Charities bracing themselves as nearly one third of Scots say they may need to take on debt to cover the costs of Christmas
Nearly one third of people in Scotland (29%) may need to take on debt to cover the cost of Christmas this year, according to a survey of 2,000 people carried out by Censuswide for charity The Big Give.
Nearly one quarter of Edinburgh residents (24%) are not looking forward to the holiday season this year, with money worries being the most common reason, the survey also found.
While lower than the national average (16%), a shocking 13% of Scottish residents are worried they may need to use food banks to help them manage this Christmas.
Thankfully, more half of respondents from Scotland plan to donate the same amount to charities over the Christmas period. Between rising financial concerns and the ongoing health crisis that is the Covid-19 pandemic, the work done by local charities is more important than ever.
A campaign organised by the Big Give and backed by celebrities such as Stephen Fry, Dame Judi Dench, Russell Brand and others is aiming to help.
The Big Give Christmas Challenge, the UK’s biggest Christmas coordinated fundraising appeal, is supporting over 900 charities to raise funds with the unique offer of matching any donations made during the week of 30th November – 7th December.
Alex Day, Director of The Big Give said: ‘Our study shows that, sadly, people across Scotland and the rest of the UK are facing an imperfect storm; High fuel prices, chronic mental health problems, rising debt, loneliness and fears about Covid-19 will mean that, for many, this festive period will be a far cry from picture perfect scenes portrayed on Christmas cards.
‘Some will rely on charities which will be further and further stretched as demand grows.’
‘That is why, for those who can, supporting charities is more important than ever. Through The Christmas Challenge campaign, we are offering to match any donation made to hundreds of amazing charities through theBigGive.org.uk. That means whatever you can give will go twice as far.’
The hype around Black Friday leads some shoppers to make impulse buys they later regret – with many using credit or borrowing from friends and family to fund their purchases, Which? has found.
Which? surveyed 2,000 members of the public to find out how they felt about items they bought in last year’s Black Friday sales and found that the majority who bought something in the 2020 sales regretted their purchases across five of the seven product categories featured.
Three-quarters (76%) of people who bought DIY products in the Black Friday sales later regretted these purchases.
Two-thirds (66%) of people who bought home appliances, nearly two-thirds (64%) who bought baby and child products, six in ten (58%) who bought health and beauty products and more than half (53%) who bought homeware or furniture also said they regretted their purchases.
The other two categories – clothing, shoes and accessories, and tech products – saw half (49%) and four in ten (41%) of shoppers feel regrets, respectively.
Three in ten shoppers (28%) who bought DIY products had to use credit or borrow from friends or family to pay for their goods, because they did not have the funds themselves.
Borrowing because they had no other way to pay was also common among customers who bought baby and child (24%), homeware or furniture (20%) and health and beauty products (20%).
The hype surrounding Black Friday can lead people to make rash decisions, sometimes skipping steps they would usually take before buying, such as shopping around and checking product reviews.
One in five people (20%) who bought home appliances felt pressured to rush into a purchase. These figures were even higher for people who bought DIY products, with 22 per cent feeling pressured.
To guard against any rash purchases, Which? advises consumers to do some research ahead of Black Friday, keeping an eye on prices for any potentially significant purchases before this year’s deals are announced so they have something to compare them to.
Previous Which? research has found that Black Friday deals are cheaper at other times of the year. The consumer champion’s Black Friday deals guide identifies the deals that offer the best discounts and is a helpful resource for shoppers to check during the sales.
If something catches their eye on the day, consumers can also use price tracker websites to help establish if they are getting the best price and check Which? reviews to see if a product is a Best Buy.
Ele Clark, Which? Retail Editor, said:“Our research has found that many people regret Black Friday purchases, as the hype around the sales pushes them to make rash decisions.
“More worryingly, some told us they had to borrow or use credit in order to fund their purchases, which could impact their credit score if they can’t clear the debt.
“Don’t feel rushed into making an impulse purchase. Thinking about what you genuinely want or need to buy in advance of Black Friday, checking product reviews and researching the item’s price history will help ensure you stay within budget and get the best value for money in the sales.”
JRF Study reveals scale of debt crisis among low-income households
Number of low-income households in arrears has tripled since pandemic hit
4 in 10 working-age low-income households fell behind on bills during pandemic
Millions are behind on rent and bills and have had to take on new borrowing
JRF calls for urgent action to support low-income families through cost-of-living crisis and prevent worsening wealth inequality
A large-scale study of households on low incomes has revealed the extent of the debt crisis hanging over the UK’s poorest families as the country braces to weather a cost-of-living crisis.
