Financial Advice Market Review - Implementation part 1 - Employer fact sheet
Response from ABCUL to GC17 / 04 - Financial Advice Market Review: Implementation Part 1
ABCUL – the Association of British Credit Unions Limited – appreciates the opportunity to respond to this consultation. ABCUL is the main trade association representing around two thirds of credit unions choosing to affiliate to any representative body in England, Scotland and Wales.
There are around 330 credit unions in Great Britain, with more than 1.25 million members and £1.5 billion in assets under management. Credit unions are deposit-taking financial co-operatives providing savings and loans facilities to their members as well as a range of other services including payments services. As deposit-takers, credit unions are dual-regulated by the PRA and the FCA. They have a key role in promoting financial inclusion and financial capability and have been supported in this by successive Governments as well as through the provision of regulatory concessions in support of proportionality.
Our comments in respect of this consultation are limited to the proposals relating to the Employer and Trustee Factsheet (the Factsheet) since credit unions generally do not provide financial advice or sell products requiring advised sales. A handful of credit unions do offer mortgage credit but this is regulated separately under the regime for mortgage regulation.
We are pleased that the FCA proposes the Factsheet and feel that it would be a helpful addition to support the confidence of employers in having the confidence to provide financial products, services and support in the workplace. Credit unions are often active in workplaces providing savings and loans facilities where payments are deducted from pay and paid to the credit union. This has various advantages for the credit union member and employee by ensuring that they are able to save and repay loans without difficulty by making payments by default. This is supported by the academic research around Behavioural Economics or “nudge” which particularly advocates the merits of “default” settings to assist good financial decision making. By deducting payments from wages, the mechanism makes saving and debt repayment as easy as possible and provides comfort to members that they can dispose of their available funds in the knowledge that their credit union deduction has been taken care of.
The Fairbanking Foundation recently published a report entitled “Save as you Borrow – Credit Unions Creating Good Habits” (available here: http://fairbanking.org.uk/wp-content/uploads/2017/02/Save-While-You-Borrow-web-1540217.pdf) based on 1,200 credit union members from seven surveyed by Ipsos MORI as part of the process for accrediting them with the 5 Star Fairbanking Mark for their personal loan products. This research demonstrated that the ubiquitous practice of credit unions asking borrowers to save a small amount alongside repaying a loan transforms reported savings rates from only 26% saving regularly to 71% intending upon saving regularly throughout the year after repaying the loan. 97% of respondents felt that this practice was helpful. This demonstrates the extra power in terms of enhancing financial capability that credit unions can provide where they are active in workplaces and enabled through payroll by enhancing saving rates and thereby reducing reliance on credit and problem debt.
A common barrier experienced by credit unions seeking to engage a new employer partner in order to provide a workplace benefit via credit union services and payroll deduction is the suggestion that to facilitate and promote a credit union service would be to engage in financial advice. We are pleased to see that the proposed Factsheet would deal with this to some extent by clarifying that facilitating a financial promotion approved and produced by an FCA-regulated firm would in no way constitute financial advice. However, we are also concerned that the proposed Factsheet focusses too heavily on issues around workplace pensions and other financial workplace benefits such as the provision of various insurance products.
We strongly urge the FCA to consider expanding the factsheet to make clear that facilitating the provision and promotion of non-advised credit and savings services which are ultimately promoted via the regulated entity’s own financial promotion materials would not constitute advice. This would provide strong comfort to employers in engaging with credit unions and would provide the necessary resource credit unions require to demonstrate to prospective employer partners that nothing in these partnerships constitutes advice.
We would be very happy to engage in a discussion with the FCA on how the wording of the Factsheet might be strengthened to provide further comfort to employers that such partnerships with credit unions are not problematic from an advice perspective. Please feel free to get in touch should you require any further information or have any questions.
ABCUL – July 2017