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Lenders object to 1,300% increase in money advice costs


Published: 19 February 2013 | Author: Bernard Clarke

Lenders are alarmed at proposals to increase the contribution they make to the funding of the Money Advice Service (MAS) by more than 1,300%. 

Our response to the FSA's consultation paper 13/2, Regulatory fees and levies, to be submitted this week, will say that firms oppose a proposed increase of 1,309% in the funding levy in 2013/14 partly because it is based on a fundamentally flawed methodology. We also argue that the plans should not have been published without prior consultation with the industry.

In particular, we do not agree with a funding formula based on a simplistic read-across from the number of times there is any sort of interaction between consumers and mortgage services and information offered by the MAS. 

How do consumers use mortgage calculators?

An example of where this is inappropriate is in the number of times consumers use the mortgage calculator on the MAS website (which amounts to more than 11% of public contact with the service, according to the FSA). The mortgage calculator is a low-cost, low-maintenance tool and something that the MAS has pushed to consumers as part of its national television advertising campaign.

We believe that when a consumer uses an online mortgage calculator, this cannot be interpreted as a need for tailored money advice.  Moreover, there is nothing to distinguish the mortgage calculator operated by the MAS from the many others that are available, including our own. Instead of a funding formula based on the numbers of up-front points of contact with consumers, the FSA and the MAS should analyse what happens to a consumer (if anything) as a result of this contact, what decisions they take, what the outcome is, and whether there is any evidence of a need for advice as a result.

We believe that the proposal brings into sharp focus how the MAS intends to deliver its objectives. In our view, there is little correlation between the funding proposed for the MAS for 2013/14 - one-third of which will be provided by lenders - and the outcomes it is seeking to deliver.

The MAS rightly acknowledges that there are other agencies providing money advice, and should be capable of identifying exactly what it is seeking to do and making sure that it does not duplicate or undermine other money advice services.

But its 2013/14 draft business plan, which we responded to last week, provides scant information on how the service will deliver new or evolving areas of work. That detail is needed if lenders are to have confidence that the MAS is geared up to achieving its objectives and to providing value, both for the industry and consumers.   

Lender support for money advice

We support the general premise that advice is worthwhile. Our members do much to engage with independent money advice providers as part of their efforts to assist customers in financial difficulty. But, without some basic and consistent measures of performance, the ability of firms to see the value of debt advice - both for themselves and for consumers - is impaired. 

The lack of data (which needs to be presented in a consistent and regular fashion) makes it difficult to compare the MAS with other organisations and focus on the development of good practice. It also presents difficulties for lenders and, we assume, for the MAS itself in its efforts to co-ordinate the sector. Without being able to measure the value of debt advice, it is harder for lenders to justify their continuing support for the service.

We recognise that the absence of any initiative in the business plan to address mortgage debt may reflect the efforts already made by lenders in helping borrowers in financial difficulty. But if lenders are only benefiting indirectly from the MAS, there is even less of a case for the proposed increase in the funding levy.

One effect of the proposed increase could be that lenders are less able to fund money advice initiatives elsewhere. This could have an effect on areas falling outside of the MAS’ target audience, but where there may still be a need for advice.

We are pleased that the MAS recognises the importance of building financial capability from an early age. We urge it to work closely alongside experts in this field, including the Personal Finance Education Group  and the Institute of Financial Services' School of Finance, in order to prevent duplication and build on the good work already being done.