04Aug

Credit union issues data showing who is the typical furloughed employee 

It is no exaggeration to say that, just a few months ago, very few people knew what ‘furlough’ meant. Now of course things are very different, and an estimated 8.9 million UK workers have been furloughed by their employer.

A new report by credit reference agency TransUnion looks at who the typical furloughed employee is, and what impact being furloughed might have on someone’s finances.

The case study used in the report is for an individual with the following circumstances:

  • Married, but responsible for all household bills
  • Receiving healthy net income per month from employment of £3,732 (pre-lockdown)
  • Monthly expenditure is £3,602, so with so little surplus each month, the family typically use savings for big ticket spending and emergencies
  • However, the individual in question works as a senior hotel manager and so was placed on furlough earlier this year. His income reduced to around 60% of its normal level (the Government was paying 80% of the first £2,500 of monthly earnings, and his employer did not top up the remainder)
  • In spite of his apparently high income, he was forced to pause his mortgage and credit card repayments
  • Although he is now working again, his company is struggling, and he is worried about his long-term job security and is considering options such as releasing equity from his home

The report also acknowledges that 45% of respondents in TransUnion’s most recent Financial Hardship survey said their household income hadn’t been impacted by Covid-19. Others said their financial situation had actually improved, perhaps because they had switched to working from home with no loss of income, whilst saving money on travel, socialising and luxury spending.

Brendan le Grange, Head of Research and Consultancy at TransUnion in the UK, commented further on the issue of inequality, saying:

“Younger consumers are more likely to be impacted than older ones. But it’s not just about who is more or less likely to be initially impacted by the crisis, we also need to consider who is more or less well-equipped to weather the storm.

“Here, access to savings is a useful proxy. We asked those consumers who were feeling a financial pinch how they’d try to close the gaps in their budget, and while overall savings are the most common answer, it once again varies with credit risk. Whilst 1 in 4 of who self-report a ‘good’ or ‘excellent’ credit score say they’ll use their personal savings, only 1 in 6 of those who self-report a ‘bad’ credit score feel they have ready access to the same.”

The report goes on to list the loans and bills consumers are most worried about repaying at present. Top of the list are:

  • Credit cards (mentioned by 37% of survey respondents)
  • Utilities (31%)
  • Rent (27%)
  • Personal loans (26%)
  • Mortgages (24%)

However, Generation Z are most worried about personal loan repayments (33%), followed by rent (32%).

Millennials are most worried about utilities (37%) and credit cards (34%).

28% of Generation X are worried about paying utility bills, but by far the biggest concern in this age group is credit cards (48%).

Credit cards and utilities both score 37% amongst the baby boomer generation, well ahead of all other categories.

The financial effects of coronavirus have led to many borrowers being offered payment freezes. Whether or not someone has been furloughed, lenders will need to carefully consider what additional forbearance may or may not be appropriate when these payment freeze periods end.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

03Aug

New FCA chief says financial promotions will be a priority area

Officially, Nikhil Rathi’s appearance at the Treasury Select Committee was a chance for his appointment as FCA chief executive to be formally approved. In reality, the session was a chance to get some insight regarding what the FCA might be like when he takes over later this year.

Newly appointed Financial Conduct Authority chief executive Nikhil Rathi has signalled that cracking down on financial promotions will be one of his priority areas.

Mr Rathi will not take up his new role until October, but he has already been quizzed by MPs at the Treasury Select Committee. The session also allowed the Committee to formally approve the Chancellor’s proposed appointment of Mr Rathi to the role.

During the session, Mr Rathi promised to the Committee that he will “get tougher” on the oversight of financial promotions. At present, the FCA supervises the marketing of financial products, even if the products themselves might not be regulated. Nevertheless, this did not prevent 12,000 small savers losing £236 million through investing in high-risk unregulated minibonds in one recent high-profile scandal.

Mr Rathi indicated that three of the key areas of focus at the FCA will be:

  • A strong data strategy
  • A joined-up regulator that functions well
  • Diversity of thought

Regarding the first of these, the fact that the FCA is seeking to make better use of data to improve the way it regulates firms have been reported in the media as one of the reasons why Mr Rathi got the job ahead of some of his rivals.