The analysis by the Joseph Rowntree Foundation (JRF) looks at households in the bottom 40% of incomes in the UK – those with a household income of £24,752 or less. This represents around 11.6 million households.
It estimates that 3.8 million such households are in arrears with household bills, totaling £5.2bn. 950,000 are in rent arrears; 1.4 million are behind on council tax bills; and 1.4 million are behind on electricity and gas bills. 33% of low-income households are now in arrears, which is triple the 11% estimated by a similar study prior to the pandemic.
Working-age households on low incomes (those aged 18-64) have been particularly hard hit: 44% are in arrears. For households aged 18-24 this rises to almost three-quarters (71%) of people being in arrears.
The survey shows clear signs that the profound financial impact of the pandemic has dragged families who were previously just about managing into arrears on essential bills. A large majority of households who are now behind on their household bills (87%) said that they were always or often able to pay all their bills in full and on time before the pandemic hit.
This is not surprising given people on low incomes were more likely to lose income during the pandemic due to job loss, reduced hours or being furloughed. Even before recent energy price rises began to bite, six in ten households on low incomes (62%) reported that their costs increased during the pandemic.
The other clear trend in the survey is the increased borrowing taken on by households on low incomes. Around 4.4million such households have taken on new or increased borrowing, and their total amount of borrowing comes to an estimated £9.5bn. 69% of households with new or increased borrowing are also in arrears.
The study highlights groups that have been hit particularly hard. Over half of the households in the following groups have been pulled into arrears:
Families with children (55%),
Households in London (55%),
Households with a person under 45 answering the survey (56%),
Black, Asian and minority ethnic households (58%)
Many families on low incomes are still reeling from the huge £20 per week cut to Universal Credit and Working Tax Credit earlier in the month. It is worrying that the survey was conducted in September when many of the households surveyed received the uplift which has now been removed.
Energy bills and other costs are continuing to rise, with the price of energy projected to soar further in the coming months. An increase in National Insurance contributions next April is another extra cost many working people will face.
Of the households surveyed who receive Universal Credit, 40% are not confident they will be able to pay their bills in full and on time, while 35% don’t think they will be able to avoid taking on more debt. Half (50%) of these households say they do not feel confident they can find a job or work more hours, calling into question the Government’s insistence on jobs as the only solution.
The comparison between how poorer and wealthier households have fared during the pandemic is striking. The Bank of England found that wealthier households have tended to accumulate savings during the pandemic.
These households were more likely to stay in work and to be able to work from home, reducing daily costs, and to save money during lockdown due to enforced saving. Homeowners also benefited from rising house prices.
JRF is urging the Government to put in place a package of support at the Budget to ease pressure on low-income households and prevent further debt.
As well as urging the Government to reinstate the £20 in Universal Credit, the report also recommends that the Government provide at least £500m additional grant funding via the Household Support Fund for targeted debt relief.
It is also essential to address the systemic drivers of debt including through writing off Tax Credit debts when people move onto Universal Credit and addressing Universal Credit advance repayments that many households have no option but to take on during the five-week wait for the first payment.
This flaw in the design of the benefit has long been criticised by food banks and anti-poverty groups for causing ‘destitution by design.’
Katie Schmuecker, Deputy Director for Policy & Partnerships at JRF said: “There is a debt crisis hanging over millions of families on low incomes. Behind these figures are parents gripped by anxiety, wondering how they will put food on their children’s plates and pay the gas bill; young people forced to rely on friends to help cover their rent and avoid eviction.
“While many households on higher incomes have enjoyed increased savings and rising house prices during the pandemic, people on low incomes are under serious financial pressure that shows no sign of abating. As a society, we believe in protecting one another from harm. As costs pile up and incomes have been cut, we urgently need to rethink the support in place for people at the sharp end of the cost of living crisis.
“The Budget is about priorities. We know the Chancellor is capable of taking bold action to protect people from harm when it is required. Reinstating the £20 per week increase to Universal Credit and boosting funding for councils to tackle debt must be priorities in next week’s Budget. We must give families the firm foundations they need to flourish and take part in our economic recovery.”
£10m to help people worst affected by pandemic to avoid eviction
Councils have been given £10 million to provide grants to tenants who have fallen behind on their rent as a result of the pandemic and are at risk of eviction.
