How do we ensure responsible lending and borrowing?

Lead Research Organisation: University of Birmingham
Department Name: Institute of Applied Social Sciences


Our FinCris 'responsible lending and borrowing' research on consumer credit for low-to-moderate income individuals, has been extremely timely. This proposal for impact and engagement is designed to create greater impact from the research than was unforeseen at the time of the original application due to unexpected regulatory reforms to consumer credit and welfare reforms, which have impacted on the consumer credit landscape and led to fast changing nature of the debates.

We will work with lenders of affordable credit, specifically the UK Credit Union sector, ABCUL, ACE and Birmingham based Citysave Credit Union to develop innovative and creative strategies for improving the level of responsible lending through:
1. Workshops at UK Credit Union conferences - we will co-produce materials based on our research findings in order for them to understand and support responsible borrowing amongst their members for longer-term impact beyond the project.
2. Supporting Credit Union staff and board member training in the challenges for responsible lending and borrowing within the broader credit landscape.
3. Facilitating knowledge exchange events on responsible lending and borrowing for key regulators, practitioners, and policymakers within responsible credit in the Australian and UK context to share experiences of consumer credit regulatory reform, and facilitating access to affordable credit for low to moderate income communities.

This project is therefore extremely timely and relevant to challenge public debates on responsible lending and borrowing. The project will feed into these debates via the Credit Union network and key stakeholders within the lending and borrowing space, particularly policymakers and regulators which will make a significant impact upon credit union members and borrowers.

Planned Impact

Building on the FinCris 'Responsible lending and borrowing' workstream, the project will enhance the project impact on informing and influencing the responsible credit landscape and debates. Moreover, the key impact from this project is to encourage greater responsible lending and borrowing for the benefit of the Credit Union movement, particularly its staff, board members, and their membership. This project will also influence debates on access to affordable credit for low and moderate income communities more broadly.

By engaging with regulators, policymakers and practitioners in workshops and knowledge exchange events we can share our research findings and discuss directly the key drivers of responsible lending and borrowing to inform and influence best practice.

Practitioners working in Credit Unions will benefit from the good practice guide by informing best practices and sharing with recently recruited staff and board members. The good practice guide will also act as a useful 'refresher' for more experienced staff members. We will highlight the broader context in which Credit Unions are operating in and the key challenges that they are currently experiencing around welfare reform, and the sustainability and the significance of these issues in relation to responsible lending and borrowing practices.

The Credit Union membership will benefit from this project through informing best practice and making the good practice guide openly available online so that Credit Union lending practices are as transparent as possible which is one of the key factors in responsible lending.

This project will address responsible lending and borrowing for the broader benefit of economy and society by informing and influencing public debates and practices, including consumer credit regulation and access to affordable credit such as from Credit Unions. The invitation of Australian stakeholders to share their experience will add a significant global dimension to the debates on responsible lending and borrowing for each country to learn lessons and facilitate knowledge exchange. These activities will ensure impact within and beyond the timescale of the project.
Description - What were the most significant achievements from the award?
This was a follow-on fund project and so there are no research findings as such. Our impact narrative details the activities and related impact from the project. The most significant achievements were: providing responses to two major consultations related to responsible lending by the Financial Conduct Authority and the Banking Standards Board. The FCA have subsequently announced changes to the credit landscape in line with our recommendations to introduce further regulation of overdrafts, credit cards and the rent-to-own industry, . . Second achievement was the successful visit from Gerard Brody and Adam Mooney which helped the UK learn from Australian initiatives in relation to responsible lending and, in turn, Australia learn from the UK. We had high level engagement with these visits from the Financial Conduct Authority, Competition and Markets Authority and many consumer groups. Impact from this is described above. Third, we have worked closely with credit unions and produced two tools: the training guide and the guide to promoting credit unions as responsible lenders. We are currently monitoring uptake of these guides and their impact.

- To what extent were the award objectives met? If you can, briefly explain why any key objectives were not met.
The objectives were fully met and our response to two consultations was additional to the original objectives as we were not aware that these consultations would be initiated at the time of applying for the grant.
- How might the findings be taken forward and by whom?
The FCA, BSB and credit unions are key organisations that might take our findings further. We will continue to work with them to influence their work going forward
Exploitation Route The FCA is taking forward various reforms which are in line with our recommendations but we continue to work with them and others in relation to reform of the credit industry. The BSB has consulted on how banks can play a role as responsible lenders and we have inputted to their consultation and will again continue to seek to influence them. Credit unions are also key organisations that might take our findings further and we will, again, continue our relationship with them to monitor their actions and seek to influence them
Sectors Financial Services, and Management Consultancy

