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Rent to own & Alternatives to high cost credit

We welcome the opportunity to respond to this consultation.  ABCUL is the primary trade association representing credit unions in England, Scotland and Wales with around two thirds of credit unions in mainland Great Britain affiliated to the Association.

We respond firstly to lend our members’ support to the proposals put forward in the consultation on limiting the activities of Rent to Own.  Our membership spends much of its time picking up the pieces where people have found themselves in great difficulty as a result of using Rent to Own and other high cost lenders as well as providing affordable alternatives to these sources of credit and we strongly support the FCA’s package of measures which will make a significant difference to many families’ lives.

In relation to the proposals in respect of supporting alternatives, like credit unions, we would like to provide the following feedback:

  • Firstly, we continue to maintain that the most effective way to enable credit unions to grow and play a bigger role in providing an alternative to high-cost credit is through enabling credit unions to develop a broader portfolio of credit products in order that they may become more sustainable, relevant and competitive and to play a role in a broader range of credit markets.  The current FCA interpretation of the Credit Unions Act in this regard is limiting the scope of credit unions to diversify and grow. We believe that most effective means of promoting credit unions as an alternative here would be to address this.
  • We support the discussion of measures to promote and raise awareness of alternatives to high cost credit and would be glad to discuss these in more depth with the FCA.  There are technical and legislative challenges to overcome in relation to making credit union services available through price comparison websites – such as in relation to the common bond – but we believe that these needn’t be insurmountable and there are a number of innovative proposals around how this might be achieved.  The Credit Reference Agencies, for example, are expanding their credit score services for consumers to providing credit options directly and we believe that there may be scope to provide details of available credit unions through these same portals
  • Technology and capital are key barriers to credit unions becoming more accessible and convenient for consumers but we are encouraged by some of the fintech partnerships that are emerging in this space between credit unions and fintechs to develop new solutions.  We would appreciate opportunities to explore whether these models might benefit from the regulatory sandbox and would also note that the new Dormant Assets Financial Inclusion Organisation may well be an avenue to capitalise this innovation and so would urge FCA officials to keep this in mind in the engagement process that it is pursuing.
  • In relation to credit broking and RSLs, we are a little disappointed in the finalised guidance that has been brought forward here.  While it is helpful to some extent, we believe it does not clarify the kinds of relationships between credit unions and RSLs that are most common, namely where there are not specific referrals made but a general commitment to support and help promote a credit union among an RSLs tenants.  We appreciate that HMT is considering how to clarify this regulatory boundary and we are engaged with officials on that subject but we also believe that the RSL guidance could be bolder than it is.  It is our belief that the definition of credit broking in legislation refers primarily to specific referrals provided to specific individuals to specific creditors – not generalised promotion of a specific creditor.
  • We would also suggest in relation to this guidance that the FCA should consider how similar guidance for employers as facilitators of access to affordable credit might also be developed.  While we appreciate that the principles are the same for employers and landlords, there is a benefit to developing guidance with employers in mind to help credit unions address concerns that are often raised by employers about whether facilitating the credit union’s services might be a regulated activity.  Providing credit union services connected to payroll is an efficient and effective means of providing a safety net to prevent a reliance upon high cost credit and guidance to help spread these relationships would be a significant contribution to making this more widely available.
  • We support and appreciate the moves announced in relation to regulatory fees for credit unions on consumer credit.  This is very welcome and is the culmination of a process of bringing an appropriate regime to consumer credit fees.  We have responded to the fees consultation to support this move too.
  • On credit information, as noted above, we support moves to enhance and deepen the level of credit data available – particularly in relation to its coverage and timeliness as noted in the consultation.  This is a key challenge for responsible alternatives, like credit unions, as they can find themselves unable to make responsible lending decisions where the information they require to do so does not appear in the credit data system.

Once again, we appreciate the opportunity to respond to this consultation and the efforts that FCA is making to promote alternatives to high-cost credit.  We support the FCA on its Rent to Own proposals and urge it to stick to its guns here.  In relation to alternatives, we are in broad support of the areas that the FCA has identified but we believe that this could go further in some key areas.