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April 17, 2020updated 28 Apr 2020 10:40am

FLA urges MPs to consider a bigger role for non-banks and to reform CCA

By Alejandro Gonzalez

The director-general of the FLA has urged MPs to back a bigger role for non-bank lenders and to consider reforms to the Consumer Credit Act (CCA) during his evidence before the Treasury Select Committee on the economic impact of Coronavirus.

The Treasury Select Committee, which has been taking evidence via videoconference as part of its inquiry into the economic impact of the coronavirus emergency on businesses and individuals, has heard about an ‘eligibility gap’ for the government’s various bailout schemes for SMEs and the self-employed.

Term Funding Scheme

In mid-March, the Bank of England unveiled its funding scheme for small businesses, which was open to incumbent banks and challenger banks and left non-banks empty-handed, which Stephen Haddrill, director-general of the Finance & Leasing Association (FLA) referred to at the time as a ‘missed opportunity’.

Speaking after his evidence session on 15 April Haddrill said: “By early April, FLA members had received an estimated 526,000 Covid-19-related requests for forbearance and had helped almost 60% by that date with more in the pipeline. 

“Lenders are rightly supporting their customers – in many cases, the lenders and borrowers know each other well.   

“The non-bank lending sector relies heavily on capital markets and bank funding – two sources of finance which are currently closed. 

“The result is that these lenders will not be able to provide new lending as well as forbearance – and when you consider that these finance companies provided £46bn of funding during 2019 to SMEs for business investment and point-of-sale finance for consumers, that would be a huge loss to the economy, right at the point when funding will be needed to help the UK recovery.

“To remedy this, we want to see the Term Funding Scheme opened to non-bank lenders as a matter of urgency, and eligibility criteria streamlined to fast-track firms which are FCA regulated or already part of a British Business Bank (BBB) scheme.

Consumer Credit Act

“At a time when customers need quick and simple solutions to help them manage disruptions to their incomes, the inadequacies of the CCA have been thrown into sharp relief. 

“The CCA includes formal and complex modifying agreement provisions which requires a new agreement to be sent to the customer, signed and then returned before they are activated. 

“Imagine how labour-intensive that process is when multiplied by the number of customers seeking forbearance. 

“In the next couple of months, a further problem which will manifest itself – the Notice of Sum in Arrears – an abruptly worded letter which the lender is required to send, even though a new payment arrangement has already been agreed. 

“It will no doubt trigger another spike in calls as customers question why this has been sent. This is inexcusable when customers are already worried. 

“While the FCA is obviously aware of the problem, we have had little clarity on what happens at the end of this period of disruption to help consumers transition back to a normal payment schedule and firms back to normal business. A clear exit strategy is needed.”

FLA submissions

In its government submission, the FLA has proposed the Term Funding Scheme for SMEs (TFSME) be opened to non-banks and that it be administered by the BBB.

Also, the FLA together with other industry bodies (UK Finance, Innovate Finance, the Intermediary Mortgage Lenders’ Association and the Association of Alternative Business Finance) have asked the government and the Bank of England to support: 

  • term-funding scheme open to non-bank specialist lenders, (NBSLs) funded by the purchase of investment-grade bonds by the Bank of England and supported by bank guarantees to support wholesale funders.
  • A Forbearance Liquidity Funding Scheme, which proposes that the UK government provides eligible NBSLs with the liquidity required to fund loans on which forbearance has been provided that would currently fall outside of existing funding lines.

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