Concerning the last of these, Mr Rathi indicated that the FCA is prepared to use strategies such as ‘no-name CVs’ when recruiting.

He also mentioned two well-publicised areas in the mortgage sphere.

Regarding mortgage prisoners, Mr Rathi said:

“On the mortgage prisoners, I know there’s been some progress with respect to affordability tests and enabling consumers to understand they can switch. But there remain some issues to resolve, particularly the take-up by banks of the new affordability freedoms that the FCA has put in place and I will look to take that as a priority.”

On the subject of payment holidays, he said:

“I understand that … There is considerable discussion about how to make sure that credit impairment doesn’t result from taking holidays for legitimate reason, but also that the integrity of the credit database is maintained so that people do not take on unsustainable debt.

“If they’ve taken holidays, debt will accumulate, and they may not be in a position to take on more debt with a new lender and that’s a difficult balance to strike.”

Asked by Rushanara Ali MP how he would like people to see him, Mr Rathi said:

“I haven’t applied for this job to be liked. It’s not a job I think you can take if you want to be liked.

“I wouldn’t want to define myself as being feared either. I would like the FCA to be defined as tough, assertive, thoughtful, decisive, and working with pace and agility and proactivity.

“I would hope that those who have worked with me in the past would describe me as an inspirational leader, someone who leads by example, empowering the senior team.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

30Jul

FCA sets out key risks affecting the debt advice sector

With so many consumers having been affected by coronavirus, demand for debt advice is set to increase dramatically. With this increase in demand comes increased risks, so what do firms in this area need to be aware of?

The debt advice sector is certainly expecting unprecedented demand as consumers suffer the financial consequences of the coronavirus pandemic. With this comes certain added risks, and the Financial Conduct Authority has set out what it sees as the risks facing the sector in one of its ‘portfolio letters’.

The FCA expects the boards of debt advice firms to consider the contents of the letter and make any necessary changes to their business model.

The letter starts with a reminder that, as in all sectors of financial services, the FCA can deem individual senior managers to be responsible when failings are identified within a firm, and that individuals carrying out controlled functions can then face enforcement action.

The FCA says it believes there are five key drivers of harm in the debt advice sector:

  • Consumers being unable to access debt advice when they need it due to insufficient capacity in the sector
  • Poor quality advice being given by firms, including issues with income and expenditure assessments, resulting in consumers entering into debt solutions which are not in their best interests
  • Inadequate governance and controls over fee structures leading to consumers paying excessive fees and/or additional charges related to the administration of the debt solution
  • Inaccurate regulatory reporting of data and failure to abide by notification requirements, thus adversely affecting the FCA’s ability to effectively supervise firms, which may, in turn, undermine consumer confidence in the market and conceal harm
  • Firms operating with insufficient prudential resources, as required under CONC 10 of the FCA Handbook, to enable them to remediate customers if required, in the event that their actions cause consumer harm

On the subject of capacity, the FCA cites research by the Money and Pensions Service indicating that demand for debt advice may rise by as much as 60% by the end of 2021. The regulator says it expects firms to have effective processes in place to identify, monitor and manage the risks they are facing, or might be reasonably expected to face, and that firms should consider whether the increased flow of consumers seeking advice could be one of these risks.

On the subject of quality of advice, the letter raises a number of issues, including:

  • Firms are required to monitor customer repayments for evidence which suggests a change in financial circumstances. The FCA notes that some firms have been struggling to complete these required annual reviews due to operational challenges associated with coronavirus. Where this is the case, the firms should notify the FCA and should develop appropriate plans to ensure that overdue reviews are completed as soon as possible
  • The FCA remains concerned about debt packager firms who might prioritise referrals to debt solutions that are more profitable, instead of recommending the most appropriate option for the customer’s needs
  • The regulator is concerned that some firms are not considering all of the issues raised in the recent Vulnerable Customers Thematic Review
  • The FCA believes there are still weaknesses in the monitoring of appointed representatives by some principal firms

Regarding fees, the FCA is still concerned about a lack of transparency around firms’ fee structures in some cases, which may result in consumers paying additional charges that they have not budgeted for or taken into account when choosing their debt solution. The regulator says it has observed instances where customers in debt management plans were paying more towards the firm’s fees than to their creditors. FCA rules say that the way fees and charges are applied must not undermine a customer’s ability to make significant repayments to creditors.

