The Financial Conduct Authority (FCA) has reminded borrowers they can get help from their lenders if they are struggling to keep up with payments, as it found the number of people struggling to meet bills and credit repayments has risen by 3.1m since May 2022 (10.9m, compared to 7.8m in May 2022).
The number of adults who missed bills or loan payments in at least three of the last six months has also gone up by 1.4 million, from 4.2 million to 5.6 million over the same period.
The FCA has repeatedly reminded firms of the importance of supporting their customers and working with them to solve problems with payment, including by writing to industry bosses to make sure they are aware of the regulator’s expectations.
Where firms haven’t supported their customers properly, the FCA has told them to make changes. It reminded 3,500 lenders of how they should be supporting borrowers in financial difficulty and told 32 lenders to make changes to the way they treat customers. This work has led to £29 million in compensation being secured for over 80,000 customers.
As part of its Financial Lives survey, the FCA found that the cost of living is having an impact on people’s mental wellbeing. Around half of UK adults, or 28.4 million people, in January 2023 felt more anxious or stressed due to the rising cost of living than six months earlier.
Sheldon Mills, Executive Director of Consumers and Competition said: ‘Our research highlights the real impact the rising cost of living is having on people’s ability to keep up with their bills, although we are pleased to see that people have been accessing help and advice.
‘If you’re concerned about your finances, you do not need to worry alone. We’ve told lenders that they should provide support tailored to your needs. And, if you find yourself in debt or want to know more about how to manage your finances, free expert advice is available.
‘We will continue to act quickly to make sure financial firms help their customers who are facing financial difficulty or are worried they might be soon.’
The support needed to deal with the rising cost of living goes beyond what is provided by the financial services sector. As a result, the FCA continues to work with other regulators and debt organisations to drive better coordination and help make sure customers are treated fairly and supported if they get into financial difficulty.
The FCA will also be introducing the Consumer Duty in the summer. The Duty will be the driving force behind its consumer protection work, as it will require firms to act to deliver good outcomes for consumers and make sure that they are properly supported while using a financial product or service.
New regulations are to clamp down on unregulated Buy-Now Pay-Later creditors and ensure consumer protection
Andrew Griffith, City Minister will work with the financial services sector to ensure affordable credit is available to people who struggle to access it
At the “Financial Inclusion Policy Forum” in Birmingham the minister will meet debt advisors who will help deliver free debt advice to more than 1.5 million people in England over the next three years.
NEW regulations for Buy-Now Pay-Later consumers are set to help protect an estimated 10 million customers from unconstrained borrowing while still ensuring those who need it have access to interest-free credit.
With more people taking out these credit agreements and the potential risks of consumers being exposed to financial harm; the UK Government is setting out proposed new regulations.
It will mean Buy-Now Pay-Later credit products are set to be regulated by the FCA and consumers will have the new right to take complaints to the Financial Ombudsman Service.
Under new rules providers will have to give consumers key information about their loans and issue credit that is genuinely affordable.
Economic Secretary to the Treasury, Andrew Griffith said: “People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important.
“Today’s summit will also help regulators and banks better understand the best ways to support people who feel boxed in by debt and open up the financial system to people who find it more difficult to access.”
A summit of banks and debt charities will also be convened today by the City Minister who will urge the group to work together to improve financial education, ensure affordable credit is available to people who struggle to access it and remove the barriers which people with disabilities, like sight loss, can face when accessing financial services.
The latest “Financial Inclusion Policy Forum” will take place at the Money Advice Trust in Birmingham, bringing together the leading lights from the financial services sector, charities, consumer groups and regulators.
They will discuss the best ways to ensure access to affordable credit and remove barriers which people with disabilities, like sight loss, can face when accessing financial services.
Buy-Now Pay-Later can be a quick, easy, and helpful way for people to manage their finances, allowing them to spread the cost of a full purchase over time without paying interest.
However, because many of the agreements aren’t currently regulated and rely on minimal credit checks, lenders are not required to give key information to borrowers, and some people may end up borrowing more than they can affordably repay.
For those who are facing financial difficulty, new contracts awarded by the Money and Pensions Service this year are expected to provide free debt advice to more than 1.5 million people in England over the next three years.
During the forum the City Minister will also discuss the most effective ways to help those in financial difficulty.
