1. The Lending Code Ensuring continued Effectiveness Robert Skinner Chief Executive Lending Standards Board 17 May 2011 IMA – assuring quality in the money advice profession

2. Outline Outcome of the review of the Lending Code New provisions Working with stakeholders Monitoring and enforcement Increasing awareness of the Code The future of consumer credit regulation

3. The Lending Standards Board Functions to: monitor compliance with the Code and take enforcement action for material breaches assist subscribing firms interpret and meet the letter and the spirit of the Lending Code identify gaps and deficiencies in the Code that could lead to customer detriment and to advocate change oversee the Code review process – but final decision on content remains with the Sponsors maintain a public list of Code subscribers

4. History Lending Code broadly contained the previous Banking Code lending provisions, but included a number of enhancements risk adjusted re-pricing for credit cards breathing space for credit card customers support for customers in debt with mental health problems 2010 additions extension of breathing space provisions to all products new Statement of Principles for small business lending 2011 additions new credit card rules Guidance issued in 2010 interest and charges concessions use of the right of set-off

5. Review of the Lending Code Timetable Reviewer’s report and industry response published 28 February New Code launched 31 March Consultation responses 33 submissions received LSB and Code sponsors Government departments incl HMT/BIS Regulators incl OFT Debt advice and consumer bodies Others including Code subscribers, FOS, CRA’s, Royal College Psychiatrists

6. Outcome of the review 43 main recommendations 21 related to financial difficulties Response from Code Sponsors 30 recommendations accepted in full 7 compromises agreed 6 rejected 19 less material changes recommended, the majority of which were accepted

7. New provisions Promotion of the availability of quotation searches Strengthened credit assessment requirements Clear explanation if a credit application is declined Standards covering the promotion and operation of an ‘opt-out’ from unarranged overdrafts Pre-notification of overdraft interest and charges Prohibition on mailing of unsolicited credit card cheques Awareness of credit card charge back provisions Express consent to be obtained before a customer refused credit is referred to another lender

8. New provisions: Financial difficulties Pro-activity – identifying and contacting customers who may be at risk of financial difficulties Early engagement – consideration of plans prior to default Customers should not be expected to increase their repayment at review unless their situation has improved Repayments on a consolidation loan should generally be no more than sum of existing payments Breathing space provisions to be available to ‘self-help’ customers Operation of account during breathing space Further 30 days breathing space to be agreed if progress is being made towards a repayment plan Communications should be via customer’s adviser

9. New provisions: Financial difficulties (cont’d) LSB standards on use of right of set-off and approach to interest and charges concessions ‘Token offers’ should be accepted CFS expenditure figures should only be challenged when additional information available CFS creditor checklist to be subject to LSB monitoring and enforcement Obligations on subscribers re CFS to extend to other similar statements agreed by the LSB and Sponsors CASHflow statement to be considered in same way as a statement submitted by advice agency

10. New provisions: Financial difficulties (cont’d) Customers to be advised before debt is sold Enforcement methods must be relevant to jurisdiction of the customer A number of new provisions covering debt and mental health including: Subscribers encouraged to establish specialist teams Oral notification should be sufficient to suspend calls and letters Customers to be informed how information about their condition will be used Subscribers expected to consider DMHEF if presented

11. Outside scope of review Commercial issues Pricing and level of charges Risk appetite Products and customers covered by the Lending Code Monitoring and enforcement of Code

12. What do you think of the outcome? IMA – assuring quality in the money advice profession

13. So where now - ensuring continued effectiveness Industry commitment Stakeholder relations Robust monitoring and enforcement Achieving increased awareness of Code (and LSB)

14. Industry commitment Response to Code review recommendations has been very positive as has willingness to agree new guidance ahead of full review Uncertainty about the future of consumer credit regulation must not lead to reduced support for current regime Being seen to be responsive when potential detriment is identified Minimum standards v best practice

15. Working with other stakeholders: approach, expectations and concerns Government Other regulators Consumer and debt advice bodies FOS Industry commentators

16. What can the LSB do better? IMA – assuring quality in the money advice profession

17. Robust monitoring and enforcement No change to monitoring ‘mix’ Heavy reliance on themed reviews Investigations Annual statement of compliance (ASC) LSB action will be proportionate Focus is on compliance Intelligence gathering Stakeholder desire for increased transparency needs to be balanced against subscriber confidentiality

18. Priorities for 2011 Outstanding Code review issues Debt sale Mental health/mental capacity Ensuring new Code requirements are embedded in policies and practices Continued focus on credit assessment and financial difficulties Review of complaints data

19. Forward agenda 2011 Reviews planned Financial difficulties (in course) Credit assessment Q3 Unarranged overdrafts Q3 Credit cards Q4 Watch list Impact on customers of immediate reduction or withdrawal of credit lines Treatment of customers during the ‘breathing space’ Clarity of communications issued to customers especially as part of the collections process Use of unfair/inappropriate collections techniques Impact of increased credit card minimum repayments

20. Awareness of the Code Consumer guides Available in branch and on-line now To be provided to new customers from July 1 LSB Bulletin and website Subscriber/Sponsor promotion Engagement with consumer and advice bodies

21. What does the future hold? HMT/BIS response to recent consultation on consumer credit regulation not due until end July but …. Future appears likely to be the FCA Is there a role for self-regulatory codes in an FCA world? LSB position For now and for some time to come, self-regulation via Lending Code will continue - enforced by the LSB which we believe has the support of key stakeholders Transition to ‘target regime’ to be handled carefully LSB concern to ensure no reduction in consumer protection during changes Importance of current Lending Code review

22. The Lending CodeEnsuring continued effectiveness Robert Skinner Chief Executive Lending Standards Board 17 May 2011 IMA – assuring quality in the money advice profession