The Lending News Bulletin: 16-31 December

Tania Guadalupe

FCA move to slash overdraft costs: Industry reaction | Credit Strategy | 18.12.18

Consulting Editor at Credit Strategy, Marcel Le Gouais, details the industry reaction after the FCA published new measures on overdrafts, store cards, home credit and catalogue credit. He references opinion from FCA chief executive, Andrew Bailey, as well as Gillian Guy, the chief executive of Citizens Advice, and Joanna Elson the chief executive of the Money Advice Trust – the latter two who were largely supportive of the measures. The measures ban fixed overdraft fees; simplify interest rates and remove fixed daily and monthly charges. Banks must also show the APRs of overdrafts to help customers compare them to other credit products.

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Fraud vs bad debt – Which one is it? |CFA Quarterly Magazine – Edition 04 | December 2018

How is fraud perceived and addressed? That’s what Ryan Morrison of TruNarrative asks in his comment article in the CFA’s December magazine. He firstly asks why the credit sector sometimes writes off fraud as bad debt – it has value and can be written off against the balance sheet. However he states that this is problematic as it conceals the extent of true fraud. Morrison goes on to recommend that fraud should be prevented at origination with a holistic strategy that prevents mislabelling; he additionally remarks that this would be more cost effective, as it removes the operational costs needed for recovery.

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Is the short-term lending market robust enough to deal with the Brexit fall out? | Financial Reporter | 11.12.18

Jonathan Newman of Brightstone Law, pens a piece in Financial Reporter analysing just how Brexit might affect the short-term lending sector. While he concedes leaving the EU may come with some economic disadvantages, he says the short-term lending sector is in a better place for the following reasons – it is insular – unlike an industry such as manufacturing, lending isn’t reliant on cross border trade or transactions. Another reason he cites is that the UK already has a strong financial system and infrastructure which is attractive to business, and adds that despite red flags, short-term lending has expanded post referendum. He goes on to say after the financial crash the lenders are far more cautious – and still to this day which could create a positive environment for specialist finance providers.

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Don’t look here: do risk warnings really work? | FCA Insight | 13.12.18

If consumers are continually bombarded with risk messages, they get ‘warning fatigue’ writes the FCA’s behavioural scientist, Laura Smart. She states that they are effective when they are used against high impact, high probable harm financial products, but become treated like low risk when labels are used ubiquitously and indiscriminately on all kinds of product because consumers can’t differentiate between them. Additionally, Smart states that regulators overestimate the effectiveness of warnings. She concludes several solutions to this problem. 1. Only use risk warnings on the high-risk products. 2. Give consumers cues so that they can compare their options e.g. by ordering warnings. 3. Use warnings contextually e.g. with restricted sales.

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