Financial Health Forum: Developments since Nov 2010

1. Financial Health Forum Financial Health Forum:Developments since Nov 2010 3rd May 2011 23 Savile Row, W1S 2ET

2. Financial Health Forum • Overview • Key challenges: economic context • 2. Financial Health Review: • Financial Inclusion • Financial Capability • Financial Services

3. 1. Key challenges for Financial Health • Recovery • Unemployment • Housing • Household finances • Insolvencies • Budget 2011 • RF analysis

4. 1. Key challenges: recovery • Recovery slower than expected: • The economy contracted by 0.5% in the last quarter of 2010 but regained 0.5 per cent growth in GDP in the first quarter of 2011. • OBR revised down forecast for growth in 2011 to 1.7%, (from 2.1%) due to higher inflation, bad weather and rising oil prices • Looking over the whole five-year forecast horizon, the OBR expect this recovery to be weaker than the recoveries of the 1980s and 1990s, with the calendar year growth rate remaining below 3 per cent in every year. • Inflation rate forecast to average 4.2 per cent this year, 2.5 per cent in 2011 and to not return to the 2 per cent target until 2013 • However, the OBR still expect Govt to meet its fiscal target a year earlier than the goal of 2015-16 • Some argue that this is too optimistic given weak consumer spending: actual disposable household income slipped by 0.8 per cent in 2010, which marks the first real decline in income since 1981.

5. 1. Key challenges: work and housing Work • The total number of unemployed people increased by 27,000 in the last quarter of 2010 to reach 2.53 million (8 per cent), the highest figure since 1994 • OBR forecasts unemployment to rise to 8.3 per cent by the second quarter, falling back to 6.4 per cent by 2015 • Wages in 2011 unlikely to be any higher than they were in 2005 Housing: • Council of Mortgage Lenders predict a modest rise in repossessions in 2011, 40,000 (up from 36,000 last year) due to pressures on households budgets, the persistence of cases of long-term arrears and cuts to Support for Mortgage Interest. • A YouGov survey of more than 2,000 respondents for charity Shelter found that the number of people struggling to pay their mortgage rose by 78% over the past year. 18 per cent of mortgage holders say they are constantly struggling to pay their mortgage, compared to just10 per cent the year before. • Average rents across the UK are 4.2% higher than last year (LSL property services)

6. 1. Key challenges: lending Secured lending • The availability of secured credit to households was broadly unchanged in the three months to early March 2011. • Demand for secured lending for house purchase fell markedly once again in the 1st quarter • The default rate on secured loans to households increased unexpectedly over the previous quarter, and was expected to increase further over the next three months. Unsecured lending • The availability of unsecured credit to households increased a little in 2011 Q1, though by less than expected. Availability was expected to increase further in Q2. • Default rates fell for the sixth successive quarter. But losses given default on credit card loans increased in 2011 Q1, and were expected to increase in the coming quarter. For non credit card loans, losses were broadly unchanged in 2011 Q1 • Lenders reported that credit scoring criteria had loosened a little on credit card lending, but had tightened on non credit card lending. Lenders expected that credit scoring criteria would be tightened somewhat in the coming quarter. http://www.bankofengland.co.uk/publications/other/monetary/creditconditions.htm

7. 1. Key challenges: household finances • Household saving ratio remained at a similar level in the fourth quarter of 2010, much higher than its pre-recession, indicating that households remain less optimistic about the economic outlook. • Markit Economics Survey of 1,500 adults found that households are most pessimistic about their financial outlook since the survey began in 2009. Strong rises in living expenses, combined with a further drop in income from employment meant that 39% of survey respondents reported a decline in disposable income while only 7% saw an increase. • Institute for Economic and Social Research analysis of the Wealth and Assets Survey found that: • Nearly one in ten of households in Britain are paying out over 25 per cent of their income in unsecured credit payments • 17 per cent have four or more credit commitments • 10% of households are in arrears. Of these, 76% were in arrears on one commitment, 17% on two, while 7% were in arrears on three or more commitments; and • 14% of households consider their debts to be a heavy burden

8. 1. Key challenges: insolvencies • According to the Insolvency Service there were 30,729 individual insolvencies in England and Wales in the fourth quarter of 2010. This was a decrease of 13.6% on the same period a year ago. • Research by Experian has found that that although instances of personal insolvency continue to be most frequent amongst the most disadvantaged people in the UK, their share of new insolvencies declined in 2010. • It found that the biggest increase in new cases occurred among mostly married, middle-class and skilled working-class people of middle age who live with their children – a demographic which makes up 13.2% of UK adults. • This group, which can frequently be found working in city centre office jobs or earning good wages on the shop floor of large assembly plants, accounted for 10.34 per cent of personal insolvencies in 2010, 45 basis points higher than the corresponding figure for 2009.

