Student Loans Company

Lord Willetts Excerpts

Tuesday 8th July 2014 Written Statements

[The Minister for Universities and Science (Mr David Willetts)]

I would like to update the House on the use by the Student Loans Company (SLC) of letters under the trading name of Smith Lawson and Company.

Since 2005 the SLC has been issuing letters to graduates that fall into arrears when repaying loans or grant overpayments under the trading name of Smith Lawson and Company. The company has sent out letters to an estimated 309,000 customers under this name. These letters were sent to graduates who had failed to respond to several attempts to contact them by the SLC, and were used as a low-cost alternative to referring those graduates to third-party debt collection agencies. The practice was approved in late 2004 by the company’s board of that time and Ministers in the previous Administration. The use of this approach had not been brought to my or the Secretary of State’s attention before the recent media coverage.

In February this year, the Office of Fair Trading (OFT) contacted BIS and SLC to express its concerns about the practice and particular wording of these letters. It considered the letters to be misleading because they created the impression that debts had been escalated for collection by transfer to a third party. The OFT recognised that SLC was not now collecting debt governed by the Consumer Credit Act, but advised that the letters be brought into line with its guidance. The company agreed to change the letters to change one misleading reference to “our client” and increase the size of the reference to the SLC in the letter but decided to continue with the use of the trading name. The company has a strategic objective to collect every pound that is owed and this was a factor in its decision. These changes were due to come into effect in early July.

The company has now stopped the use of Smith Lawson letters and trading name. It took this action on 27 June following the recent decision by the Financial Conduct Authority to sanction Wonga, the payday lender, for its aggressive and misleading practices. Although the SLC did not break any rules or charge graduates for receiving these letters, it was clear that a public body should be holding itself to the highest standards in the treatment of its customers. No further use will be made of the Smith Lawson trading name. The only exceptions after 27 June were two letters sent manually in error and a small number of automated follow-up emails.

Christian Brodie, the chairman of the SLC made a clear and unequivocal apology on behalf of the company in a discussion with the Secretary of State on Thursday 2 July. I also spoke to Mr Brodie on Thursday to investigate what had happened. Mr Brodie tendered his resignation as chairman to the Secretary of State but this was not accepted. The Secretary of State and I have confidence in his leadership of the Student Loans Company. We see Mr Brodie having a very important job to do at the SLC to oversee the significant investment BIS is making in the company to enable it to transform its products and operations and overall levels of customer service. We are both clear that it would be unfair for Mr Brodie to take the blame for a practice that was nearly 10 years old, particularly as he had only been chairman since he joined in February of this year.

He has proposed the following plan, which I endorse:

The suspension of the use of these letters will be permanent and future dealings with customers in arrears will be fair and transparent.

The SLC will seek assurance from its legal advisers that the company is fully compliant with the spirit as well as the letter of consumer credit protection and financial services legislation and related regulations in the light of the Smith Lawson experience.

The first task of the soon to be appointed executive director for repayments and fraud will be to conduct a review of SLC’s repayment and collection strategy to give assurance to the board that the company is treating people fairly, while at the same time ensuring that SLC continues to collect outstanding debts.

As part of a review of the SLC board’s effectiveness, which Mr Brodie had already commissioned, the SLC will specifically review the Smith Lawson experience, the events of March/April 2014 and the negotiations with the OFT and their aftermath.

I had already begun the process of appointing two new non-executive directors to the SLC board by the end of this year. Mr Brodie had indicated to me prior to recent events that he would value candidates with strong track records in customer service and repayments to add to the expertise of the existing board members.

It is important that the Government recover taxpayers’ money, but it must do so in a way that is fair. It must not use misleading tactics to get people to do the right thing. The SLC has apologised and now stopped issuing letters under the Smith Lawson trading name. I will be working with the company to ensure that lessons are learned to ensure there is no repeat in future. The company is now ensuring that its procedures and correspondence adopt the high standards of customer service expected of it as a public sector organisation. The company’s new approach to debt collection will be cleared by the SLC board and BIS Ministers.