Criteria Higher Rate Loans
Criteria for the FairLife Higher Rate Loan Mark
The Mark will be awarded based on a provider’s upfront declarations and will be retained based on adherence to the following criteria.
1. The first criterion is that the Licensee be a social enterprise.
2. The second criterion is a fair interest rate.
- The loan must not charge an interest rate greater than [ under review ].
3. The third criterion is free overpayments.
- Customers must be able to make overpayments up to 10% without charge.
4. The fourth criterion is an ability to repay the entire loan early.
- Customers must be permitted to repay their entire loans early without facing a financial penalty in excess of reasonable costs.
5. The fifth criterion is fair debt collection in the event that the Licensee instructs debt collection proceedings.
- Debt in recovery should be marked as FairLife Debt.
- Total fees and charges added to FairLife Debt must not exceed the original value of the debt at the point of entering debt recovery (unless the debt is below £500).
- Where a customer registers on a FairLife debt management program, the debt advisor may instruct that the customer be given a breathing space of up to 3 months.
- The Licensee should seek to deal with a FairLife debt recovery firm or, if the debt is collected by an in-house team, the Licensee should:
- Highlight sources of free debt advice to the customer.
- Accept phone calls from the customer's debt management group where applicable.
- Seek to agree an affortdable repayment option with the customer.
6. The sixth criterion is display of the FairLife Mark.
- The fifth criterion is that the licensee places the FairLife Higher Rate Loan Mark on all contracts that will be sold as FairLife Higher Rate Loans and the FairLife Debt Mark on contracts for debt in recovery.
Criteria detail and examples
The first criterion is the loan provider must be a professional social enterprise.
The Mark is reserved for organisations which address the issues of financial inclusion, access to affordable finance and community investment. This criterion encourages the following organisations to apply for the Mark:
• registered charities
• community interest companies limited by guarantee and
• community benefit societies registered under the Industrial and Provident Societies Act.
At the Trustees discretion, The FairLife Foundation may consider applications from responsible finance providers outside of these categories which promote access to fair finance.
The second criterion is a fair interest rate.
This criterion ensures that the loan provider offers a personal service. The needs of the individual must be carefully considered before a loan quote is provided with the aim being to extend affordable loans to those that are often excluded.
The Mark sets a maximum interest rate charge which is substantially lower than the 0.8% per day (600% per year) permitted for payday loans under the cap set out by the FCA. FairLife hope that this will further encourage the public to seek FairLife Higher Rate Loans rather than the pay day alternative. The maximum interest rate has been carefully considered so that is does not restrict the provision of fair finance to those individuals not supported by other lenders.
The third criterion is free overpayments.
FairLife 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 both overpayments and/or lump sum repayments into their accounts. The Licensee may require that customers notify them in advance or follow specific administrative guidelines in accessing this facility.
The fourth criterion is an ability to repay the loan early.
Customers who receive an unexpected windfall must be able to repay their loan early without facing a financial penalty. The Licensee may charge sufficiently to cover the costs of establishing the loan and may require that customers follow specific administrative guidelines in accessing this facility.
The fifth criterion is fair debt collection.
Many lenders pass on underperforming debt to other companies rather than try to recover the debt themselves. For these groups, criteria five requires that they favour FairLife registered Debt Recovery firms (or companies on the relevant FairLife register ) as per the FairLife Family criteria:
The FairLife Family criteria 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 contract any law, regulation or industry best practice guidance).
Where a company displaying the Higher Rate Loan Mark seeks to recover debt themselves it would be expected by customers that the firm would abide by the criteria of the Debt Recovery Mark. The key additional criteria are:
• Highlight sources of free debt advice to the customer.
• Accept phone calls from the customer’s debt management group where applicable.
• Seek to agree an affordable repayment option with the customer.
The sixth 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 in a similar manner to the way food producers put a Fair trade Mark onto groceries.
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 Higher Rate 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 Higher Rate Loan product range to become more consumer-centric.