The grants will help tenants who are struggling financially as a direct result of the pandemic, allowing them to reduce or pay off their rent arrears. They will be available to tenants in both the private and social rented sectors.
This is part of a package of measures available to local authorities to prevent homelessness, alongside Discretionary Housing Payments and advice on maximising income. The grants also come on top of the Scottish Government’s £10 million Tenant Hardship Loan Fund.
Housing Secretary Shona Robison said: “We have been doing all we can to support tenants who are struggling as a result of the pandemic, and this latest funding takes our total housing support to almost £39 million.
“These grants will support tenants and landlords who are willing to work together to address rent arrears and agree a repayment plan to ensure the tenant is able to avoid eviction.
“Councils have substantial experience in supporting people who have fallen behind on their rent, and are therefore well placed to work with both tenants and landlords in making use of this grant fund. Anyone who has been financially impacted by the pandemic and needs help to avoid eviction should contact their local authority housing department to discuss their circumstances.”
Councillor Kelly Parry, COSLA Community Wellbeing spokesperson, said: “We are working closely with the Scottish Government to support tenants through the grant fund.
“The pandemic has resulted in some facing a significant loss of income which has resulted in a proportion of these developing rent arrears. The fund is limited and therefore will be targeted at those most at risk of eviction, but will allow local authorities, tenants and landlords to work together to stay in their homes and prevent homelessness.
“Councils have a lead role in supporting a fair and inclusive recovery. Enabling people to sustain their tenancies helps maintain their important community connections.”
Nearly £1.5million will be allocated to Edinburgh to help those in social and private tenancies at risk of becoming homeless.
The aim of the fund is to provide an additional tool for the Council to help save tenancies, create sustainable housing solutions for individuals and prevent homelessness, alongside its other initiatives in place.
This includes the Council’s Private Rented Service (PRS) Team, which looks to help private renters keep their existing tenancy or to move to either a new private or mid-market rent secure tenancy, and the ‘multi-disciplinary response’ team which helps Council tenants who are struggling to maintain their tenancy or falling into rent arrears.
In addition Edinburgh Help to Rent, which is a service the Council contracts Crisis to deliver, provides rent deposit guarantee bonds.
Under Scottish Government guidelines, local authorities have to allocate the Tenant Hardship Grant Fund by the end of this financial year (March 2022). The Council is currently assessing eligibility criteria in order to support those most at risk.
Councillor Kate Campbell, Convener of the Housing, Homelessness and Fair Work committee said:“This money from the Scottish Government comes at a critical time. Between the cut in Universal Credit, the national insurance increase, the end of furlough, rocketing household fuel bills due to the energy crisis, and now the fuel crisis – households are being hit hard.
“We will use this money to help people who have fallen into rent arrears during the pandemic, to help prevent evictions, homelessness and the burden of debt being placed on vulnerable households. This is a lifeline that will help people to stay in their own homes.
“Our Private Rented Sector Team has stopped 427 households from becoming homeless in the last 18 months, while our multi-disciplinary response team is successfully supporting our council tenants who’ve fallen into arrears. This funding from the Scottish Government means we can do even more to prevent families and households becoming homeless.”
Councillor Mandy Watt, Vice Convener of the Housing, Homelessness and Fair Work committee said:“The work being done by the Council and in collaboration with partner organisations like Crisis has already made a big difference to preventing people from becoming homeless. But there is still more that needs to be done with around 6,000 people currently homeless in our Capital.
“As we come out of the Covid-19 pandemic, it could become even more difficult to find suitable accommodation for everybody who needs it. So the work of our prevention teams will be more important than ever.
“We will be working to identify those most at risk without delay because many people are already in financial difficulty and it’s likely to get worse as winter weather and rising energy prices put more strain on household budgets.”
Nina Ballantyne, Citizens Advice Scotland Social Justice spokesperson, said: “The Citizens Advice network saw a real spike in demand for housing-related advice during the pandemic. Our analysis suggests almost 300,000 people in Scotland missed a housing payment last year because they ran out of money before pay day.
“We called for more support for tenants and are delighted to see this fund launch – we’d now encourage people to seek advice on what support is right for them and make use of all the options available.”
Local advice is available from Granton Information Centre. Telephone 0131 552 0458, 0131 551 2459 or email info@gic.org.uk
Housing Secretary Shona Robison has welcomed new joint statements from landlords reaffirming their commitment to supporting tenants facing difficulties during the pandemic.
Signed by representative bodies for local authorities, housing associations and private landlords, the statements underline the sector’s commitment to only taking eviction action as a last resort.