Any debt management firm wanting advice or clarification is advised to speak to their compliance consultant.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

29Jul

‘Triple whammy’ of FCA, FOS and Covid pushes guarantor lender to the brink

Faced with a massive increase in the cost of paying compensation on its upheld complaints, together with the possible costs of an FCA investigation and the far-reaching consequences of the Covid-19 emergency, a guarantor lender admits it is facing very tough times.

A leading guarantor lender has warned it is facing “material uncertainty surrounding going concern” due to the combination of a Financial Conduct Authority investigation, an increase in complaint volumes and the effects of the coronavirus pandemic.

The lender had previously announced that the FCA was investigating its affordability and creditworthiness checking procedures, and that this could lead to at least £35 million in compensation being paid to disadvantaged customers.

Now, the firm’s annual financial results show that the cost of complaints in the 12 months to 31 March 2020 was £126.8m, compared to just £100,000 in the period ending 31 March 2019 – an increase by a factor of 1,268.

Annual revenue increased by 8.7% but the net loan book reduced by 9.1% over the 12 months. The impairment over revenue ratio rose to 38.5% from 23.7%, and the firm said that this was primarily due to the impact of coronavirus.

After making pre-tax profits of £111 million last year, the lender has reported a pre-tax loss of £37.9 million.

For many of the UK’s lenders recently, it has been a case of: if the FCA doesn’t get you, the FOS will.

Some lenders do not conduct a detailed analysis of applicants’ expenditure in each area of spending. Instead, many firms use an estimate of living expenses, obtained from the Office for National Statistics. This ONS figure is merely the average expenditure that would be expected from someone living in the UK with the profile of the applicant in question. Recent FOS judgements clearly show that the independent complaints body does not agree that using ONS data to estimate expenditure is appropriate.

In most of its recent adjudications on guarantor and instalment loans, FOS have concluded that the firm should have conducted a detailed expenditure analysis and verified any expenditure data supplied by the customers by asking to see their bank statements. FOS often decide bank statements are a necessary component of ‘proportionate checks’ even when the loan amount is as low as £1,000 and/or the loan term is as short as 12 months.

Many firms also specialise in lending to consumers with an impaired credit profile, and FOS often concludes that this is another reason not to use ONS data to estimate expenses, as an applicant with a poor credit history is unlikely to be a typical ‘average’ person.

Guarantor lenders’ business models work on the basis that they lend to applicants who would not have been accepted for a loan had they not been supported by a suitable guarantor. However, it is clear that FOS does not believe that this means the checks carried out on the applicant can be any less rigorous than would have been the case had they applied for a non-guarantor loan.

Finally, in some recent adjudications, FOS has been applying a very strict interpretation of CONC 5.2A.36 in the FCA Handbook. This rule reads:

“A firm must not accept an application for credit under a regulated credit agreement where the firm knows or has reasonable cause to suspect that the customer has not been truthful in completing the application in relation to information relevant to the creditworthiness assessment.”

For example, FOS has upheld recent complaints, using this rule as its justification, where the customer’s income on their payslips was lower than they had stated in their application. FOS did not believe it was enough for the firm simply to say that it used the lower of the two income figures in its affordability calculation.

Similarly, FOS has also upheld recent complaints on this basis where the monthly mortgage payment given by the customer in their application was lower than the payment stated in a bank statement or credit report. FOS doesn’t appear to be accepting the argument that the figure supplied by the customer could have been their personal contribution to the mortgage payment.

