Criteria Personal Loans
Criteria for the Personal Loan Mark
1. The first criterion is a fair interest rate.
- FairLife personal loans must not charge an interest rate greater than the cap set by Government for credit unions, currently 3% per month (42% APR) to include arrangement fees.
2. The second criterion is free overpayments up to 10%.
- Customers must be able to make overpayments into their accounts of up to [10%] of the outstanding loan amount each calendar year without penalty.
3. The third criterion is fair competition.
- A route must exist for potential customers to seek either a personalised indicative quote or an indication of eligibility without leaving a hard footprint in the customer’s credit history; this route may be via an external agent.
4. The fourth criterion is fair debt collection.
- The fourth criterion is to follow the criteria of FairLife’s Debt Recovery Mark if a customer defaults on payments consistently and the company seeks to recover the debt using an in-house team (details below).
5. The fifth criterion is display of the FairLife Mark.
- The fifth criterion requires that the licensee places the FairLife Personal Loan Mark on all contracts that will be sold as FairLife personal loans.
Criteria detail and examples
The first criterion is a maximum interest rate.
This criterion filters out high-interest charging loans and short term loans which require greater scrutiny and are being covered by separate FairLife Marks.
The criterion only applies whilst the loan is being repaid as per the loan agreement. Debt being recovered from a customer in default is covered by the criteria of the Debt Recovery Mark.
The second criterion is free overpayments.
The FairLife charity encourages customers to reduce debt at the earliest opportunity and to direct surplus or unexpected cash balances to paying down the principal of any outstanding loans. Customers must be able to make overpayments into their accounts of up to 10% of the outstanding loan amount each calendar year without penalty. The Licensee may require that customers notify them in advance or follow other administrative guidelines in accessing this facility.
The third criterion is fair competition.
Criterion three seeks to promote a competitive loan quote market. It does this by ensuring that a route exists for concerned customers to seek competing, indicative loan quotes without their search impacting on their credit worthiness. At present consumers who shop around can be disadvantaged by the hard searching of loan quotes.
The third criterion can be achieved by the Licensee offering the facility themselves or by the use of an external agent (such as Experian’s HD Decisions). Customers should be made aware if an indicative loan quote, or indication of eligibility, may alter when final searches are performed. The Licensee should seek to reduce the number of customers for whom this happens as the market evolves.
[The issues behind criterion 3 have been incorporated into an FCA discussion document published Sept 2013]
The fourth criterion is fair debt collection.
Many lenders pass on underperforming debt to other companies rather than trying to recover the debt themselves. For these groups criteria four is not relevant other than a request to pass the debt to a FairLife registered Debt Recovery firm (or a company on the relevant FairLife register ) as per the FairLife Family:
The FairLife Family is a request that if two or more providers offer a product or service, and both are equally in the customer’s best interest, the provider with the relevant FairLife Mark should be favoured (unless offering such a bias would contradict any law, regulation or industry best practice guidance).
Where a company displaying the Personal Loan Mark seeks to recover debt themselves it would be expected by customers that the firm would abide by the criteria of the FairLife Debt Recovery Mark. The key additional criteria are:
• Highlight sources of free debt advice to the customer.
• Treat unregulated debt in the same manner as regulated debt.
• Limit the interest and costs that can be added to debt once in debt recovery. Additions must not exceed the original value of the debt (i.e. debts musts not be increased by more than 100%) unless the debt value is below £500 in which case £500 can be added. Court costs are excluded.
• Accept phone calls from the customer’s debt management group where applicable.
• Seek to agree an affordable repayment option with the customer.
The fifth criterion is display of the FairLife Mark.
A key benefit of the FairLife charity is the brand awareness that will be achieved by having a consistent Mark spanning all areas of finance. It will give comfort to people, ranging from vulnerable clients in debt to the elderly sorting out their pensions, that the products are all part of the same fair trade initiative. This will be achieved by licensees putting the FairLife Mark on to their clients’ quotes and contracts.
Only contracts displaying the FairLife Mark are part of the FairLife initiative. If a licensee with multiple loan products puts a FairLife Mark on two of them, that firm will be deemed to have two FairLife Personal Loan products. In this way FairLife offers a route by which customers can see very clearly whether or not they have a FairLife product and providers can evolve their Personal Loan product range to become more consumer-centric.
To download a summary of the mark click here
To download a licence for the mark