9. 1. Key challenges: Budget response • Theme of ‘growth’ with measures to: • Create a more competitive tax system • Make the UK the best place in Europe to start a business • Encourage investment and exports • Create a more educated workforce • Some individual focussed announcements: • a further above-inflation increase in income tax personal allowance in 2012-13; • a shift to using the CPI instead of the RPI to up rate other direct tax rates, allowances and thresholds from April 2012; • a one year extension to the temporary conditions applying to the Support for Mortgage Interest scheme from January 2012; • New shared equity scheme to support first-time buyers; • An extra 40,000 apprenticeships; • 1p a litre cut and not taking forward 5p increase in fuel duty; • The Government will consult on proposals to address water affordability.

10. 1. Key challenges: pre-announced changes Many pre-announced cuts and tax increases have already been implemented including: Tax rises: • VAT rise in January to 20% • 1% increase in National Insurance • Threshold for paying higher rate tax reduced to £42,475 Benefit / Tax Credit cuts: • Housing Benefit payments based on 30th percentile • All benefit increases based on less generous CPI • Working Tax Credit and Child Benefit frozen for three years • Reduction in the WTC disregard from £25,000 to £10,000 • Withdrawal rate increased to 41% • Credit for 70% rather than 80% of childcare costs Govt claim poorest 80% of households will gain from the changes

11. 1. Key challenges: RF analysis But our analysis suggests many low-to-middle earning families will be worse off

12. 1. Key challenges: work and childcare One of the areas RF is particularly interested in is the impact of changes to the childcare element of the Child Tax Credit on parents working patterns • Analysis by RF has shown that families earning under around £30,000 a year stand to lose an average of £440 per year, with some losing up to £1,300. • A survey of 2000 working mothers by Net mums for RF suggested half may consider stopping work or significantly reducing their working hours • more than two-thirds of parents (68 per cent) said they will have to make significant adjustments to their childcare arrangements • over one in five (22 per cent) working mothers will have to give up their jobs in order to cover the increased childcare costs • a quarter of mothers (29 per cent) will reduce their working hours in order to cope with childcare costs • 27 per cent will have to rely more on informal care from family and friends to cover the shortfall • In addition, nearly 80 per cent of those surveyed were not even aware that the change was about to happen. http://www.resolutionfoundation.org/publications/childcare-tax-credit-survey/

13. Financial health review Financial Inclusion Financial Capability Financial Services

14. 2. Financial Inclusion: summary Summary: • Pensions • Community Finance news • Evaluation of Growth Fund • HMT on Simple Financial Products • Details of Junior ISA • Changes to the Social Fund • Poverty premium • Social Finance reports on jam jar accounts • Debt relief orders • High Court ruling on PPI

15. 2. Financial Inclusion Pensions • Budget announced that DWP will shortly publish a Green Paper to consult on options for reform, which will include a proposal for a single tier pension, currently estimated to be worth around £140 a week. • In addition, the Government will bring forward proposals to manage future changes in the State Pension Age more automatically, including the option of a regular independent review of longevity changes.

16. 2. Financial Inclusion Community finance £73 million credit union modernisation and expansion fund • The fund will replace the Growth Fund and be used to extend contracts with credit unions and other community finance providers for six months while the feasibility of further credit union modernisation and expansion is tested. Community Investment Tax Relief to continue • The government has announced that it will continue to fund Community Investment Tax Relief and promote its take-up. • There had been concerns that the tax relief, which is available to social investment organisations, would be scrapped in the Budget. Temporary arrangement announced for Big Society Bank • Lending will begin via the Big Lottery Fund, sometime in Q3 2011, as an interim structure whilst approval is sought from the EU that the new structure will not breach State Aid.