The FOS uphold rate for guarantor loan complaints in the 2019/20 financial year was 89%, increasing almost threefold from the previous year’s 32%.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

28Jul

Payment deferrals hit 1.7 million

As the financial effects of coronavirus continue to bite, loan and credit card providers have little choice but to continue providing interest-free overdrafts and payment deferrals and freezes to their customers.

Data from trade association UK Finance shows that the UK’s credit card providers have now granted more than one million payment deferrals, while personal loan providers have granted this facility to more than 700,000 customers.

More than one million of the total 1.7 million deferrals were provided in the three months between mid-April and mid-July.

The Financial Conduct Authority is now urging consumers who can afford to resume loan and card repayments to do so, but it is clear that a great many people are still suffering the financial consequences of the Covid-19 pandemic and require additional support.

A £500 interest-free overdraft has also been offered on more than 27 million bank accounts.

Eric Leenders, managing director of personal finance at UK Finance, said:

“Many borrowers facing financial pressures are taking up the measures being offered by lenders to help them get through this crisis. The banking and finance industry has a clear plan to help the country through these tough times and is committed to providing ongoing support to those customers who need it.”

Anyone adversely affected by coronavirus now has until October 31 2020 to request either a £500 interest-free overdraft or a three-month payment freeze.

When customers come to the end of a previously agreed payment freeze period, firms should contact their customers to find out if they can resume payments, and if so, agree to a plan on how the missed payments could be repaid. If the customer is still unable to make any form of repayment, they should be offered a further payment deferral. If they are able to make reduced payments, the firm must ensure that they only repay what they can afford.

As with previous FCA interventions in this area, any forbearance granted to a customer affected by Covid-19 must not have a negative impact on their credit file, and firms are responsible for ensuring that this does not occur.

Firms will also need to consider whether it is appropriate to refer customers to providers of free debt advice and other money guidance services.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

23Jul

Payday lender forced to write off £500,000 after failing to send statements as required 

A payday lender has been forced to write off £527,863 after failing to send statements as required to 15,218 customers over a 12-month period.

These borrowing statements need to be provided by lenders under the Competition and Markets Authority’s Payday Lending Order. The statements give information such as the amounts of interest and fees borrowers are expected to pay on their loans and when their next payment is due. The information is also designed to help customers shop around after concerns were revealed about the lack of competition in the payday loan sector.

In this case, the CMA said that it was especially concerned that the lender’s failure to provide the statements had adversely impacted a large number of vulnerable customers. By failing to provide the information as required, customers were unable to make informed decisions regarding their loans and some may have suffered detriment as a result.

The late statements have now been made available to the affected customers, both by email and online.

The CMA also says that the lender has put in place measures to ensure it complies with the requirement to send the statements in future.

Alistair Thompson, CMA director of remedies, business and financial analysis, said:

“The summaries we require payday lenders to send to customers are crucial in helping borrowers make informed decisions about their loans.

“While it is disappointing to see so many customers not being properly informed, [name of firm]’s commitment to writing off £500,000 in loans will help put this right.”

“We will continue to monitor the situation and will take further action if needed.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

22Jul

FCA wants to hear from firms who can assist mortgage prisoners

The issue of ‘mortgage prisoners’ – people who are trapped on unfavourable mortgage deals – has certainly attracted considerable publicity in recent years.

The Financial Conduct Authority has now invited the UK’s mortgage intermediary firms to get in touch with the regulator if they believe that they may be able to assist these ‘prisoners.’

The FCA estimates that there are 170,000 borrowers who have mortgages with closed-book firms or with unregulated entities, but who are up to date with payments and would be eligible to switch mortgages.

The administrators of these mortgages are required to contact the affected customers by December 1st 2020. The information that will be provided to these customers will include a list of mortgage intermediaries who may be able to assist, so any firm that wishes to be included on this list needs to apply to the FCA by August 6th.

