FCA comments on consumer customers struggling with payments.

I’ve written quite a bit this year about individuals finding it difficult to make even minimum payments on credit cards, loans and mortgages. With the ending of Furlough this month and the new (quite different) job retention scheme starting next month, I worry for individuals who will have their incomes negatively impacted. The FCA have just released a response utilising the findings from their own consumer finance survey and some pathway for customers who are struggling.

The FCA highlighted that;

• Their recent survey shows that in July, 12 million UK adults had low financial resilience. This is of a particular concern for the coming period, as these people are the most likely to struggle. Of the 12 million, 2 million have been struggling since February this year
• Concerning is that 31% of adults have experienced a decrease in household income, with Black, Asian and Minority Ethnic (BAME) and young people most likely to be affected
• 36% of respondents who already had low financial resilience and a mortgage said they are likely to fall behind on mortgage payments; 36% of those with loans or credit cards are worried about repayments on these; and 42% of renters are worried about falling behind on rent payments.

In response to their survey, the FCA stated;

• Lenders should treat customers fairly
• That customers struggling should seek out help from their lenders and that a package of support will be available after 31st October, even if the customer had taken previous payment deferral
• Lenders should be flexible in their support and offer short and long-term option but tailored to that customer
• That Lenders should consider suspending, reducing, waiving or cancelling any further interest or charges and/or permit the customer to make no or reduced payments or determine repayment plans

My own experiences from conversations across industry in the last few months makes me feel that the response from FCA is timely and sensible. I mentioned yesterday that I spoke to retail and consumer finance firms over the summer, I had one particularly memorable conversation with a credit card firm. They had seen an unprecedented amount of balances paid back during April and May, only to have it all borrowed back again through the summer.

As we went into the Autumn, I was interested to see how the picture was evolving. Over the past few weeks, I have been asking a number of senior individuals from some of the same retail and finance firms and some new ones, whether they are seeing an uptick in the numbers of default notices, arrears and/or collections. They aren’t. The changes if any are small single digits movements and rather than a seismic change during the Autumn, it’s felt that it may start to bite in the run up to Christmas.

I asked one bank whether they had a different approach to dealing with customers in place surrounding Covid and particularly relating to vulnerable customers. The response from the Head of Compliance was that a vulnerable customer in 2019 should be treated the same as one in 2020, Covid or no Covid. This appears right to me. That said, she ended the call by saying that she was under a lot of pressure to do something differently but worried that this would lack consistently. It sounded tough.

With the figures from the FCA showing that people have little or no savings to fall back on and/or a decreasing or unreliable income stream; it could signal a number of unwelcome planets coming into alignment for both customers and banks alike.

To read the FCAs update in full click here or if you would like a conversation about what we have been seeing and how we are providing help, feel free to drop me an email.