The move follows this week’s announcement by Deputy First Minister John Swinney of a £10 million grant fund to support tenants struggling to pay their rent as a direct result of Coronavirus (COVID-19). The new fund takes the Scottish Government’s total support for tenants during the pandemic to almost £39 million.
Ms Robison said:“We have been clear from the outset that eviction action must be an absolute last resort, when all other avenues have been exhausted and a tenancy is no longer sustainable, so I welcome these joint statements from across the rental sector.
“The actions already taken by the Scottish Government, local authorities, housing associations and private landlords have been essential to avoiding evictions. Our new £10 million grant fund to support those who are struggling to pay their rent will shore up these efforts and extend more support to those facing crisis due to the pandemic. We will work towards making the grant fund available later in the year, and we will work with stakeholders over the coming weeks to develop the details.
“Paying rent is an important tenant responsibility, and tenants in financial hardship should engage directly with their landlord. When landlords are flexible with their tenants, signposting them to the range of financial support that is available and coming to agreements to prevent and manage rent arrears, this sustains tenancies and keeps people in their homes, benefitting everyone. These actions are crucial to move towards a sustainable and fair recovery from the impact of COVID-19.”
Cllr Kelly Parry, COSLA Community Wellbeing Spokesperson, said:“Local authorities have worked closely with tenants during the public health crisis, to support them to stay in their homes.
“This is something we were doing previously, but became even more important as our homes became even more important to us over the months of the pandemic. I am glad to see the sector restate their commitment to support tenants, and would encourage any tenant facing financial challenges to work closely with their landlord and seek advice and guidance early.”
Sally Thomas, Scottish Federation of Housing Associations Chief Executive, said:“Housing associations and co-operatives have always worked hard to help tenants who are struggling to pay their rent through tenancy sustainment services.
“This includes support to access benefits, budgeting advice, hardship funds and employability services – and this work has increased during the pandemic. They arrange manageable payment plans for tenants in rent arrears and will never evict someone who has agreed to, and is meeting, the conditions. Every effort is made to keep people in their homes.
“Any tenant who is struggling financially should contact their housing association or co-operative for support and help in paying rent.”
John Blackwood, Scottish Association of Landlords Chief Executive, said:“The overwhelming majority of tenants and landlords are working together to sustain tenancies during the pandemic.
“We welcome the Scottish Government emphasising that tenants have a responsibility to pay their rent, and encourage landlords to work with their tenants and always treat eviction action as a last resort. Our members have been working closely with tenants to reduce rents and write off arrears wherever possible.
“We strongly welcome the £10 million grant fund the Scottish Government has announced to help ensure tenants do not build up debt through rent arrears that they would struggle to repay. It is important landlords remain sensitive and constructive when working with their tenants, and that tenants struggling due to the pandemic speak to their landlord as early as possible.”
The shared statement on private landlords and letting agents working together with tenants to avoid evictions reads:
In responding to the effects of the coronavirus pandemic, there are many examples of private landlords and letting agents who have gone further than ever before to engage with tenants as more people find themselves in difficulty for the first time because of Covid.
As the country comes out of lockdown it is our shared commitment to make sure that tenants in hardship because of Covid continue to get support to pay their rent and living expenses and we will continue to work together collectively to ensure this is done.
The Scottish Government will continue to explore all options for policy and financial support to enable tenants to work with their landlords and letting agents; to be aware of their rights and responsibilities and support them to address financial hardship due to Covid-19.
Alongside existing support of extended notice periods, Discretionary Housing Payments and the Tenant Hardship Loan Fund this will include a new £10m Grant Fund package to support tenants in crisis who are struggling to pay their rent because of financial difficulty caused by the pandemic and help landlords to support them.
Where a private tenant has suffered financial hardship because of the Coronavirus pandemic, eviction action should be an absolute last resort, when all other avenues have been exhausted and a tenancy is no longer sustainable.
We advise that private landlords and letting agents continue to work to the following principles – for the remainder of the pandemic and throughout recovery:
Intervene early to keep people in their homes and give them the support they need to stay there
Landlords and letting agents should work with tenants who are struggling and support them to make arrangements to pay rent through a plan that is manageable for them in the long term
All landlords and letting agents should be flexible with their tenants, signposting them to the range of financial support that is available to help prevent rent arrears as part of the pre-action protocols required prior to any eviction application to the Tribunal or Sheriff Court.
