The Financial Conduct Authority (FCA) wants lenders to take more responsibility for their borrowers, by offering support for consumers who are in financial difficulty, and showing flexibility towards debt repayments.
This will form part of the FCA’s “phase three” plan to manage the consumer credit markets during the Covid-19 pandemic.
In a speech given at the Financial Leasing Association conference, the FCA’s director of consumer and retail policy, Nisha Arora, said that the pandemic has highlighted the need for the regulator, the government, industry and consumer and debt advice organisations to work together to ensure that consumer credit markets work well for consumers.
In her speech, Arora outlined the measures which have already been taken by the FCA to ensure that customers are treated fairly, given clear, accurate information, and are able to avoid getting into unaffordable debt.
Where consumers are in financial difficulty, she said that the FCA is keen to ensure that they get the right support at an early stage to avoid debt escalating and consumers experiencing significant hardship.
This is particularly true during the pandemic, she added.
According to a recent survey conducted by the FCA, more than a third of people taking deferrals on consumer credit products expected to fall behind on loan payments, and four million adults say they are very likely to seek debt advice in the next six months.
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“We know that between February and July, the percentage of adults with low financial resilience increased from 19 per cent to 23 per cent, and that 24 per cent of adults believe they will come out of the pandemic in more debt than before,” said Arora.
She added that the FCA has created a three-phase plan on how to deal with the credit issues which have emerged as a result of the pandemic.
Phase one involved the regulator working with consumers to deliver “quick, clear, and simple support that was easy for consumers to understand and easy for firms to operationalise”. This included offering three-month payment deferrals for those financially impacted by Covid.
Phase two began in June, and involved extensive research by the FCA. The regulator found that while a majority of people coming to the end of their initial payment deferral would be able to restart repayments, others would need to continue the support they had. This led to an extension of the payment deferral support to 31 October.
Phase three begins on 1 November and will build on the FCA’s existing forbearance framework. This involves a need for financial services firms to contact customers at an early stage to provide appropriate support to avoid them getting into difficulty, to show flexibility in the support that they offer, to recognise signs of vulnerability, and to emphasise the need for lenders to play a role in supporting customers through money guidance, and to signpost or refer customers to debt advice if needed.
Furthermore, during phase three, the FCA has decided that the support customers receive may be reflected on their credit files in accordance with normal reporting processes.
“This will help to ensure that lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending,” said Arora.
“Over the next months, we will be supporting firms to apply the guidance,” she added.
“Given changing circumstances, we will be keeping the guidance under regular review to ensure it has the intended impact, and within six months will review whether it remains relevant to the crisis situation and provides the necessary support, or whether changes or different measures are needed.”