credit card market study interim findings november 2015 1
TRANSCRIPT
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Credit card market study Interim findings
November 2015
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The scope
Why we are carrying out a market study:
• To build a sound understanding of the market
• Assess whether it’s working well in the interest of consumers
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The credit card market study process
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Three areas of investigation
• The extent to which consumers drive effective competition through shopping around and switching.
• How do firms recover their costs across different cardholder groups and what is the impact of this on the market?
• What is the extent of unaffordable credit card debt?
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Our research
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Our interim findingsThe FCA's interim findings show:
• Firms compete strongly for custom on some features, offer a range of products to meet consumers’ needs and there have been new entrants in the market in recent years.
• Consumers shop around, switch and value the flexibility offered by credit cards.
• The FCA found that firms were not targeting particular groups of consumers to cross-subsidise other groups. We do not currently propose any further action in this area.
• Consumers in default are unprofitable and firms are active in contacting consumers who miss payments, triggering forbearance at this point. However, consumers with persistent levels of debt or who make minimum payments are profitable, firms therefore have fewer incentives to help these customers.
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Shopping around and switchingFirms • compete strongly for custom on some features• offer a range of products to meet consumers’ needs • new entrants have entered the market
Consumers • 51% say they shop around• each year 14% of consumers with a credit card take out a new one • value the flexibility• value control over repayments• like having access to credit when they need it
“They’re simply an extension of my finances now. And all is well if you use them and don’t let them use you.” Quote from a consumer at the FCA workshop
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Shopping around and switching• Competition is focused primarily on features, such as
introductory promotional offers and rewards • Consumers often disregard important features, such as long-
term interest rates or fees – these can add significantly to costs• Consumers can end up not using their credit cards in the way
they expected• Higher risk consumers have less choice of providers and
products
“You always have good intentions and think at the end of the month I’m going to pay this off, but somehow it never happens does it?” Quote from a consumer at the FCA workshop
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The extent of unaffordable credit card debt• We are concerned about the scale of potentially problematic
debt. We found that around 6.9% of cardholders (about 2 million people) are in arrears or have defaulted.
• We estimate a further 2 million people have persistent levels of debt that some may be struggling to repay.
• A further 1.6 million people are repeatedly making minimum payments on their credit card debt.
• Consumers in default are unprofitable and firms are active in contacting consumers who miss payments and triggering forbearance at this point. However, firms have fewer incentives to address persistent levels of debt or repeated minimum repayments.
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Potential remediesIn relation to shopping around and switching we propose: • Measures to help consumers find the best deal including enabling better access by
consumers to their transaction data, boosting the role of comparison sites; • Ensuring consumers can search the market without damaging their credit score; and• Prompting consumers when they are nearing the end of a promotional period. To reduce problematic credit card debt we propose:
• Measures to give consumers more control over credit limits and utilisation;• Measures to encourage consumers to pay off debt quicker when they can afford to;
and• Firms to do more to identify earlier those consumers who may be struggling to repay
and take action to help them manage their repayments. .
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Next stepsWe have already engaged with a large number of consumer groups, firms and industry bodies
We want to discuss our interim findings and potential remedies with stakeholders
We plan to publish our final report, including any action we may take, in Spring 2016
Please send your feedback to us by 8 January 2016
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Any questions?
Quarterly Trade Body Event 5 November 2015
Philip SalterDirector of Retail Lending, Supervision – Retail and Authorisations Division
• Welcome and introduction
• Credit Card Market Study - Brian Corr
• Policy update – Martin Goulden
• Latest Authorisation data – David Fisher
• Supervision – Roma Pearson
• Introduction to the new handbook – Alan Blanchard
• Conclusion and networking lunch
Authorisations Director
Susan de Mont
GI&P Sector Director
Simon Green
Retail Lending Sector Director
Philip Salter
Retail Banking Sector DirectorKarina McTeague
Mortgages & Mutuals HoD
Alison Carpenter
Consumer Credit Supervision HoD
Roma Pearson
Wholesale HoDMark Wilson
Retail HoDMichael Sicsic
Large Retails Banking 2 HoDClare Bolingford
Large Retail Banking 1 HoDJeremy Marsden
Debt, Credit & Regulatory HoD
Nick Mears
Credit HoDDavid Fisher
Debt HoDHilary Bourne
Dual Regulated HoD Lucy Castledine
APPM HoD
Pat Knox
Contact Centre HoDChris Jell
Permissions HoDLucy McClements
Conduct Supervision HoD
David Blunt
Credit Authorisations
Change Director Val Smith
Supervision Retail & Authorisations Director
Jonathan Davidson
SUPVERVISION Retail & Authorisations
Brian Corr Head of Department Competition Division
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Credit card market study Interim findings
November 2015
20
The scope
Why we are carrying out a market study:
• To build a sound understanding of the market
• Assess whether it’s working well in the interest of consumers
21
The credit card market study process
22
Three areas of investigation
• The extent to which consumers drive effective competition through shopping around and switching.
• How do firms recover their costs across different cardholder groups and what is the impact of this on the market?
• What is the extent of unaffordable credit card debt?
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Our research
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Our interim findings
We found that in most of the market competition is working fairly well for consumers
We are concerned about the scale of potentially problematic debt for consumers who are just above default levels
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The extent of unaffordable credit card debt• 6.9% of cardholders (around 2 million)
were in arrears or default• A further 6.6% of cardholders (around 2
Million) have persistent high levels of credit card debt and may be struggling to repay
• 5.2% of cardholders (around 1.6 million) make systematic minimum repayments
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Potential remediesMeasures to help consumers:
• find the best deal, including enabling better access to their transaction data, boosting the role of comparison sites
• search the market without damaging their credit score• Prompts when they are nearing the end of a
promotional period• more control over credit limits• pay off debt quicker when they can afford to
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Potential remedies
Firms: • to identify earlier, consumers who may be
struggling to repay • take action to help them manage their
repayments
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Next stepsWe have already engaged with a large number of consumer groups, firms and industry bodies
We want to discuss our interim findings and potential remedies with stakeholders
We plan to publish our final report, including any action we may take, in Spring 2016
Please send your feedback to us by 8 January 2016
29
Any questions?