Landlords and letting agents should act compassionately and quickly to support people who are in financial hardship and wish to work with their landlord to reduce arrears.
Paying rent is an important tenant responsibility and, where a tenant is able to do so, they must continue to pay their rent. To help do this, private landlords and letting agents from across the country have worked flexibly with their tenants to help them access the wide range of support on offer, and to sustain tenancies and prevent eviction action – as demonstrated in the annexed case studies.
Purpose of this statement
To set out the current levels of support available for private rented tenants and to reaffirm the flexible and supportive approach private landlords and letting agents should and in many cases have been taking to help keep people safe in their homes and avoid eviction where tenants are struggling through no fault of their own to manage their rent payments
To highlight real-life examples of private landlord practice since the start of the pandemic that has helped tenants in financial difficulty access support in order to sustain their tenancies.
A complimentary statement has been developed with social housing landlords.
The Scottish Association of Landlords PropertyMark The Scottish Government
The Money Map tool offers free, instant support and tips for those in Edinburgh feeling the financial impact of the pandemic
The COVID-19 pandemic has brought about unprecedented changes to everyday life and for many, it has impacted both personal and household finances.
Whether you’ve suffered a job loss, are self-employed, on furlough or are facing reduced hours or income, it’s a particularly challenging and uncertain time.
To help people face these challenges, Citizens Advice Scotland (CAS), supported by the Scottish Government, has created the Money Map tool.
The free, anonymous and easy to use online tool is a one-stop shop of financial support options. It brings together the many ways that people can maximise their money from benefits and grants to budgeting and tips on reducing bills such as council tax. It provides any related eligibility information and signposts people to websites where they can get more information or apply.
One of the main functions of the tool is to help minimise the stress of trying to find support through search engine browsing by bringing all the information and support together in one place. It includes a customised list function so users can save the support options that are of most use to them so that they can make sure they’re maximising their money as much as possible.
The Money Map tool contains helpful guidance for everyone, no matter their financial situation.
Myles Fitt, Head of Financial Health at Citizens Advice Scotland, runs through just some of the ways the Money Map tool can help you maximise your money at this time:
· Make sure you’re not overpaying on bills – A simple way to reduce your monthly outgoings can be by performing a simple price comparison on your bills, such as energy payments. The Money Map tool signposts users to websites that will help you discover what you can save by switching providers.
· Set a budget – This can be on a monthly, weekly or even fortnightly basis to suit your needs. A budget can help you get a true picture of your money and plan for the future. Money Map can point you to helpful resources for setting a budget, which can help you work out what you need and where possible savings could be made.
· Check you’re using the correct tax code – Make sure you check your current tax code to ensure you’re not paying too much in relation to your current financial situation. For example, if you are on a lower income, you are entitled to a different tax code and required to pay less tax. Money Map highlights how you can check your tax code and any entitlement to tax reliefs.
· Gain access to all the grants you’re entitled to – Grants enable families, students and individuals to boost their income or reduce the cost of everyday payments such as fuel payments or transport costs. Money Map points you in the right direction to access these.
· Check to see what Council Tax you should pay – By checking if you’re exempt from council tax or eligible to pay less, you can save money on paying this bill. The Money Map tool will point you in the direction of where you can check your eligibility. Last year, support from the CAB service saved clients an average of £380 in council tax payments.
· Ensure you receive benefits you’re entitled to – The Money Map tool will guide people to the appropriate online benefit checkers to make sure users are getting all the support they’re entitled to which can help meet specific needs like housing, childcare, disability and illness payments.
· Make the most of the Money Map tool – It’s there to help you. By using the bespoke list function, users can save the support options that are of most use to them so they can ensure they maximise their money as much as possible.
Communities Secretary Aileen Campbell said: “COVID-19 has impacted many people’s incomes and we know financial uncertainty is a source of worry for many people.
“This Money Map Tool provides information and support, helping people identify which benefits and grant support they may be entitled to. The Scottish Government is investing £330,000 to support the promotion of this online support service which signposts people to specific sites that can help them strengthen their financial position.
“The free, easy to use and anonymous website brings all information into one place, and can help people boost their income from sources such as grants or saving tips. I would encourage anyone concerned about money matters to use this service.”
Derek Mitchell, Chief Executive at Citizens Advice Scotland, said:“The Citizens Advice network in Scotland has been helping people for over 80 years and we want to ensure people get the help they need in a way that suits them.
“That’s why we developed the Money Map tool. We know how frustrating it can be searching endlessly online for support that is suited for you, our tool rounds up all the most helpful online sources and signposts people to where they can access and activate relevant help.
