the answers. But the White Paper will be a key moment in our ongoing conversation about the future of unsecured lending and achieving the vision of responsibly managed consumer debt.

The end result must be that we create a resilient and profitable sector, ready to play its key role in driving economic growth in the future.

I look forward to our continuing dialogue in the run up to the White Paper and afterwards in helping us to achieve this important goal."

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