Scotland’s largest independent funeral directors, William Purves, is fielding calls from several worried customers concerned about the implications of forthcoming funeral plan reforms.
From July 29th, organisations selling funeral plans will fall under the regulation of the Financial Conduct Authority (FCA) which will ensure that all plans are properly underwritten.
And while good news for customers in the long term, it is feared that many buyers will be out of pocket in the short term as some smaller funeral plan providers fold as they are unable to satisfy the FCA requirements.
Andrew Purves, Director of William Purves explains: “Customers who have purchased pre-payment plans designed to cover the cost of their funerals are naturally concerned about the implications of the reform.
“Thankfully we can put our customers’ minds at rest as in recent years our plans have been one of the big three providers. However, the stark reality is that some customers’ pre-bought funerals, particularly those bought from smaller providers, may not be honoured.“
A number of funeral plan providers have already decided to stop operating and have approached larger providers to take over their plans – sadly some are expected to fold as the July deadline looms.
Andrew continued: “My advice is if you have concerns or worries speak to the Funeral Director who you purchased the plan from, or the plan provider themselves, and ask what guarantees they can provide.
“We are in the process of contacting all William Purves pre-payment customers to update them on the situation.
“We welcome the regulation of pre-paid plans which are designed to protect customers and raise standards for plans sold in the future; however, this is of little comfort to those people who have taken steps to put their affairs in order and who may well be penalised.
“We will continue to keep our customers informed.”
Relaxed restrictions in Scotland offer the chance to make the most of many of the much-missed activities that the pandemic put a stop to, from concerts to theatre trips and holidays abroad. But before you splurge on some much-missed activities, consumer finance expert PAUL WILSON explains ways you could get your finances in order first.
With over 20 years experience in consumer finance, Paul has highlighted common pitfalls that consumers often fall into and the simple ways that consumers can get their finances in check whilst still making the most of the summer.
“Many Scots will be excited to make the most of the things that they’ve missed out on in the past year, from concert tickets to holidays abroad. But, whilst there’s temptation to splurge and ‘go all out’ this summer to make the most of the relaxed restrictions, it’s important to make sure that spending doesn’t get out of control.
“Having worked in the finance industry for 20 years, some of the most common money management mistakes I see people make are not actively monitoring and striving to improve their credit score, not setting and sticking to a monthly budget and spending beyond their means on what often turns out to be frivolous.
“As things open up more, it’s important for consumers to enjoy their money, without falling back into bad habits they may have broken in lockdown. There are simple tricks and spending behaviours that can be adopted to make sure people keep their finances in check.”
Cancel those unused, or under utilised, subscriptions
“For many of us, TV and entertainment subscriptions were an essential part of getting through lockdown. But as restrictions lift and it’s easier to do more of the activities that used to fill your time, you may find that some subscriptions go unused.”
“Check your subscriptions. It’s easy to sign up for a new subscription service – particularly when many companies offer free trial periods or low cost sign up offers – and then forget to cancel it. Or perhaps you have a number of subscriptions that you do use, but you could ask yourself how essential they really are. If you can live without it then you could save money by cancelling the subscription or choosing a cheaper alternative.”
Update your utilities providers
“The summer months are a great time to review your insurance and utilities providers. As things open up more, life admin tasks like this can fall by the wayside, so set aside some time to check your spending and see if you can get a better deal.”
“Shop around for all of your insurance and utilities. Generally speaking, loyalty doesn’t pay when it comes to products such as insurance, energy, broadband and TV, and there are usually cheaper deals for an equivalent product out there. So when it comes time to renew one of these products, don’t just accept the renewal price – use a price comparison service to check for the best deals available.”
Budget for your new lifestyle
“As tempting as it is to splurge this summer, make sure you properly budget all of your new spends, from setting aside a budget for going out and leisure activities to factoring in how much you want to spend on drinks at the pub or online shopping.”
“Calculate how much you have coming in each month and how much your essential financial commitments are (e.g. mortgage/rent, transport costs etc.) and therefore what you can afford to put away into savings and what your disposable income is. Once you have your budget – stick to it! Post it up somewhere in your house where you will regularly see it or set reminders on your phone to prompt you to check how you are tracking against your budget.”