17. 2. Financial Inclusion Community Finance news contd. CDFA awarded £60 million in funding from the Regional Growth Fund • The funding will be used to support the financing and growth of CDFIs, which provide loans to businesses, social enterprises and individuals who are unable to access financing through traditional sources. Barclays launches Community Finance Fund • Barclays has made £250,000 available to support the delivery of affordable credit to those who may otherwise access high cost credit or resort to taking out illegal loans. • The Fund objectives are: • To improve access to affordable credit to those people on low incomes and living in areas where the need for affordable credit can be demonstrated • To increase existing community finance providers’ capacity to deliver affordable credit to low income consumers and microenterprises or SMEs unable to receive credit elsewhere. • To provide financial support to credit unions and CDFIs that are starting up, merging or forming partnerships in areas where public access to affordable credit is restricted • The delivery of the Fund is being administered by Transact www.transact.org.uk/cff.

18. 2. Financial Inclusion HMT publishes evaluation of Growth Fund • The fund was successful in expanding the volume of Credit Union and CDFI lending, with DWP statistics indicating that 317,798 Growth Fund loans were made in deprived communities from July 2006 to the end of September 2010. • Eight in ten Growth Fund borrowers were in the two lowest income quintiles and 77 per cent of all applicants were not in paid work. One in five applicants did not have a current or basic bank account, and only four per cent of applicants said they were already a credit union member or CDFI customer at the time of their Growth Fund loan application • However, many Growth Fund borrowers continued to use other sources of credit, including the Social Fund and high cost credit. Nevertheless, a third (32 per cent) of borrowers said that they had borrowed less from any other source since first taking out a loan with a Growth Fund lender. • The Growth Fund is estimated to have displaced profits in the commercial sector by between £21.3m and £30.5m, and to have saved between £377 -£425 per borrower. http://www.hm-treasury.gov.uk/d/evaluation_growth_fund_report.pdf

19. 2. Financial inclusion Government launches consultation on Simple Financial Products • The consultation sets out proposals for financial products that will help promote personal responsibility, enable consumers to compare products and understand product features more clearly. • It proposes: • industry and consumer-led development of a new category of simple financial products, with standardised  features; • that the first simple products to be developed should be deposit savings and life and income protection insurance products; • that simple products should not be subject to price-caps, and provision should be voluntary. • The Government is now seeking input from consumer groups, the financial services industry, and other interested parties, to develop simple products further. • The consultation closed at the end of March http://www.hm-treasury.gov.uk/consult_simple_financial_products.htm

20. 2. Financial Inclusion HMT announces details of Junior ISA • Junior ISAs will be available from the 1 November 2011. • Children will be able to have one cash and one stocks and shares Junior ISA at any time, with an overall annual contribution limit of £3,000 • The Government will align the current Child Trust Fund (CTF) limit (£1,200) with this so that current CTF holders will benefit • Junior ISAs will be offered by high-street banks, building societies, and any other providers that currently offer standard ISAs • Funds in Junior ISAs will be ‘locked in’ until the child is 18, and the accounts will then, by default, become adult ISAs • The Treasury has also confirmed that it will spend about £5 million a year on tax-free savings accounts for children in care.

21. 2. Financial Inclusion Changes to the Social Fund • As of April crisis loans have been cut. The small-scale loans paid to people facing severe financial difficulty are to be capped at three per year, will no longer be paid for items such as cookers and beds and the amount paid to cover living expenses will be reduced from 75% to 60% of benefit rate. • The Universal White Credit paper proposes that the Community Care Grant and Crisis Loan budgets will be combined and transferred to local authorities and the devolved administrations, which will be free to re-design provision. • The Budgeting Loan element of the Social Fund will be moved into the Universal Credit where it will be used to provide an ‘advance on benefit’ scheme. • DWP issued a call for evidence on the localised elements of the Social Fund. The consultation closed In February. http://www.dwp.gov.uk/docs/social-fund-localisation-call-for-evidence.pdf

22. 2. Financial Inclusion Poverty premium: Poor families pay extra £1,300 annually • Research by ‘Save the Children’ has found that poor families face an annual ‘poverty premium’ of nearly £1,300 an increase of 20% since 2007. • The extra costs were incurred through expensive prepayment meters for energy, high cost credit and high insurance premiums compared to lower cost alternatives which are available to ‘better off’ consumers. • Poorer families paid on average 48% more for car insurance and 93% more for home contents insurance. Families without internet access were also less able to shop around for the best deals on energy tariffs, insurance and consumer goods. • With heating costs accounting for a fifth of the extra expenditure Save the Children called on energy suppliers to change their policies to ensure the poorest do not pay more. • http://www.savethechildren.org.uk/en/54_13682.htm