“The tool is open for absolutely anyone who is looking to boost their income or cut their cost of living. Whether that’s through access to grants and benefits or through lower bills, our Money Map can point people in the right direction.”
No matter what your circumstance is in 2021, if you are looking to improve your financial situation, think Money Map. Visit moneymap.scot
Free, independent advice is also available locally at Granton Information Centre, who have continued to operate throughout the coronavirus pandemic.
Contact Granton Information Centre by telephone on 0131 551 2459 or 552 0458, or emailinfo@gic.org.uk
Over three-in-ten people who have started claiming Universal Credit (UC) during the pandemic have either acquired new debts, or seen their existing debts grow, as the crisis enters its eleventh month, according to new research published by the Resolution Foundation.
The debts that divide us – which includes analysis of a detailed online YouGov survey, supported by the Health Foundation – explores how people who have newly claimed UC during the pandemic have coped financially, as well as their prospects for the coming months.
The Foundation notes that of the almost six million people who are currently claiming UC, around three-in-five made a new claim in 2020, including many of the 1.4 million people who made a new claim at the start of the crisis in April and May of last year.
The research finds that families newly claiming UC have taken a major income hit, even with the vital £20 a week uplift to UC. Almost half (45 per cent) reported seeing their income fall by at least a quarter, while around one-in-three (34 per cent) reported seeing their income fall by at least 40 per cent.
And with the pandemic-induced economic crisis having lasted almost a year, the research shows that the big income losses faced by people moving onto UC are taking their toll on their ability to cope financially.
The research finds that over three-in-ten (31 per cent) new UC families have either acquired new debts or seen their existing debts grow, while around one-in-five (21 per cent) have fallen behind on paying essential (non-housing) bills.
Looking ahead to the next three months, a period in which UC is set to be cut by £20 a week (from 5 April 2021), three-in-five (61 per cent) UC families say they will struggle to keep up or will fall behind on bills, around twice the proportion of families across the economy as a whole (31 per cent).
The Foundation says that the uplift to UC has been essential for protecting family incomes during a pandemic that is lasting far longer than anyone expected when the policy was announced back in March 2020. The uplift is likely to prove just as vital in the coming months too, as more people claim UC off the back of rising unemployment.
It adds that with millions of households claiming UC experiencing real financial hardship, cutting their support in just two months’ time would be a grave error – and extinguish any hopes of a living standards recovery this year.
Karl Handscomb, Senior Economist at the Resolution Foundation, said:“Over three million people have started claiming Universal Credit since the pandemic began, including 1.4 million people who moved onto the benefit right at the start of the crisis.
“As the pandemic reaches its eleventh month – a depressing duration few expected last March – the income shock from with moving onto Universal Credit has evolved into mounting debts and arrears on essential bills.
“The Chancellor was right to raise Universal Credit to support families through tough economic times. And with tough times set to continue as unemployment rises through 2021, this vital boost to family incomes must be maintained.
“Cutting the incomes of six million families in just two months’ time, when public health restrictions are still likely to be widespread, makes no sense politically, economically, or in terms of raising people’s living standards.”
The FCA has published a report on change and innovation in the unsecured consumer credit market following a Review by its former Interim Chief Executive, Christopher Woolard CBE.
The Woolard Review sets out how regulation can better support a healthy market for unsecured lending, taking into account the impact of the coronavirus (Covid-19) pandemic, changing business models and new developments in unregulated buy-now pay-later (BNPL) unsecured lending. The Review was commissioned by the FCA Board.
Christopher Woolard, Chair of the Review, said: ‘Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty.
‘Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.
‘Alongside these urgent issues the Review sets out a series of recommendations for how the FCA, working with partners, can build a better market in future.’
UK households have nearly £250 billion of outstanding consumer credit debt and more than 42.5 million people used consumer credit in 2019.
The Review sets out 26 recommendations to the FCA, sometimes working with Government and other bodies, to make the unsecured credit market fit for the future, including:
The regulation of unregulated buy-now pay-later: BNPL products which are currently exempt from regulation should be brought within the regulatory perimeter as a matter of urgency. The use of BNPL products nearly quadrupled in 2020 and is now at £2.7 billion, with 5 million people using these products since the beginning of the coronavirus pandemic. The emergence and expansion of unregulated BNPL products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm. For example, more than one in ten customers of a major bank using BNPL were already in arrears. Regulation would protect people who use BNPL products and make the market sustainable.
