HM Treasury - Review of Money Advice Service
Response to call for evidence
Credit unions have an interest in the work of the Money Advice Service on a number of levels. Firstly, credit unions seek to support their members through both formal and informal financial education and by encouraging a saving culture. These objectives are set down in the Credit Unions Act 1979. Secondly, credit unions, as regulated deposit-takers, also contribute to the costs of MAS through the financial services levy they pay each year and as deposit-takers to the specific debt advice levy also. And finally, credit unions’ mission is to enhance the financial resilience of society through providing inclusive and affordable financial services to people from all backgrounds and, in particular, those who otherwise have restricted access to services.
Successive governments, and a growing contingent of stakeholder groups – notably the Archbishop of Canterbury and the Church of England – have supported and encouraged credit unions to fulfil this role. Notably in recent years, with the growth of payday lending and the controversy about the industry’s practices, credit unions have been increasingly cited as a key part of the solution to poor financial well-being.
In general credit unions are supportive of the activity that MAS undertakes and the role it seeks to perform in supporting the financial capability of the public. However, while the sector is clearly keen to improve its own membership’s financial capability and looks to work in partnership with other relevant agencies in doing so – through forging links with advice agencies, for instance – in general credit unions would not consider themselves experts on the dynamics of the financial capability and education domain and how MAS ought to respond to this. Therefore, while we are in broad agreement with the approach and outlook of MAS and its statutory objectives, we leave it to others to analyse the detail of the specifics around MAS operations and strategy.
Our key interest in responding to this review, therefore, is to highlight a problem in the funding and accountability of MAS which we feel ought to be addressed as soon as practical. Since MAS began funding debt advice, it has gone through a number of funding structures. Most recently, it was determined that costs should be apportioned between mortgage providers and deposit takers half on the basis of total funds lent – at a split 85:15 in favour of mortgage providers – and half on the basis of write off levels – with the opposite bias. This has led to deposit-takers funding 50% of the debt advice fee.
We, of course, appreciate that the FCA made concessions in relation to credit union contributions here so that credit unions do not have to pay for the first £250,000 in unsecured credit. However, we also feel strongly that since credit unions are active in supporting those who are over-indebted and have limited financial options – a high-cost, low-profit enterprise – their position could be further protected from these fees. Furthermore, while we appreciate that consumer credit firms are not yet fully integrated into the FCA regime, it is disappointing that they continue to not be required to contribute to the costs of debt advice through MAS. Payday lenders, doorstep lenders, rent-to-own stores and pawnbrokers all contribute to debt problems which credit unions seek to alleviate yet presently none are required to fund debt advice. This cannot be fair. We would expect that once consumer credit firms are integrated into the MAS fee structure, their contributions are used to offset those made by other firms, rather than added to the MAS budget.
The full response is available to download on the right hand side.