23. 2. Financial Inclusion Social Finance reports on 'Jam Jar accounts‘ • The report, commissioned by HM Treasury, estimates that more than 9 million people in the UK are missing out on some of the benefits of banking. It supports the development of jam jar accounts which would: • Allow customers to split their accounts into 'Jam Jars' for spending, saving and bill payment • Support customers to improve their budgeting and bill payment behaviour through low balance alerts and automated transfers of funds between Jam Jars; • Give customers access to trained 'Money Managers' that can provide budgeting advice and referrals to specialist consumer services where necessary. • Jam Jar features are already available in the UK, often charging a fixed monthly fee to cover the costs of the account. SF estimate that they are currently used by 150,000 people. • SF argue that, If taken up at scale it should be possible to make Accounts available at a price that would be affordable for low income consumers (£5-7 per month per account). • The reports proposes funding of a pilot to a limited number of consumers before roll-out. • http://www.socialfinance.org.uk/sites/default/files/SF_JamJarAccountReport_FULLREPORT.pdf

24. 2. Financial Inclusion Pensions excluded from eligibility for Debt Relief Orders • As of April legislation has been altered to bring the arrangements for accessing DROs in line with the arrangements for entering bankruptcy, which will increase the number of people eligible to apply for a DRO. • Under current legislation individuals with a pension worth over £300 are not eligible for a DRO, even if the pension is small and not receivable for many years. "This change will address an issue that has been of great concern to us. Bureaux reported seeing numerous people on very low incomes have their applications rejected because of very small pension funds, despite meeting the rest of the criteria for a debt relief order.“ (Gillian Guy, Chief Executive, Citizens Advice)

25. 2. Financial Inclusion High Court ruling on Payment Protection Insurance • The FSA has won its case to make banks re-open thousands of claims on the mis-selling of Payment Protection Insurance and pay up to £4.5 billion in compensation. • In December the FSA introduced rules to stop mis-selling, which required providers to talk customers through the key features of a policy rather than assuming they will read any relevant documentation, and make it clear that the cover is optional. • The banks, represented by trade body the British Bankers' Association, complained that the rules were unfair because they would be applied retrospectively. In January the BBA launched a high court challenge against the FSA and the Financial Ombudsman. • The High Court ruling rejected this and banks could now face a bill of up to £4.5bn – £1.3bn for new complaints received during the coming five years and up to £3.2bn as a result of reviewing previous PPI sales. • Which? commented that this was a huge victory for consumers. Since the BBA launched its legal challenge in October 2010 it has been receiving up to 5,000 PPI complaints a week while complaints to the FSA surged by 63% between the first and second half of 2010 from 266,685 to 434,596.

26. 2. Financial Capability: summary • Money Advice Service launched • Money Advice Service launches separation calculator • Debt Advice funding • Research into impact of financial capability • FSA on adviser charging rules • EDF launch energy advice line with Citizens Advice • MPs call for financial education to be made compulsory

27. 2. Financial Capability Money Advice Service launched • The Money Advice Service has been launched, replacing the Consumer Financial Education Body. • The new nationwide service will provide free, unbiased advice to help everyone make the most of their money. The Money Advice Service will help people take the right financial decisions and act on them, by giving personalised advice online at moneyadviceservice.org.uk, over the phone on 0300 500 5000, and face-to-face across the UK through a national network. • The Service is free and here to help those millions of people who need practical money advice, whatever their financial circumstances. • Later this year, the Money Advice Service will launch an online health check, which will provide a personal action plan to help people identify their money priorities and make a plan for their financial future. A UK-wide campaign will also promote the Service and encourage people to foster good money habits and think differently about their money

28. 2. Financial Capability Money Advice Service launches Divorce and Separation Calculator • Money Advice Service has launched an online budget calculator to assist people going through a divorce or separation to stay on top of their finances. • The calculator which has been developed with help from organisations such as Relate, National Family Mediation and Families Need Fathers also provides an estimate of how the household could split their finances into two. • The calculator and the website can be accessed at http://divorce.moneyadviceservice.org.uk/

29. 2. Financial Capability £27 million to continue debt advice funding • The Government has pledged £27 million to continue funding face-to-face debt advice across England and Wales for an extra year. • 500 debt advisors had been at risk of redundancy after the government announced it would discontinue debt advice services through the financial inclusion fund from March 2011. • The government’s decision to cut the fund had prompted a number of consumer organisations to warn that people struggling with debt were having a vital service removed at the very time when they needed it the most – it is estimated that the debt advice service helps over 100,000 people a year.

