Consumer Credit: The Complain Game
As reported widely across the media, the UK ombudsman has highlighted the significant growth in complaints about unaffordable credit Credit card complaints hit all time high. For those impacted by the spiralling costs of credit, financial distress is awful, with very high personal costs too often leading to mental and physical harm for affected individuals and families.
Digging into the numbers a little more closely, the rise in complaints has been primarily fuelled by “professional representatives” but there is no definition of what constitutes a professional. Are these good Samaritans or ambulance chasers or somewhere in between? Across all irresponsible lending claims, just 14% of complaints raised professional representatives were upheld, whereas direct claims were upheld 44% of the time. While clearly not perfect, the banking sector is under huge pressure and scrutiny over its conduct and the fact that the ombudsman is finding in lenders favour more often than not should be a sign of encouragement.
It does point to further questions over the role of consumer credit in the economy and which institutions should be providing it. The rapid rise of buy-now-pay-later (BNPL) shows that there is appetite from merchants wanting to sell more and customers wanting the opportunity to purchase and consume today and spread the cost over time (see our previous articles BNPL from Wild West... and What next for BNPL as Regulation and Recession Loom?). Are the retailers pushing sales just as much at fault as the lenders facilitating it? The Woolard review investigating BNPL indicated that there is no appetite to slow down commerce, nor stop permitting sellers to offer extended payment terms and keep complete freedom to set prices freely, including offering early payment discounts. From a consumer’s perspective there is little material difference between owing money to the retailer or owing it to a 3rd party lender, at least until it goes wrong.
As ever more constraints are imposed on banks, it is increasingly pushing provision of credit into the shadow finance sectors. Is this a good outcome for customers? Banks and professional lenders that have a better understanding of consumers’ creditworthiness are more efficient in assessing risk and setting appropriate pricing for consumer debt. They also have stricter controls because of regulatory oversight on what processes are followed for treatment of customers that get into financial difficulty. That consumers have a mechanism to complain about lenders and call out bad practice where it occurs can only be a good thing.
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Chief Executive at Consumer Credit Trade Association
9moInteresting read. Members of our association often talk about the impact of the FOS structure on the shape of the market and the supply of credit. Some fundamental factors push CMCs towards the submission of mass claims. They often have low levels of success and place lenders under significant pressure as they pay £750 for every claim – win or lose. As you point out, we see the growth of non-regulated lending as lenders step back or are pushed out. Ultimately, not just shadow finance fills this gap; illegal lenders, from small one-person operators well known in their communities to organised crime seeking cash opportunities, also take advantage. We need that option for consumers to complain. We also need to consider the strategic impacts and how we deal with them.