Woolard Report

The FCA has published a report on change and innovation in the unsecured consumer credit market following a Review by its former Interim Chief Executive, Christopher Woolard CBE. 

There were five key recommendations from the review and these are:

The regulation of unregulated 'Buy Now Pay Later' products:  These had been exempt from regulation but with the use of these products nearly quadrupling in 2020 to £2.7billion and over 5 million people using them during the COVID-19 pandemic, this was an alternative to expensive credit.  There are significant risks of harm with these products with more than 1 in 10 customers of a major bank using BNPL products already in arrears.  Regulation would protect people using these products.  

We welcome the FCA and the government's swift and decisive acceptance of this recommendation.  We await the legislation to enact the Review but we are encouraged.

Debt Advice: The provision of debt advice will be critical to a sustainable market in the long term, especially through the recovery from coronavirus. Free debt advice services need secure, long-term funding as demand increases to as many as 1.5 million additional cases, following the pandemic. Funding needs to be in place to help the poorest pay fees when applying for debt relief orders. 

We welcome this focus on the need for sustained funding for free debt advice and this should not get lost in the headline grabbing recommendation of the first recommendation.  With the scope of the Debt Relief Order being reviewed we would encourage the government to also consider the DRO fees recommendation of this Review.

Forbearance: The FCA responded quickly and effectively in the emergency phase of the pandemic – it needs to sustain this response through the recovery, for example by looking at whether it should revise its rules and guidance to drive greater consistency in the type of support firms offer consumers struggling to pay.

The need for structured support is long overdue and the introduction of Breathing space and Statutory Debt Repayment Plans would seek to address much of this.  The COVID-19 pandemic has caused a significant change in debt advice and this is a chance to redress many of the issues within the sector.

Alternatives to high-cost credit: A sustainable credit market needs more alternatives to high-cost credit. The FCA should work with the Government and Bank of England to reform the regulation of credit unions and Community Development Finance Institutions. More should be done to encourage mainstream lenders into this space.

We support this recommendation with further Community Finance Institutions being supported as well as the No Interest Loan Scheme to help with the payment of arrears over a longer period of time to ensure sustainability for people who have built up debts throughout this pandemic. 

Outcomes focused: Regulation should be driven by the outcome being sought and how consumers use products in the real world. Regulation should deliver similar protections where consumers face similar harms. In addition to making sure products are affordable, there should be an increased focus on lenders meeting consumers needs’ for as long as they hold the product. The FCA should review repeat lending.

We are encouraged to reference in the Review to how people use products in the real world as opposed to merely an affordability calculator and "Credit-scoring". The review references being outcome focused about consumer credit but this would be an opportunity to utilise this finding in debt advice funding also.