30. 2. Financial Capability Research into long-term impacts of financial capability • A report by the University of Essex for the Money Advice Service explored the impact of financial capability on later outcomes. • The research used data from the British Household Panel Survey, to examine the extent to which people’s financial capability in 1991 is associated with outcomes between 1996 and 2006 • It found that financial capability in 1991 is associated with: higher financial capability; better psychological wellbeing; higher chances of employment lower chances of unemployment; being able to afford more items, and with saving, saving regularly and saving long-term, as well as higher incomes in later years. • http://www.moneyadviceservice.org.uk/_assets/downloads/pdfs/long_term_impacts_fc_v5.pdf

31. 2. Financial Capability FSA rules on adviser charging • The FSA has published new rules to remove commission bias from advice on retail investment products, helping to restore consumer confidence in the market. • From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product. Firms will not be able to accept commission in return for recommending specific products.  • The changes mean firms offering independent advice will have to demonstrate that their recommendations are based on a comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests.  If a firm chooses to limit its product range to certain investments or strategies, then the services it offers are restricted, and this should be clearly set out for customers. • If a customer feels they do not want, or cannot afford, to make an upfront payment, the product provider can facilitate the cost of the advice being included in the cost of a product.

32. 2. Financial Capability EDF Energy announces partnership with Citizens Advice • EDF is funding a new Energy Debt Advice service, delivered by Citizens Advice, to offer its customers free access to independent advice on how to deal with household debts. The service will be confidential and independent of EDF Energy. • EDF Energy will fund the staffing of the Energy Debt Advice service contact centre, including two debt caseworkers, one supervisor/trainer, a part-time administration assistant and a team of ten full-time equivalent volunteers. • The sponsorship will also fund a part-time specialist fuel debt adviser in the Citizens Advice’s national specialist support team to train and support frontline workers in bureaux across the country on fuel debt issues so they can support EDF Energy customers more effectively nationwide. • The Citizens Advice partnership is part of EDF Energy’s ongoing commitment to help its customers with their energy bills, one of. Overall, EDF Energy will be spending £27 million over 2011/12 to support its most-in-need customers.

33. 2. Financial Capability MPs call for financial education to be made compulsory • Over 200 MPs have signed a motion calling for financial education to be made compulsory in schools. The MPs want the curriculum to cover money issues such as comparing bank accounts and options when buying a mobile phone. • The government is currently conducting an education review and MPs from the All-Party Parliamentary Group (APPG) for Financial Education for Young People are currently lobbying for the subject to become a core part of the National Curriculum. • The APPG is now preparing a full report on the issue, and say they have got the support of more than 60 relevant organisations. • Currently whilst the subject is not compulsory schools are encouraged to include it as part of Personal, Social and Health Education (PSHE) classes. A number of banks also fund projects which deliver financial education to young people. • The government has said it will consider the MP’s demands but overall it would like to move away from making subjects compulsory preferring to give individual schools more flexibility over what they teach.

34. 2. Financial Services: summary • HMT ‘a new approach to financial regulation’ • FSA 2011/12 business strategy • FSA discussion paper on product intervention • Proposals to create a single competition body • OFT review of new entries to banking • Independent Banking Commission Interim report • Postbank proposals rejected • OFT consults on revised debt collection strategy • Consumer Credit Bill • Illegal Money Teams funding extended • EU Consumer Credit Directive • BIS on Bill of Sales

35. 2. Finanical Services A new approach to financial regulation: building a stronger system • HM Treasury has set out further details of its proposed new regulatory framework for financial services. • This includes details of a new Financial Conduct Authority (previously the Consumer Protection and Markets Agency) which will replace the FSA, overlooking conduct of business regulation. • The FCAs strategic objective will be to protect and enhance confidence in the UK financial system. Its operational objectives will be: • facilitating efficiency and choice in the market for financial services • securing an appropriate degree of protection for consumers • protecting and enhancing the integrity of the UK financial system • The Government has ruled out requiring the FCA to have regard to financial inclusion on the basis that it is social rather than regulatory policy. • The consultation closed in April http://www.hm-treasury.gov.uk/d/consult_newfinancial_regulation170211.pdf