Debt advice: The provision of debt advice will be critical to a sustainable market in the long term, especially through the recovery from coronavirus. Free debt advice services need secure, long-term funding as demand increases to as many as 1.5 million additional cases, following the pandemic. Funding needs to be in place to help the poorest pay fees when applying for debt relief orders.
Forbearance: The FCA responded quickly and effectively in the emergency phase of the pandemic – it needs to sustain this response through the recovery, for example by looking at whether it should revise its rules and guidance to drive greater consistency in the type of support firms offer consumers struggling to pay.
Alternatives to high-cost credit: A sustainable credit market needs more alternatives to high-cost credit. The FCA should work with the Government and Bank of England to reform the regulation of credit unions and Community Development Finance Institutions. More should be done to encourage mainstream lenders into this space.
Outcomes focused: Regulation should be driven by the outcome being sought and how consumers use products in the real world. Regulation should deliver similar protections where consumers face similar harms. In addition to making sure products are affordable, there should be an increased focus on lenders meeting consumers needs’ for as long as they hold the product. The FCA should review repeat lending.
The FCA welcomes the Woolard Review report into change and innovation in the unsecured credit market and supports the recommendations directed to the FCA.The Board agrees that there is a strong and pressing case to bring buy-now pay-later business into regulation.
Charles Randell has written to the Economic Secretary to the Treasury setting out the Board’s view and proposing that the FCA works with the Government to design the appropriate regulation.
Ensuring consumer credit markets work well is one of the FCA’s five priorities. The Board has asked the FCA executive to build the Review’s recommendations into its business planning. The FCA will publish its 2021/22 Business Plan in April, and will give further details of the response to the Review.
Charles Randell, Chair at the FCA, said: ‘Unaffordable credit can damage the lives of people who are already struggling to manage everyday expenses. While we have made progress in reducing unaffordable debt in the years before coronavirus, the pandemic has had an unequal impact on households.
“Many people have been able to reduce their debts, but some of the poorest in our society have exhausted any savings or run up more debts. All the authorities which cover debt and debt advice must act together systematically to prevent problem debt and to help people get out of a spiral of debt through properly funded debt advice.
‘Regulation should be consistent and the Review shows how we can ensure high standards in consumer credit regardless of the form of credit.
‘The Review has powerful recommendations on debt advice and insolvency including on the IVA market. We are ready to work with other regulators to reduce the harm that IVAs can produce for people that use them, and to reduce the scope for unscrupulous operators to prey on vulnerable indebted people through for-profit debt packaging.
‘As the market innovates and changes, regulators and legislators need to respond quickly and decisively to protect consumers by facilitating credit where it is beneficial and clamping down on it when it does harm. The FCA agrees that there is a strong and pressing case to bring buy-now pay-later business into regulation.’
Over two thirds of student renters (69 per cent) are concerned about their ability to pay their rent
A third of students believe that they would not be allowed to leave their tenancy agreement early due to the pandemic
57 per cent of those who have been self-isolating have not received any support from their accommodation provider
22 per cent of students have been unable to pay their rent in full over the past 4 month
Over two thirds of student renters (69 per cent) are worried about their ability to pay rent with around a quarter having been unable to pay rent (22 per cent) or bills (27 per cent) during the pandemic, a new survey from NUS (National Union of Students) has found. International students and students of colour are most likely to be extremely concerned.
Almost half of students live in rented accommodation of some sort, with around a third believing they would not be allowed to leave their tenancy agreement early due to the pandemic.
These problems are likely to be exacerbated with the most recent lockdown announcement that has left the majority of student renters still liable to pay for accommodation that they are not allowed to access.
The Coronavirus and Students Survey phase III took place in November and involved over 4,000 students, building upon the previous research issued by NUS in April and September 2020. A quarter of students have had to self-isolate during last (Autumn) term, or are currently self-isolating, while a small proportion have had to lockdown.
57 per cent of those who have been self-isolating have not received any support from their accommodation provider. Students have called for more regular check-ins, financial support and food deliveries to support them.
The proportion of students living with parents/guardians has gone up since September, now representing 30 per cent of students compared to 21 per cent. Prior to the pandemic a quarter of students were living with parents indicating some students have had to reconsider their living arrangements as a result of the pandemic.
Hillary Gyebi-Ababio, NUS Vice-President for Higher Education, said: “It is astonishing that the UK government has placed students under lockdown yet are still requiring them to pay rent for accommodation that they cannot legally access. It goes to show the level of disregard that this government has for students.
