Kamala Panday, publishing director at Credit Strategy, introduces the Credit Awareness Week campaign, run in association with Experian, which is a consumer facing project to be launched at Credit Week.
"Credit is the biggest thing you will ever buy in your life, that you never knew you bought."
It’s a statement I like to make at the start of any training session I take with new employees. It is, admittedly, only arguably true – dependent on what interest rates have been doing during your lifetime, and fails to exclude the very rich, the very prudent, or those that don’t buy houses.
It does, however, highlight the crux of the problem that is credit; namely – what is it? Other people’s money doesn’t feel like a product, especially when we’re more focussed on the product we really desire and credit is just the facilitator. And then there’s a bewildering array of mysteriously described credit products available, including personal contract purchase plans, logbook loans, guarantor loans, point-of-sale, rent-to-own and equity release. Is it any wonder consumers are stumped?
A re-balancing act
Credit Week, our series of events for senior professionals in consumer and commercial credit, aims to stimulate debate to help close a knowledge gap among consumers. Credit Strategy will take on the mantle of credit awareness by launching a consumer campaign at the start of Credit Week on March 28. We will be highlighting a handful of themes that bring together both consumer and industry interests, as well as unveiling a manifesto proclaiming the twin aims of responsible lending and responsible borrowing.
Choosing what to pick out for a consumer focus has been no easy task. Credit is vast, and to match its size there is always a raft of consultations and reviews absorbing policy makers and lobbyists.
In the end we picked three key themes:
All three bring the industry and consumers together at critical junctures in the credit cycle where information is vital but often lacking. This information, if it was available, would enable more responsible lending and make borrowing a more seamless, more helpful process for the consumer.
Affordability is a timely issue. The Money Advice Service (MAS) has chosen March as the launch date for the adoption of the Standard Financial Statement (SFS), which itself will herald a consistent approach to assessing income and expenditure. This will be the first time that all major debt advice providers, creditors and other debt bodies will use the same format to assess income and expenditure for over indebted people.
There has now been an early day motion tabled in the House of Commons to encourage government departments to integrate the SFS in its debt collection practices.
"We will be undertaking a consumer survey looking at the nationwide understanding of credit scores. The results will be aired in Credit Week"
The campaign trail
Credit resilience has been an issue many advice organisations, most notably StepChange Debt Charity, have been campaigning on for some time. Others such as the Money Advice Trust want to ensure public sector creditors also use the SFS.
Not all have been fans of the savings element creeping into the SFS, even as an optional element that depends on the debt advisor’s recommendation. Some creditors have argued it could be counter intuitive, encouraging debtors to seek more credit to fulfil the savings threshold of 10 percent of income.
We will be debating the issue at the Credit Summit where Caroline Siarkiewicz, head of debt advice at MAS, will be unveiling the body’s new debt advice strategy. Our second theme, credit scoring, hinges on consumer awareness of their scores and attempting to unravel the common myths.
Unlike the US, where the FICO national credit score has been an everyday conversation piece across society – even being linked to dating preference – the UK appears to lag behind.
Last year an FCA Occasional Paper: Access to Financial Services in the UK said most consumers do not understand how credit scores work and often mistakenly think that a credit reference agency makes lending decisions – and that those decisions are based purely on their credit file.
It quotes one consumer they surveyed who said: “What is your credit score? Will you tell me? Is it like they look at your records with them and then ask the police about your criminal record?”
We will be undertaking a consumer survey looking at the nationwide understanding of credit scores. The results will be aired in Credit Week.
More help at the point of credit refusal is a topic where we aim to bring lenders and the credit reference agencies (CRAs) together for a roundtable discussion on how the industry could enable better outcomes for consumers. Currently, applicants refused credit are redirected back to CRAs.
However, Lending Standards Board guidance indicates consumers could also ask lenders the main reason for refusal.
The FCA has voiced concerns about this issue, which it described as “a ‘fog’ of confusing relationships between the main players – lenders and credit reference agencies” and that consumers who do get answers from lenders or CRAs at refusal “are likely to be given a generalised explanation that does not necessarily help them to improve their credit score.”
One expert in the FCA report said: “Credit scoring is a bit of a myth. We’d like to see a lot more information and training for staff to know what they can tell someone about how they can improve their credit score.”
Can’t get no satisfactions
Our third theme centres on debtor rehabilitation. We will be launching a campaign with Registry Trust to encourage creditors to file CCJ satisfactions on behalf of debtors. RT believes the average customer doesn’t do this and it would make sense for the industry to help consumers.
Registry Trust is also looking at a redefinition of the term ‘satisfaction’ to include those that have made a payment to the creditor’s satisfaction even where it is not a payment in full. A parallel list redefined as ‘payments that satisfy creditors’ would then be produced. Malcolm Hurlston, chair of the trust, believes both measures could enable hundreds of thousands of individuals with impaired records, to borrow more cheaply.
Debtor rehabilitation is still controversial. Society has long pondered how it should deal with those members that get into financial difficulties. The Credit Awareness Week campaign will help borrowers prevent any unintended punishment, all by themselves.
If you wish to contribute to the Credit Awareness Week campaign email KPanday@shardmediagroup.com