36. 2. Financial Services FSA launches business strategy for 2011/12 • The Financial Services Authority (FSA) has published its business plan setting out its priorities for 2011/12, and the implications for the FSA’s budget. • With regard to consumer protection, the two principal initiatives within the strategy are the structural reform of the investment market through: • The Retail Distribution Review project (RDR) The FSA reports that the project is on track to ensure the intended principal changes with regard to adviser remuneration commission structure and training and qualifications are introduced from 1 January 2013. • The Mortgage Market Review (MMR) In the summer the FSA will publish an indicative cost benefit and impact analysis of a full package of proposed rules, and follow this with its final package of rule changes in early 2012. • At the end of 2012 or early 2013 the FSA will restructure into the Prudential Regulation Authority and the existing FSA legal entity will become the Financial Conduct Authority. http://www.fsa.gov.uk/pubs/plan/pb2011_12.pdf

37. 2. Financial Services FSA discussion paper on product intervention • The Financial Services Authority (FSA) has published a discussion paper on how to pursue the objective of consumer protection and specifically the issue of product intervention. • The approach aims to reduce consumer detriment by dealing with problems earlier, scrutinising the whole of the product lifecycle from start to finish rather than just focusing on the point-of-sale. • The paper outlines how the FSA has already begun to make a significant shift towards a more interventionist approach with tighter supervision of the governance of product development. • It also sets out a range of future interventions that could be introduced in areas where the potential for customer harm is greatest. These might include interventions such as banning products or prohibiting the sale of certain products to specific groups of customers. The consultation closed on 21 April http://www.fsa.gov.uk/pubs/discussion/dp11_01.pdf

38. 2. Financial Services Single competition function • The Government is consulting on a proposal to merge the competition functions of the Office of Fair Trading and the Competition Commission to create a single Competition and Markets Authority (CMA).  • Key arguments for the single CMA are to ensure the flexible allocation of scarce public resource to competition issues as they emerge, and for it to be a stronger advocate for pro-competition policy across government, including in the delivery of public services.  • The proposals include: • Creating a single advocate for competition, the Competition and Markets Authority • Increasing business confidence through faster decision making, ending duplication, and more predictability of competition processes and decisions • Delivering faster results for consumers, with shorter end-to-end studies and investigations into markets where lack of competition is giving consumers a bad deal • Giving small business a voice by introducing an extended super complaints process to spotlight market features that harm small companies. • Closing date 13th June http://www.bis.gov.uk/Consultations/competition-regime-for-growth?cat=open

39. 2. Financial Services Independent Banking Commission publishes proposals for consultation • The Independent Commission on Banking has published its interim report setting out options for reform • Although the interim report recognises that financial stability would be strengthened by the separation of retail banking operations from investment and wholesale banking, the Commission rejects the need for a full break-up and puts forward the proposal that universal banks create separate retail banking subsidiaries. • These subsidiaries would be subject to capital and liquidity requirements although provided these minimum standards were met the universal banking group would then be free to transfer capital freely between its retail and investment operations. • The Commission also proposes that banks hold greater levels of equity relative to assets so that, in the event of failure, shareholders rather than tax payers bear the costs. To improve levels of competition in the sector the Commission also wants to see current account switching made easier for consumers, and supports the Financial Conduct Authority being provided with a primary objective to promote competition. http://bankingcommission.independent.gov.uk/bankingcommission/

40. 2. Financial Services New bank start-ups strangled by lack of consumer mobility • According to an OFT review of small and medium enterprise (SME) banking, the biggest obstacle facing new banks is how to expand their market share. Customer 'loyalty' to their current banks was particularly strong in Scotland and Northern Ireland. • The OFT also noted other regulatory obstacles including delays in obtaining authorisation from the FSA to accept deposits and the capital requirements aimed primarily at structurally important larger banks. The review will feed into the Independent Banking Commission's report as evidence of lack of competition in the banking sector. • Responding to the review, Consumer Focus' Head of Financial Services, Sarah Brooks, said: 'If ever a market needed more competition it is our financial services sector. This is why we are calling on banks to make it easier to shop around and switch by introducing clear, transparent and comparable charges. We also want them to pay goodwill payments and not just return losses for errors or delays in switching.’ • http://www.oft.gov.uk/shared_oft/personal-current-accounts/oft1282