Get on top of the weekly food shop
“For many of us, staying at home more often in lockdown meant spending more money on food and treats. So, the relaxing of restrictions is a great time to get on top of your food bill.”
“Save money on your weekly food shop by planning a menu and a shopping list to ensure you only purchase the items you need. Embrace batch cooking and freeze portions to be eaten at a later date – this may help avoid being tempted to use costly food delivery services when you haven’t got anything in for dinner. Consider choosing one of the budget supermarkets such as Aldi or Lidl for the bulk of your shop and downshift from brand name items to own-brand.”
Spend savvy
“With more people getting out and about and making the most of the summer, there’s more incentive to buy new things, from new holiday clothes to treating yourself to see a band you haven’t been able to see live since 2019. So, if you’re planning on treating yourself, try using comparison sites that offer savings incentives in order to get your money to go further.”
“There are a number of ways you can save money when you are purchasing online. Firstly there are cashback sites that offer money back in your pocket when you purchase via a special tracked link – it costs you nothing extra, takes just seconds longer, and if you were going to buy the product anyway it’s a no brainer. Secondly there are browser extensions and apps you can use to hunt out bargains. For example, InvisibleHand is a chrome extension that runs in the background of your browser and automatically notifies you if it can find the product you are shopping for at a lower price on another site. Similarly, Honey is an extension that automatically finds and applies discount codes at the checkout when you shop online.”
Think about your credit options for big purchases
“It’s great to see the travel corridor opening up and more countries being added to the green list so that everyone can get a much-needed summer holiday. But as tempting as it is to go away, it is important to properly review your finances before committing to a summer holiday.”
“Save up for big purchases wherever possible rather than putting them on credit. Taking the time to save the money can give you time to evaluate if the purchase is really something you want or need. If you have the cash up front it will save you money on paying any interest and avoids any potential damage to your credit score through missed repayments. And remember, it’s tempting to pay for the holiday of a lifetime on a credit card, but then you’ll be paying for that holiday many years after you’ve come back.”
Track your spending
“It can be very easy to lose sight of how you are spending your money so use a money tracking app linked to your bank account to ensure you keep track of every pound leaving your account.”
“Many money-tracking apps let you categorise spending and easily set budgets for different categories, such as shopping, eating out and groceries. This allows you to properly keep track of your personal finances and stick to your budget, as helpful notifications will let you know when you’re close to your budget for each category.”
Put savings away
“Don’t let the excitement of relaxed restrictions stop you from putting money away for a rainy day. Try to put a small amount away as soon as you get paid, or try saving a few pounds a week to kick-start your savings pot.”
“If you do have any left over cash at the end of the month, put it in a savings account and try to build up an emergency fund. As a general rule, you should ideally have 3 months worth of critical expenditure (rent, food, bills etc) in your savings account to deal with unforeseen circumstances such as a redundancy or replacing an essential appliance.”
Save on travel to work
“One of the best things that came out of the pandemic is the uptake of cycling, with millions of Brits getting on their bikes to enjoy exercise and space outside in lockdown. Whilst some offices are inviting staff back to work in the office, a blended approach of remote and office-based working has been adopted by many businesses, which takes the pressure out of travelling in peak commuting times.”
“If you can sacrifice the convenience factor, you can save some significant money on fuel and parking by ditching the car and walking or cycling whenever possible. For example, could you walk or cycle to work? Even if it’s just one or two days per week or even just when the weather permits, the money saved can quickly add up.”
“If I were to choose one of these tips as the most important, I would say that the additional benefits of walking or cycling – both in terms of the benefits to an individual’s health but also to the environment – make ditching the car more frequently the most important tip.”
Paul Wilson is a consumer finance expert at Financial Conduct Authority authorised and regulated credit broker Little Loans.
The IFB is warning new drivers to watch out for a rising scam known as ‘Ghost Broking’ which involves bogus car insurance deals being sold on social media, as it could cost them their first car.
The warning comes as hundreds of thousands of learners get set to pass their driving tests as they catch up from the disruption caused by Covid-19.
The Driver & Vehicle Standards Agency (DVSA) also provides comment.
Statistics and campaign content can be found in the notes to newsroom.