To be eligible for inclusion on the list of intermediaries, a firm needs to meet all of the following criteria:

  • They must have access to mortgages that represent the whole of the market
  • They must either be able to advise on later life options, such as equity release, retirement interest-only mortgages and mortgages into older age; or they must have an established arrangement to refer these enquiries to another intermediary who can advise on these products
  • They must either be able to advise on debt consolidation, or they must have an established arrangement to refer these enquiries to another intermediary who can advise on this option
  • They must not charge a fee until an application is submitted to a lender
  • They must be willing to collect data on the support they have provided to the mortgage prisoners and to share this data with the FCA

The FCA suggests that suitable strategies for mortgage prisoners, depending on their individual circumstances, might include:

  • Switching them to a like-for-like re-mortgage, but with relaxed underwriting criteria, such as only requiring lenders to demonstrate that the new repayments are lower than those on the existing product
  • Later life lending options
  • Re-mortgaging to an interest-only product with some form of repayment strategy. This strategy could be the sale of the property where this is realistic
  • Re-mortgaging to a part capital and part interest-only mortgage
  • Debt consolidation

On July 13 2020, a cross-party group of MPs wrote to the Chancellor of the Exchequer, calling for a range of measures to be taken to protect mortgage prisoners, such as a cap on standard variable rate margins and a ban on mortgages being sold to private equity funds.

Another letter written by the MPs, to the Competition and Markets Authority, highlights that the average interest rate being paid by a mortgage prisoner is 4.4%, whereas a typical commercial mortgage interest rate might be around 1.8%.

Rachel Neale of the UK Mortgage Prisoners campaign said:

“Families are being crippled by these high-interest rates and aren’t able to live properly because of it. We need action immediately before things get even worse and drive people into further arrears or cause repossessions.”

A spokesman for the Treasury said:

“We know that being unable to switch your mortgage can be stressful. That’s why we’ve introduced rules that will make it easier for some customers to change provider, which we now expect to be in place by the end of the year.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

21Jul

Government confirms start date for breathing space scheme

The credit sector was already aware of a new requirement that would see providers required to provide 60 days’ breathing space to borrowers in financial difficulty, but now the Government has confirmed that the scheme will commence on May 4 2021.

Once the 60 days of breathing space has commenced, firms must refrain from applying interest and charges, and from taking action to recover the debt. During the breathing space period, the borrower is required to speak to a professional debt adviser. Hopefully, they will then put in place a plan to repay their debt.

For borrowers who are receiving mental health treatment on the NHS, the breathing space period will not end after 60 days and will instead last for as long as their treatment continues.

Debts to be covered under the scheme include credit cards, loans, council tax, utility debts and HMRC debts. Court fines, child maintenance payments, student loans and personal injury liabilities are not covered by the new scheme.

The Government estimates that the breathing space scheme will assist 700,000 people in the first year and will then assist more than 1.2 million people every year once the scheme has been up and running for 10 years.

Joanna Elson OBE, chief executive of the Money Advice Trust, said:

“Breathing space will provide the time and protections that people in financial difficult need to begin to deal with their debts and gives us a powerful tool to incentivise people to seek free debt advice.”

“As households deal with the economic and financial impact of the Covid-19 crisis, the benefits that breathing space will bring cannot come soon enough.”

StepChange head of policy Peter Tutton said:

“We look forward to working on the detail of implementation constructively with the government, to ensure that it fully meets the policy objectives of getting more people to the debt advice they need.”

Helen Undy, chief executive of the Money and Mental Health Policy Institute, said:

“This scheme could genuinely save lives. Everyone experiencing a mental health crisis should have the opportunity to recover free from escalating debt fees, charges and the threat of bailiffs arriving at their door.

“We are delighted that the Government acted on our call to protect people from being hassled about debts while they’re receiving crisis care, and we look forward to working with ministers to put these plans in place over the coming year.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

20Jul

Adviser trade body issues guidance on a return to office work for financial services firms

The Personal Investment Management and Financial Advice Association (PIMFA) has issued guidance to firms in the financial industry regarding how they might reduce the risk of Covid-19 infection in their offices. It comes as firms might be considering bringing more employees back to the office after an extended period of home working.

