Tighter lending regulation needn’t strangle the industry

By John Davies on Monday 10 February 2020

Alternative Lending

Let’s not throw the regulatory baby out with the bathwater, writes John Davies, founder and executive chairman of Just Cash Flow PLC and chairman of the Association of Alternative Business Finance.

Tighter lending regulation needn’t strangle the industry
Image source: Pixabay/Pexels.

Dear Mr Turfboer,

I read with considerable interest, via AltFi, your letter to Chris Woolard congratulating him on his appointment as the FCA’s Interim Chief Executive.

I applaud and agree with many of the points you made but, in my role as Chairman of the Association of the Alternative Business Finance (AABF), not the way you portrayed small business lenders and your solution of jumping into regulating commercial lending.

Let’s deal without some positives first and what we agree on. I strongly support the point you make on setting standards for transparency and customer care. We also agree that businesses need access to responsible finance options.

However, your letter ignores the excellent work that is already being done and the voluntary codes that are already in place.

The AABF was formed in 2017 so members could align themselves with the best standards of industry practice, including the disclosure of fees, charges and the repayment process.

Not surprisingly, at the time these were drafted, our operating principles drew heavily on the well established British Bankers Association Lending Code.

We are always looking to promote best industry practice and are currently working with the Lending Standards Board to align ourselves to the excellent Standards for Business Customers.

You also held up as best practice setting a maximum APR, but I’m sure you are aware that APRs can be distorted by the short period some businesses need finance for. 

In particular, APR capping would severely limit short-term funding to small businesses, which risks hurting those most in need, potentially forcing them to take out personal credit, rely on friends and family, turn to the “grey market”, or simply mean that these employers cannot get the funding they need.

In my experience, the real concern is total cost, which should be very clearly disclosed.

I can’t say that all lenders follow best industry practice but I firmly believe that the small minority who don’t won’t be in business for long. I absolutely agree with the excellent points you make on “affordability”. Lending money is the easy bit, getting it back isn’t.

We appear to share a lot of the same aims but have a different approach. I think it best to encourage Mr Woolard to look at the examples of self-regulation and codes that are already in place.

Since the 2008 financial crisis a strong, vibrant and varied alternative finance sector has become well established that provides SMEs with the support they need to invest and grow. This is excellent news for small businesses as traditional banks no longer have an appetite to fully serve this market.

Of course well-designed regulation can work well but it can also introduce a one size fits all approach and introduce the law of unintended consequences.

You are obviously very passionate about this industry so I would welcome you joining the Association to further our aims. An invitation open to anyone else from the alternative lending sector who wants to promote best standards of lending practice and help create a stronger voice for our industry.

John Davies is the founder and executive chairman of Just Cash Flow PLC, and chairman of the Association of Alternative Business Finance. The views and opinions expressed are not necessarily those of AltFi.

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