41. 2. Financial Services Postbank proposals rejected • Post Offices are to increase their opening hours, increase access to bank current accounts and offer information for jobseekers amongst other plans outlined by the government. However proposals to create a Postbank have been rejected as being too ‘time-consuming’ and ‘expensive’. • Customers will be able to use counters and computer screens to access information about current accounts held with other banks – currently about 60% of bank current accounts are accessible via the Post Office. Access will be increased to include 80% of UK current accounts. • The government’s long-term plan is for the Post Office to become mutually owned, similar to the structure of Co-operative Group, which would increase the level of control employees and sub postmasters have over the company. • Postal Affairs Minister Ed Davey commented: ““To underline our commitment we have announced £1.34 billion of funding over the next four years. The money will put the Post Office on a stable financial footing. It will help modernise the network and make it even more appealing to customers.”

42. 2. Financial Services OFT consults on revised debt collection guidance • The OFT has launched a 12-week consultation on its updated Debt Collection Guidance. The new guidance is designed to: • Confirm it applies to all businesses involved in debt recovery, including creditors as well as debt collectors and purchasers, lenders, law firms and tracing agents • Clarify creditors' responsibilities for the quality and level of information they pass on to debt collection agencies or debt purchase companies • Take account of other new and developing industry practices • Take account of other recently issued OFT guidance, including the updated Irresponsible Lending Guidance, and • Reflect recent changes in the law. • The OFT's aim is to ensure that debt collection is carried out transparently and fairly, and debt enforcement tools are used appropriately, taking into account the individual circumstances of debtors. • Closing date 2nd June http://www.oft.gov.uk/OFTwork/consultations/current/debt-collection/

43. 2. Financial Services Consumer Credit Bill • Stella Creasy MP introduced the Consumer Credit Bill to Parliament under the ten minute rule. • The Bill calls for: • A cap on the total lending rate that can be charged for providing credit and imposing additional interest on late payment and default charges • A levy on the sale of credit cards and store cards to set up a fund providing grants for the provision of debt advice and financial management services • Powers for local authority planning committees to enable them to restrict the provision of premises for licensed consumer credit agencies within a local area • Requirements for the Post Office network to provide back-office functions that integrate its services with credit unions, thereby helping consumers access credit union loans, current accounts and savings accounts through Post Office branches • Second reading will take place in October 2011

44. 2. Financial Services Illegal Money Lending Teams funding extended • The government will continue to fund operations aimed at tackling illegal money lending (IML), but the team will be restructed to encourage efficiency savings • IML in England will move away from the current regional structure and the work in England will be headed up by the existing team in Birmingham who will work alongside teams in Scotland and Wales. • Two Trading Standards teams, illegal money lending and scambuster, will receive £5.2 million and £3.2 million from the Department for Business, Innovation and Skills respectively. • Jobcentre Plus staff will also begin working with Trading Standards on spotting signs of illegal lending.

45. 2. Financial Services EU Consumer Credit Directive comes into force • The EU Consumer Credit Directive, which focuses on responsible lending issues, came into force on 1st February. • Under the new rules customers will be able to have: • Up to 14 days to cancel new loan agreements. • The option to make partial early repayments on loans - at the moment borrowers are only able to pay the full amount off early. • Lenders will now have greater responsibility towards consumers and must: • Ensure borrowers understand the detail of their particular loan. • Carry out a thorough check on borrowers’ creditworthiness before any loan is agreed http://www.bis.gov.uk/news/topstories/2011/Feb/new-consumer-rights

46. 2. Financial Services BIS on bill of sales • A new Code of Practice will apply to the ‘bills of sale’ money lending industry from 1st February 2011. This will typically apply to logbook loans where a vehicle is used to secure a loan. • This code includes lenders allowing a car to cover the full settlement of a loan including any shortfall between its value and the loan amount and if a borrower gets into difficulty lenders should try and make alternative arrangements before repossessing a vehicle • Following consultation the government has decided against banning these types of loans as they believed this would push some consumers into using illegal loans and decrease the level of choice and competition between legal high cost credit providers. Lenders will also be expected to provide customers with a plain English information sheet explaining how bills of sale work and what customers can expect from their lender. http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/g/11-516-government-response-proposal-ban-bills-of-sale