When employees work from the office, firms must ensure that their arrangements allow social distancing of ‘two metres’ or ‘one-metre plus’ to be maintained. One metre plus means that two people are only one metre apart, but additional mitigating measures are taken, such as they are sitting side-by-side or back-to-back, instead of face-to-face, or are separated by a screen.

PIMFA recommends that firms make the following changes to their offices:

  • Changing seating layouts so employees are no longer seated face-to-face
  • Reducing the number of people in enclosed spaces
  • Improving ventilation
  • Installing protective screens
  • Closing non-essential social spaces, perhaps asking employees to eat at their desk, or away from the building
  • Providing hand sanitiser on desks
  • Changing shift patterns so that some employees can avoid public transport at peak times. This can also avoid the problem of how to get everyone up to the office for the start of the working day – you certainly can’t ask people to pack into a lift in the present climate

Other measures firms might wish to consider include:

  • Cleaning the premises thoroughly ahead of any re-opening and repeating this cleaning exercise regularly
  • Discouraging handshaking and other close contact
  • Making sure employees are aware of what is expected of them, including the need to maintain social distancing of two metres, or one metre where additional measures are in place. They also need to be constantly aware of the need to wash and sanitise hands regularly. It could be helpful if the new Covid-19 ‘rules’ were displayed on posters around the premises

However, while the media might refer to these changes as making offices ‘Covid-secure’, of course, it is not possible for any firm to guarantee a completely risk-free environment.

The Government has said that, from August 1st, it will be up to firms to decide whether their employees should work from home, but that appeared to contradict advice given by the Chief Scientific Adviser, who said he saw no reason to change the previous working from home advice.

On the subject of home working, the Prime Minister said:

“It is not for government to decide how employers should run their companies. What we are saying now is if employers think it would be better and more productive for employees to come to office, and they can work in a safe way, there should be discussions between employers and employees and people should make a decision.”

In recent days, the media have been speculating for the first time about the possibility of face coverings being worn in offices. However, the Health Secretary has said they would not make much difference in an office environment and the Chief Scientific Adviser has said of face coverings:I don’t think it’s something you can wear all day in indoor environments.”

Regardless of what any firm might do to reduce the risk of virus infection in their offices, it’s hard not to argue that it’s safer when people work from home. RBS has announced that 50,000 of its staff will be allowed to work from home for the remainder of the year.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

16Jul

FCA proposes to extend period firms have to complete Certification assessments

In recognition of the additional pressures faced by some firms as a result of coronavirus, the Financial Conduct Authority has agreed to extend the deadline for completing fit and proper assessments of Certified Persons under the Senior Managers & Certification Regime. This deadline has now been extended from December 9 2020 to March 31 2021.

If they need the extra time, firms, therefore, have eight more months to assess whether the relevant employees are fit and proper to carry out their roles.

The FCA’s announcement of the extension does have some important caveats though:

  • If a firm is able to complete the certification process prior to March 2021, it should still do so. The FCA will still publish details of firms’ assessments of Certified Persons on the Register from December 9, as and when these assessments are completed and notified to the regulator
  • If a firm knows or suspects that an individual in a Certification role is not fit and proper, then the FCA’s announcement does not give it permission to wait until March to take action, and it is still expected to remove the individual from their role prior to this

The proposed deadline extension remains subject to a formal consultation.

The Certification Regime is the middle tier of the SM&CR. It applies to individuals within a firm who are not Senior Managers, but who still hold positions of responsibility, especially if their actions could have a significant impact on whether a firm’s customers are treated fairly. There is no need for individuals in Certification roles to be approved by the FCA, however, firms are still required to carry out their own annual fit and proper assessments.

Suggested examples of staff who might be covered by the Certification Regime include:

  • Head of HR
  • Head of Complaints Handling
  • Head of Product Design
  • Others with some form of supervisory responsibility

The FCA suggests that a fit and proper assessment of a person in a Certification role might include:

  • Criminal records checks
  • Obtaining regulatory references
  • Knowledge tests

An assessment of fitness and propriety must consider the individual’s honesty, integrity and reputation; competence and capability; and financial soundness.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.

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