An index is being drawn up to benchmark UK financial institutions on how responsible they are when lending to consumers.
The Responsible Lending Index will assess banks and finance companies
on how well they convey the real cost of credit to consumers, whether
they have early warning systems to detect non-payment, and how easy
their credit card application forms are to understand. The exact form
of the indicators will be devised with lenders, consumer groups,
financial advisers, government departments and other interested
parties, and the results will be audited by the London-based Cass
Business School, part of City University.
The man behind the idea, Steve Round, chief executive of Hurlstons, a
financial services consultancy, said there was a need for the index in
the UK because liberalization of the credit market since the 1980s has
brought with it reputational problems over perceived bad lending
practices.
‘Media portrayal of the industry is often negative, with the newspapers
and other organizations convinced that lenders are ripping off
consumers,’ he said. ‘Many consumer protection bodies have also felt
for a long time that the industry needs to get its house in order on
responsible lending.’
Round, who is a former director of the Credit Card Research Group and
ex marketing director at Unity Trust Bank, concedes that ‘the vast
majority of lenders would argue that they always lend responsibly’, but
he believes the index will allow performance comparisons and may
improve consumer confidence.
The companies will receive an overall rating and, if they wish, a
confidential report of improvements they can make. An advisory board
will meet quarterly to review the index.
As well as the Cass Business School, an external auditor will regularly
examine the way the index is compiled ‘to give comfort to both lenders
and stakeholder groups’.
Companies will be awarded scores for various aspects of the way they
lend. Each aspect will be weighted according to its importance. Matters
to be looked at are:
how customers are initially chosen and targeted for loan and credit card offershow clear and transparent marketing materials arewhether there are checks on those customers offered more creditwhether consumers are given a real basis for comparison when shopping for creditwhether customers get ‘regular, clear and concise’ communications on the level of their debts.
The idea, which was first put to consumer groups and financial services
companies in London in the autumn of 2005, has the support of John
McFall, chairman of the House of Commons treasury select committee.
Financial services companies are now being sought to develop the index.
Barclaycard, Egg, HBOS, HSBC, GE Capital Bank, Provident Financial and
Royal Bank of Scotland are among those being kept informed.
