​A festive message

This is the season to be swindled it seems. Specifically, loan fee fraud. During the festive period last year, the Financial Conduct Authority (FCA) received around one-third more calls than usual during the rest of the year on this issue.

Loan fee fraud is where a bogus (therefore unregulated) lender persuades someone who desperately needs credit, and cannot obtain it through ‘usual’ channels, to pay an upfront fee for a loan or credit they never receive. One in twenty calls to the FCA between 1^st November 2020 and 21^st January 2021 were about loan fee fraud.

According to FCA data, during the last year, 1,456 cases of this fraud were reported, with an average loss of £274 per case. Alarmingly, their research indicates some 27.7 million adults in the UK have characteristics of ‘vulnerability’, making them more susceptible to this type of scam.

The reason for a spike in cases during the festive period is pretty obvious: pressure on those who are unable to make ends meet to spend money they don’t have on gifts or celebrations. The FCA is sufficiently concerned about greater pressures this year, given fewer restrictions on spending than were in place last Christmas, that they have taken the somewhat unusual step of working with a team of behavioural scientists at “Influence at Work” and the rather alarmingly named music production company “Soviet Science”.

Steve Martin (presumably not the Steve Martin), CEO of Influence at Work and Faculty Director of Behavioural Science at Columbia Business School, said:

‘We’ve known for a long time how persuasive music and rhyme can be. Songs and sonnets aren’t just effective attention grabbers. Studies show people find their messages more memorable, and even rate them as more believable than the same words spoken.

‘Every day we face a near constant onslaught of messages, delivered by a myriad of messengers in a multitude of ways. Unfortunately, some are designed to trick or scam us. Anything that can be done to keep us vigilant can help. Which is why the FCA’s anti-fraud jingle is to be applauded.’

So, to get you in the mood, and noting it has been paid for by the regulated firms and individuals, here it is (link takes you to the FCA website): FCA Jingle

I do not underestimate the misery and despair of people who find themselves exploited by the (presumably) organised criminal gangs who are ready and waiting to take advantage of them. However, there is another much larger group of people who are also being targeted by another unregulated (but legitimate) form of credit: buy-now pay later (BNPL).

BNPL is offered at point of purchase in an online transaction. The FCA found that, between the start of the pandemic and the end of 2020, five million people in the UK had used a BNPL product (such as Klarna, Clearpay and Laybuy). These products, driven by financial technology, are currently unregulated. The concern is that few, if any, consumers will read the terms and conditions of what they are ‘clicking up to’ and end up with too much debt. The lure for retailers is obvious – it makes consumers spend more.

Indeed, as I have previously written about, money has ceased to become something tangible or even real. As such, there is a growing disconnect between means and lifestyle, which should be a matter of concern. The world in which I started work, where a weekly wage was received in the form of cash in a (very) small envelope, and credit was not that easy to obtain, meant it was necessary to budget and know how much was left until the next payday. There is at least one generation who do not have that experience.

Unsurprisingly, there has been a flood of capital into BNPL companies, with predictions that UK consumers will spend £40 billion by this method within the next five years. This is perhaps yet another symptom of the end phase of a long economic cycle, when there are too few productive uses for capital, which ends up hanging around in the credit system. That subject is perhaps for another time.

With season’s greetings and here’s hoping the next year is a considerable improvement on the last. Stay safe and in budget.