by Myles Fitt, CAS Strategic Lead for Financial Health.
This article was first published in the Herald on 31 October 2022.
The Scottish Government is admirably committed to lifting people out of poverty and financial hardship. During recent emergency COVID legislation it embraced several welcome measures to help those in debt or facing bankruptcy better manage the economic stresses caused by the pandemic. Yet it risks tainting this by introducing a Bill that carries a very high risk of creating financial problems for people through a piece of legislation called the Moveable Transactions (Scotland) Bill, currently before Parliament.
This Bill is primarily aimed at allowing businesses to borrow money on assets that are movable such as machinery, vehicles or stock by using these assets as security for the lender. This means the funds generated can be used for business purposes while the asset is kept and used.
But here’s the rub. The Bill also includes consumers and offers the same capacity to borrow money based on the security of moveable assets in the home, such as a car or technological products, or anything with a value of over £1,000.
Consumer, debt and money advice organisations are aghast at the inclusion of consumers for one overarching reason – that it will lead to a high-cost high interest lending market that will prey on consumers, especially vulnerable consumers, who will be enticed through seductive marketing to borrow on household items. Failure to make expensive repayments will result in the loss of the asset and risk of debt being incurred.
This is despite the consumer protections expressed in the Bill and the wider regulatory protections from the Financial Conduct Authority as these are not enough to prevent this outcome. High-cost lenders are smart and will develop a consumer product that is outwith the protective reach of the legislation and the regulator. Buy Now Pay Later is one of many examples of a product that didn’t fall into the scope of the regulator and while it is now set to be regulated, the financial harm to consumers has already been done.
The collective insight and experience of the debt and money advice sector points authoritatively towards a similar detrimental high-cost lending outcome for consumers from this Bill. This position is also supported by evidence from elsewhere in the UK. Log-book loans is a consumer lending product that has been developed under equivalent moveable asset legislation in England and this is a high cost product. Notably, there isn’t a single mainstream lender who operates in this lending market south of the border.
We also don’t see why consumers are being included in this Bill. We don’t see the policy gap that is needing filled. Nor have we noticed any clamour or noise from lenders or consumers to have a lending option like this.
So we are calling for the removal of consumers from the legislation as the cleanest way to avert financial consumer harm and this has the support from Money Advice Scotland, StepChange Debt Charity, Christians Against Poverty and great numbers of frontline money advisers.
We are a waving a big red flag at the Scottish Government and the Scottish Parliament to avoid an unintended outcome of this Bill being consumer harm and financial detriment - and especially so as the cost of living challenges will be with us for a few years yet.