Martin GouldenConsumer Credit Policy
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Summary PS15/23 published 28 September – feedback on CP15/6 Further work on credit broking and guarantor lending Round table on creditworthiness – 30 September CP15/30 on 1 October – pension reforms CP15/33 on 28 October – CMA proposals on HCSTC Quarterly consultation in December – to include proposed change on 0% APR
financial promotions (flagged in PS15/23) Review of creditworthiness and quotation searches Review of cold-calling and unsolicited marketing Initial planning for 2019 review of retained CCA provisions
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PS15/23 – credit brokers Retain PS14/18 rules on disclosure of fees/status Initial impact assessment in April 2015 Minor change to CCR008 reporting requirement Minor changes to other CONC rules Further impact assessment in Q1 2016 Further work on credit broking remuneration including disclosure of
fees/commissions and timing of fees To assess whether there are gaps in current rules that need filling and
whether/what additional rules are required Further consultation in 2016 if needed
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PS15/23 – lending Guarantor lending – treat guarantor as ‘customer’ for purposes of Principles 6 and 7 and key
CONC rules Scope – borrower and guarantor are both ‘individuals’ Adequate explanations – can be delivered by broker or solicitor as part of independent legal
advice, subject to conditions Creditworthiness – may be different for borrower/guarantor Further work on guarantor lending to assess whether additional rules required (eg post-
contract and approaching guarantor) Further consultation in 2016 if needed Joint borrowers – guidance on explanations/creditworthiness Other proposals – explanations, creditworthiness, enforceability
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PS15/23 – financial promotions Removal of exemption for HCSTC risk warning Changes to ‘clear, fair and not misleading’ – may consider additional guidance as
part of a future consultation Changes to prominence requirements (‘no less prominent’) Clarification of triggers for representative APR Clarification of proposals on ‘pre-approved’ promotions To consult in December on exempting 0% APR credit from requirements for
representative example and RAPR To consult in December on exempting community finance organisations from RAPR
requirement
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PS15/23 (debt) and CP15/30 (pensions) PS15/23 – changes to guidance on referrals to debt advice CPA can be introduced without modifying agreement as part of forbearance to
borrowers in arrears/default May consider further restrictions if evidence of misuse of CPAs Guidance on duration of debt management plans CP15/30 – pension reforms (responses by 4 January) Guidance on CONC 7 and TCF – likely breach if pressurise customer to repay debt
by accessing pension savings Cross-reference to PERG guidance on regulated activity of advising on conversion
or transfer of pension benefits
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CP15/33 – CMA HCSTC proposals Proposed rules for HCSTC price comparison websites (PCWs) Must rank in ascending order of price (TAP) and ensure rankings are competitively
neutral with no undue prominence Any additional advertising must be outside ranking tables Must enable consumers to search by amount/duration of loan PCWs must disclose extent of market coverage and must not make misleading
claims regarding coverage Views invited on use/value of quotation searches in HCSTC Continue to monitor use of HCSTC real-time data sharing Deadline for responses is 28 January
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Other policy work Research into how firms assess creditworthiness (including affordability) to inform possible
changes to CONC rules/guidance Firm pilot survey to commence shortly; other work ongoing May supplement ‘common misunderstandings’ document (or issue similar documents in
other areas) Review of repeat and multiple borrowing in HCSTC Further work to promote/facilitate use of quotation searches Possible work on wider issues regarding PCWs in credit markets Review of rules on cold-calling and unsolicited marketing Initial scoping of review of retained CCA provisions (to report to HM Treasury by 1 April
2019) – will engage with stakeholders
David FisherHead of Credit Permissions, Credit Authorisations
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Authorisations update
Three quarters of eligible firms applied or become appointed representatives
Significant number allowed interim permissions to lapse or cancelled
Application rate from new entrants running at roughly twice expected level
Of applications determined, 94% were authorised
Of remainder, we refused to authorise some but most withdrew
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Authorisations update
Timescales for determining applications set by FSMA
6 months from application deemed complete – maximum of 12 from receipt
On average, 10 weeks to determine limited permission applications
14 weeks for variation of permissions and 24 for full permissions
Breached statutory deadlines in 13 cases - 0.2% of total
Roma Pearson Head of Department Consumer Credit Supervision
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Life after Authorisation: what next?
• Supervision is an ongoing process• Key priority: embedding the Principles for
Businesses • Principle 11 considerations:
• Understand your reporting obligations• Remember you must apply for approval or notify us when you make
certain changes• Notify us of significant events
• Stay in touch with consultations and rule changes
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External engagement
• Trade events• Webinars• “Purple Guide”• Web content
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Changes to the supervision modelFixed Portfolio
Flexible Portfolio
Named supervisor
Cycle of regular assessments and meetings
Engage with us via the Contact Centre
Ad-hoc interaction
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Thematic review of staff incentives and remuneration• Phase I - desk-based analysis of information from
c.100 firms. Complete.• Phase II – Visits and more detailed analysis of a
smaller sample. Ongoing through Q1 2016.• We will notify firms as soon as possible if we are
including them in Phase II.• All firms to be visited this year have been notified.• No feedback to firms until mid-2016.
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Thematic review of early arrears management in unsecured credit• Currently finalising analysis of firm
information• Moving on to review of customer case
files• Expect to visit firms in Q1 2016• Reporting summer 2016
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