“We need rent rebates immediately to ensure that students are not out of pocket for rental payments of properties they are not living in. Over two-thirds of students are already concerned about their ability to make rental payments, and this will have only increased with the most recent lockdown announcement.
“Students deserve better than to be financially punished for following public health guidance.”
Ellen Fearon, NUS-USI President, said: “Governments have been dodging the problems facing student renters throughout the whole of this pandemic. We have consistently raised the fact that students are in a unique situation, being unable to claim Universal Credit and therefore unable to access housing support if they lose their income, but these calls have fallen on deaf ears.
“In September students were brought back onto campuses only for many classes to be moved online in a matter of weeks and for some students to find themselves effectively locked in their halls. It’s not surprising that so many students feel they have been exploited for profit. Students deserve better than to be used to prop up a failing business model.”
Which? is calling for Buy Now, Pay Later firms like Klarna and Clearpay to be fully regulated to provide greater protection for consumers, as new research from the consumer champion finds concerning industry practices encourage people to spend more than they planned to.
The consumer champion’s findings show that these slickly designed, easy-to-access credit products are encouraging impulse buying, with nearly a quarter of BNPL users (24%) saying they spent more than they planned to because BNPL was available.
With one in ten (11%) BNPL users reporting that they have incurred late charges when paying this way, Which? is concerned about the dangers involved with this growing form of unsecured credit, particularly when the risks are not always made clear, and is calling for the financial regulator to be given new powers to fully regulate the BNPL industry to prevent consumers from being harmed.
The research suggests pushy marketing strategies, combined with sales features that make payment easier – such as ‘express checkout’ services on some retailers’ websites – could be driving people to overspend and leading to people falling into debt, a concern also shared by debt charities such as StepChange.
Which? also found that a quarter of BNPL users (26%) said they had not planned to use this type of payment option until it popped up at checkout, while two in ten (18%) said they used BNPL because they were offered a discount to do so.
One in ten (13%) also said they used it by accident because it was selected as the default payment option at checkout. One survey respondent said: “I was tricked into [using] it because the box was already ticked”.
BNPL firms also advertise heavily on their partners’ websites. Which? looked at 80 of these sites and found the largest BNPL ads take up as much as 80 per cent of the screen, with fashion retailers most likely to carry these prominent ads.
These factors are evidence of the firms’ application of consumer psychology to drive sales, a strategy one BNPL provider has promoted to its retail partners.
In 2017, Klarna, one of the leading BNPL firms in the UK, commissioned a study with the University of Reading into online shopping behaviour. The report, intended for partner retailers, explains how to design ‘customer journeys’ that will persuade people to make ‘emotional’ purchases instead of ‘logical’ ones.
However, as Which? research shows, these frictionless customer journeys can lead to shoppers spending more than they can afford, without necessarily being aware of the risks.
41 per cent of people in the Which? survey who were aware of BNPL either did not believe or did not know that missing a payment could lead to the BNPL firm passing your debt on to a debt collection agency.
As a result of its findings, Which? is now calling for providers of this type of BNPL service to be regulated by the Financial Conduct Authority.
In its submission to the regulator, the consumer champion said that, while supportive of innovation, it believes that the BNPL market must have consumer protections in place in line with other regulated unsecured credit products.
Giving the FCA the powers to regulate the BNPL market would allow it to more effectively monitor how BNPL firms treat consumers, and if necessary, take action to prevent consumers from being harmed.
Jenny Ross, Which? Money Editor, said: “While Buy Now, Pay Later services offer speed and convenience at the checkout, our research shows their design makes it far too simple for shoppers to spend more than they were intending.
“This could lead to people building up debts that they may struggle to pay back, which is particularly concerning if they don’t understand the risks of using this type of product.
“Given that many people’s finances are stretched now more than ever, we believe that the FCA needs to regulate this market to ensure consumers are not harmed and that action can be taken if these firms are treating customers unfairly.”
A spokesperson for Klarna responded: “While we cannot speak for the sector as a whole, it is wholly incorrect to claim that Klarna uses ‘pushy marketing strategies’. All Klarna customers are provided with our terms and conditions, which clearly outline the potential consequences of non-payment.
“If a customer misses a payment, we will proactively contact them to remind them via text, email, in-app notifications and letters. Klarna will only refer unpaid debts to a debt collection agency as a last resort after a period of several months.
“Klarna is fully engaged with the FCA review of the unsecured credit market.”