Description This project has been impactful in three key ways: we have submitted responses based on our research to the Financial Conduct Authority in March 2017 and the Banking Standards Board in December 2017; our Australian visitors have had an impact on UK thinking regarding responsible lending; and our work with British credit unions has led to greater awareness of responsible lending practice and the creation of two tools: a responsible lending training tool and a template for helping to promote credit unions as responsible lenders. More details are provided here about each of these. 1. Responses to consultations We have submitted responses based on our research to the Financial Conduct Authority in March 2017 and the Banking Standards Board in December 2017. These are provided in this submission. These were not part of the original proposal for the project as we did not foresee that these consultations would take place but we took advantage of the opportunity to submit the responses and we await news of the outcome and the particular impact of our responses to that outcome. 2. Hosting Australian stakeholders for knowledge exchange activity We hosted two Australian visitors as part of the project. These were Gerard Brody, the Chief Executive Officer of the Consumer Action Law Centre based in Melbourne. And Adam Mooney, the Chief Executive Officer of Good Shepherd Microfinance which is a world leader in financial inclusion products, services and advice. A video was produced with the help of our visitors to help draw attention to the issues of responsible lending. It is available on the CHASM project website for this project. We also held a seminar in Birmingham and an open stakeholder engagement event and closed roundtable event in London in May 2017. This event included representatives from the Financial Conduct Authority, Citizens Advice, Stepchange Debt Charity, Money Advice Trust, Competition and Markets Authority and so on. The main focus of the event was on unsecured credit but Gerard also reported on recent concerns in Australia about mortgage broker remuneration leading to poor outcomes, and legal action taken by ASIC (the Australian Securities and Investments Commission) which suggests that credit assessment (using benchmarking or an algorithm) may breach the requirement to inquire into (and verify) an applicant's actual expenditure as part of the assessment process. There have also been recent efforts to bring in "more comprehensive" credit reporting to aid responsible lending decisions and also more competition, but this is causing some difficulty in the marketplace including consumer complaints. Adam spoke about Australia's Financial Inclusion Action Plan program, which Good Shepherd Microfinance were appointed by the Australian Government to develop and manage. Emerging from Australia's hosting of the G20 in 2014, this program so far involves 30 organisations including banks, insurers, pension funds, energy companies, universities, state governments, fintechs, community organisations, utilities companies and others committing to large scale, significant actions - measurable, accountable and time specific, which are assured by EY with the social impact evaluated annually. Gerard Brody has commented on his involvement in the project as follows: "The responsible lending symposiums in both Birmingham and London were very helpful to myself and Consumer Action Law Centre. The discussion that followed the presentations enabled me to gain a good understanding about the drivers of market dynamics in the UK compared to Australia, particularly the role of the regulator FCA in authorising lenders under its new framework. It was also interesting to understand the broad campaign for financial inclusion policy and practice in the UK, particularly in the context of the general election campaign that was happening during my visit. ..The trip to the UK also enabled me to visit some other organisations and learn from them. In particular, a visit to the National Debt Helpline was enlightening. Consumer Action operates the National Debt Helpline in Victoria, so it was great to see the impressive UK operation in practice. I was particularly able to learn from its extensive continuous improvement and evaluation processes. I also had the opportunity to visit Citizens Advice, the Financial Conduct Authority and various consumer dispute services. From Citizens Advice, I was able to compare how they use casework to inform policy and advocacy, a model also used by Consumer Action. We also discussed the potential to develop closer relationships, perhaps through staff secondments. It was also very interesting to visit a few ombudsman services in the UK that operate in non-regulated markets. Consumer advocates in Australia have been campaigning for better alternative dispute resolution for general consumer disputes, to it was interesting to understand the various models more deeply." Adam Mooney commented that "I have heard from David Geale (Head of Policy at FCA) and Charlotte Matthews (HM Treasury - Head of Consumer Credit and EU Retail Unit - Assets Savings and Consumers) following our visit in May. They are both very interested in our No Interest Loan Scheme (NILS) and Financial Inclusion Action Plan (FIAP) programs. David Geale popped into our office in Melbourne last week and met with myself and a colleague." HM Treasury announced in October 2018 that it would be piloting a No Interest Loan Scheme in the UK 3. Work with credit unions LA and KR worked with ABCUL (the largest Trade Association for UK Credit Unions), Citysave credit union in Birmingham and ACE (another UK based Credit Unions Trade Association), including organising workshops at the ABCUL and ACE conferences in May 2017 to share findings from our previous three year research project on 'responsible lending and borrowing' within the context of the broader credit landscape as a basis for discussion about the role that Credit Unions play as responsible lenders. The workshops also provided an opportunity to open up the discussion about responsible lending within credit unions and this has helped to inform two separate tools for credit unions - a training guide and a guide to promoting the credit union as a responsible lender. We are now monitoring uptake of these guides and seeking to measure their impact. KR met with the Treasury in October 2018 to discuss further support for credit unions, including a Prize-linked saving scheme to be piloted in 2019. KR is presenting at the 2019 ABCUL conference in March 2019 and continues working with the sector to secure change. KR has had further discussions with members of HM Treasury in this space from 2019-21 and there is also progress on both the No Interest Loan Scheme and the Prize-linked Saving Scheme. Fair4All Finance is teaming up with Toynbee Hall and Fair By Design to deliver a No Interest Loan Scheme (NILS) pilot, the first of its scale across the UK, with £3.8m in funding from HM Treasury and up to £1m of lending capital from each devolved administration, matched in England by Fair4All Finance. Prize Saver was an HM Treasury pilot scheme to incentivise people to save with credit unions. The Treasury have ended their involvement with the scheme now (late 2021) but the participating Credit Unions have agreed to continue the prize draws until September 2021.
First Year Of Impact 2015
Sector Financial Services, and Management Consultancy
Impact Types Societal,Policy & public services