The Insurance Fraud Bureau (IFB) is urging new drivers to watch out for bogus car insurance deals being promoted on social media, as hundreds of thousands of learners* get set to pass their tests following a year of disruption caused by Covid-19.
Fake car insurance sales known as ‘Ghost Broking’ is a growing scam which involves fraudsters pretending to be Insurance Brokers in order to sell unrealistically cheap and completely fake policies, often to younger drivers via Facebook and Instagram.
With a large influx of new drivers on the horizon following confirmation from the Driver & Vehicle Standards Agency (DVSA) that driving test centres face an unprecedented challenge to reduce waiting times left by the pandemic, the IFB is warning new motorists to be vigilant to bogus car insurance deals on social media as it could cost them their first car.
Stephen Dalton, Head of Intelligence and Investigations at the IFB, said: “The last thing new drivers need right now is to risk losing their car for no insurance because they’ve been duped by a scammer on social media.
“Drivers must carry out basic checks to make sure they’re buying car insurance through a trusted provider, or they’ll be making a very expensive mistake.
“I encourage anyone who’s seen evidence of an insurance scam to report it to the IFB’s confidential Cheatline online or on 0800 422 0421.”
Mark Magee, Head of Driver Policy at the DVSA, said: “DVSA’s priority is to help everyone through a lifetime of safe driving.
“As well as ensuring you have the skills, knowledge and understanding attitude to drive safely, having valid insurance is of the utmost importance when you drive on your own.
“Check to make sure insurance brokers are genuine before parting with your money.”
Learner drivers in a driving school are typically covered by their instructor’s insurance policy, until they pass their test and need to take out motor insurance for their first car. With a rush of new drivers approaching and with so many people facing financial hardship, the IFB is concerned it will provide fertile ground for ‘Ghost Broker’ scammers.
Fraudsters often tempt younger people with their bogus car insurance deals by promoting unrealistically cheap prices up front, despite the fact insurance is meant to be priced based on the risk of the individual. They often then encourage contact with them through popular end-to-end encrypted messaging software such as WhatsApp.
The IFB which is a not-for-profit organisation that works with the police to crackdown on organised insurance scams has seen its investigations into ‘Ghost Broking’ double since 2016, and the scam has remained prevalent throughout the pandemic.
IFB investigations have found cash-strapped young drivers forking out hundreds of pounds for car insurance that in reality is worth no more than a photoshopped piece of paper. In some cases scammers also use stolen personal information to take out policies which are then doctored before being sold on to customers.
Driving without valid insurance is easily detected by police. Uninsured drivers can have their vehicle instantly seized and are likely to receive six licence points. They can also face court where they might receive an unlimited fine and a driving ban. Furthermore, an uninsured driving conviction will show on records and can affect job prospects.
If a collision is caused by the uninsured driver they may also be liable for covering the costs which can run into the thousands.
Avoiding fake car insurance deals
New drivers are urged to avoid deals on social media or messaging apps and to only purchase car insurance through reputable sellers.
This report examines the progress made by the Government in the implementation of the recommendations made by the Select Committee on Financial Exclusion in its 2017 report Tackling Financial Exclusion: A country that works for everyone?
In the Liaison Committee’s report Review of House of Lords Investigative and Scrutiny Committees: towards a new thematic committee structure published in July 2019, the Committee recommended that the Liaison Committee (on a case by case basis) could hold follow-up evidence sessions on a former special inquiry committee’s recommendations, followed by the publication of a report.
This is the third occasion on which this new procedure has been utilised.
The inquiry found that over half of the population are classed by the Financial Conduct Authority (FCA) as having characteristics of financial vulnerability.
This issue has been exacerbated by the COVID-19 pandemic with 14.2m people in the UK now estimated to have low financial resilience – characterised by over-indebtedness or with low levels of savings or low or erratic earnings.
Types of financial exclusion can include: not being able to open a bank account, not being able to access financial services due to bank branch and ATM closures, not being able to access affordable credit.
The report recommended that a clear Government strategy and increased FCA powers are brought forward in order to stop people experiencing financial exclusion.
The report calls on the Government to introduce a requirement for the FCA to establish a statutory Duty of Care that banks and other financial services providers must operate toward their customers. This should replace the current insufficient requirement to ‘treat customers fairly’.
