Registered providers needn’t reinvent the wheel. There are a number of products and services already on the market that can help tenants to budget and promote rents getting paid on time. Housing Technology asked David Hall, a senior associate at Anthony Collins Solicitors, to examine what to ask for from a financial services provider tender or contract.
As is widely know, although housing benefit is currently paid directly to housing providers by the local authority to cover rent payments, benefits-supported tenants will soon be expected to manage their own income and expenditure through universal credit. Tenants will receive a single, monthly benefits payment and will have to pay rent and their other bills from it.
Some benefits-supported tenants may find changes to their financial routine particularly difficult to manage. Those with debt problems, poor numeracy skills, learning difficulties, older people or substance abusers may not be ready to budget for themselves when the scheme comes into effect, resulting in late or non-payments of rent as well as other important bills.
To minimise the chance of rents not being paid, many housing providers are working with financial services providers (FSP) to give tenants access to ‘jam jar’ bank accounts. These are designed to be very easy to use for people who have never used a bank account, and allow tenants to set up direct debits and standing orders for regular outgoings while splitting the remaining funds between pots or jam jars.
It is in the best interest of the housing provider to encourage tenants to set up jam jar accounts to help ensure that rent is paid on time. When looking for an FSP partner, there are a number of criteria to look for to ensure that the product chosen for tenants’ use benefits all parties.
First, it is important to find a product that tenants will value and be happy to use. Ease of use is one of the first things to examine. While a high percentage of users in younger age groups will have access to the internet and feel comfortable using this channel to manage their finances, this will not apply to all tenants. Housing providers should look for an FSP that also offers telephone and SMS banking and support too. Providing multiple access points promotes active financial management by making tenants’ funds more visible.
The set up of the account is also particularly important. Housing providers should make sure that the account is flexible and can include enough jam jars to support a wide range of lifestyles and habits of bill paying, necessary purchases and savings. Basic accounts are structured with a minimum of two pots covering bills and spending.
Additional functions to encourage saving can be built into the account where any money left in the ‘spending’ jar is automatically swept into a savings pot at the end of the month. Users should be able to opt in to this type of service, but housing providers should use the procurement process to investigate the options available in order to get the most desirable products and get buy-in from tenants. Consider doing some testing, drawing on your existing tenant engagement arrangements, and maybe even build that into your tendering requirements.
Your interest in how much tenants like the jam jar facilities that you offer them may depend on your level of commitment to a financial inclusion strategy. Whatever your corporate views on that matter, and even if you find a jam jar account that is liked by tenants, you will probably need to offer incentives to get the least interested tenants on board. You should also give at least equal priority to your business objective; you need jam jar accounts so that the rent gets paid (many FSPs have yet to latch on to this!).
There are some FSPs and jam jar solutions that make rent payment a priority but not all FSPs will use software that does this automatically, so housing providers should emphasise this from the start. The ability to align rent payment dates with universal credit payment dates is also essential to limit your exposure to arrears. You want the rent out and in your account as soon as it hits your tenant’s account. If your tenant chooses to pay via direct debit, then your account in turn must be flexible enough to allow for collection on any day of the month.
If the tenant prefers to pay their rent at the Post Office (or using other payment methods such as PayPoint), the use of a prepay card is necessary. Prepaid jam jar account swipe cards work like traditional debit cards but they only allow the user to spend what has been loaded on to them, helping to curb accidental overspending. Housing providers should examine how the cards can be credited and if there are measures in place to prevent funds being loaded and spent elsewhere. You might need a jam jar or other bank account in place first before your tenant can use prepay cards; it might begin to look like a rather complicated and costly solution when you really evaluate it.
Many FSPs will want the housing provider to get involved with advertising and promoting the account (and perhaps lending) to tenants, along with account set-up, tenant support and training on how to use the account and administration. Make sure you understand what you are agreeing to and the risks and liabilities involved; the financial services jungle is heavily regulated, and you may need to get legal advice at an early stage.
Most FSPs are imposing a per-account monthly fee payable by the housing provider. You should expect the price to drop if you will be referring a large number of tenants to the FSP, or if the FSP is already a high-volume provider. Some FSPs will impose charges on the tenant for withdrawals or deposits; this should also yield a drop in the monthly fee payable by the housing provider. FSPs geared up to offer or promote lending to their account holders should be able to offer further discounts to the housing provider and on transaction charges, as the profit from lending is higher than from operating deposit accounts. The leading FSPs will charge housing providers less than £5 per account, but don’t be deterred from pushing for something under £3 per account, with no transaction charges.
We would recommend that you run a competitive tender to make your final selection of FSP and jam jar products so you can push them on these features and also on price.
Finally, the really legal bit. The FSP should be authorised and regulated by the relevant financial services regulators. At the moment, it is the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) for consumer credit. Later this year the FSA will get chopped up and will become the Prudential Regulation Authority and the Financial Conduct Authority. Any contract or arrangement that you form with a FSP, including any adverts or promotions made to tenants, will have regulatory implications, and the deal may amount to being a regulated contract. Housing providers can rely on some exemptions but they are narrow and fiddly, and if you get it wrong you are likely to be committing criminal offences.
The FSA, and its successor, and the OFT are powerful, aggressive regulators. Get it right first time and take advice. Ideally, select a legal partner before you do any soft market testing. There are a number of products already available and it is not necessary to start from scratch. The most important thing to ascertain is that tenants are presented with a product they want, and that this ultimately ensures that rents are paid.
David Hall is a senior associate at Anthony Collins Solicitors.