This morning, the Financial Inclusion Commission (FIC) published its report on ‘Improving the Financial Health of the Nation’. The FIC is an independent, non-party political group whose purpose is to ensure that financial inclusion is “put back on the political agenda ahead of the 2015 General Election.” The FIC’s vision is for every adult to have access “when necessary and appropriate to affordable credit from responsible lenders.”
In written evidence submitted to the Commission in December, the FLA warned that it would be irresponsible for finance companies to lend to those who were unable to repay in the name of financial inclusion. We also emphasised the importance of credit scoring for responsible lending.
The FIC identifies “a credit gap for people on low incomes who are not served by the mainstream market. This will be widened by the Financial Conduct Authority’s cap on payday loans. Debt solutions have not evolved to reflect the changes in people’s needs and debt advice is fragmented.” It makes five recommendations in respect of Credit and Debt:
The Government should enable the use of public sector and non-traditional data in credit scoring, with safeguards, to make access to financial services easier for excluded groups. The FIC gives the example of the US where plans are afoot to include an element of financial capability in credit scoring measured by the borrower having successfully completed a module on money management.
The Government should lead a collective effort with retail banks and others to promote wider data disclosure and to fill the low income credit gap which has been widened by departing payday lenders. One example would require lenders to disclose data by postcode on credit applications.
Promote measures to make community finance institutions more sustainable, such as government lifting the APR cap on credit unions, lenders and investors developing a better understanding of business models and risk, and community lenders attracting a wider customer base.
Scotland’s Debt Arrangement Scheme should be adapted for the whole United Kingdom, with frozen interest rates, reduced fees, more breathing space, reduced time on the credit file and the offer of financial skills training. In the FIC’s view, existing debt solutions, including bankruptcy and Debt Relief Orders, are not fit for purpose.
A more coherent approach to customer-focused debt advice should be promoted through better coordination and clear regulatory guidance. The FIC would like to see clearer guidance from the Financial Conduct Authority and the Money Advice Service about the availability of high quality, free debt advice.
More generally, the FIC calls for the appointment of a Minister for Financial Health by 2020 and for the FCA to promote financial inclusion as one of its core objectives.
We will continue to collaborate with the FIC and report any developments.