Other recommendations in the Committee’s report, Tackling Financial Exclusion: A country that works for everyone? follow-up report are:
The proposed legislation to protect access to cash should be brought forward without delay.
The Government should publish the timescale and details on the no-interest loan pilot.
The powers of the FCA to mitigate the trends in bank branch and free ATM closures should be reviewed and enhanced.
The Government should continue to work with the Post Office and UK Finance to roll out a public information campaign about the banking services that the Post Office offers.
Baroness Tyler of Enfield, who was Chair of the Select Committee on Financial Exclusion, said: “It’s time for the financial services industry to recognise they have a fundamental duty to ensure that banks act in their customers’ best interests and that products and services are fair by design.
“That duty of care should now be established in law and overseen by the Financial Conduct Authority to ensure greater consumer protection and prevent banks and others from profiting from their customer’s vulnerability.
“The COVID crisis has laid bare the extent of financial exclusion across the UK. We continue have more than a million adults in the UK without access to a bank account and more than half the country now have characteristics of financial vulnerability.
“It is now more important than ever that Government come forward with a comprehensive financial inclusion strategy that will ensure access to cash, protect the public and end the scandal of the poorest being overcharged for financial and other services. The Government should publish that strategy within 12 months and allow Parliament to assess it and hold them to account for its delivery.”
Gareth Shaw, Which? Head of Money, said: “Millions of people rely on cash as they are not ready or able to take advantage of digital payments. However, rapid closures to the cash machine and bank branch networks in recent years mean that many of these consumers risk being abandoned by their banks.
“Our research has shown that people in some deprived areas have seen significant cuts to free ATMs in recent years, while a domino effect of bank branch closures has taken place without enough regard to whether suitable alternatives are in place.
“The government must urgently set out its vision for the future of cash, including its promised legislation to protect access to it. This should include putting the FCA in charge of the cash system so that it can take the steps that are needed to ensure cash remains a viable payment option for as long as it is needed.”
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.”
The Financial Conduct Authority (FCA) has today announced proposals which will continue support for customers who are struggling to pay their mortgage due to coronavirus (Covid-19).
The proposal outlines the options firms will be required to provide customers coming to an end of a payment holiday, as well as those who are yet to request one.
For customers yet to request a payment holiday, the time to apply for one would be extended until 31 October 2020.
For those who are still experiencing temporary payment difficulties due to coronavirus, firms should continue to offer support, which could include extending a payment holiday by a further three months.
Christopher Woolard, Interim Chief Executive at the FCA, said: “Our expectations are clear – anyone who continues to need help should get help from their lender.
“We expect firms to work with customers on the best options available for them, paying particular attention to the needs of their vulnerable customers, and to provide information on where to access help and advice.
“Where consumers can afford to re-start mortgage payments, it is in their best interests to do so. But where they can’t, a range of further support will be available. People who are struggling and have not had a payment holiday, will continue to be able to apply until 31 October.’
If the proposals are confirmed, the FCA would expect:
Customers who can afford to return to full repayment should do so in their best interests – at the end of a payment holiday, firms should contact their customers to find out if they can resume payments and if so, agree a plan on how the missed payments will be repaid.
Anyone who continues to need help gets help – lenders should continue to support customers who have already had a payment holiday where they need further help. Firms are expected to engage with their customers and find out what they can re-pay and, for those who remain in temporary financial difficulty, offer further support. As part of this firms should consider a further three-month payment holiday.
Extending the time the scheme is available to people who may be impacted at a later date – customers that have not yet had a payment holiday and experiencing financial difficulty will be able to request one until 31 October 2020.
Keeping a roof over people’s head during a public health crisis – the current ban on repossessions of homes will be continued to 31 October 2020. This will ensure people are able to comply with the government’s policy to self-isolate if they need to.
Payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.
This guidance would not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.
Firms should consider signposting customers towards sources of debt advice. Debt advice may be helpful for customers coming to the end of payment holidays and may be particularly useful for consumers with pre-existing payment shortfalls or who are likely to be in longer-term financial difficulty.
When implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and consider how they engage with them. For customers who aren’t able to use online services (such as digital channels), firms should make it easy for customers to access alternatives.
The FCA welcomes comments on these proposals until 5pm on Tuesday 26 May and expects to finalise the guidance shortly afterwards.
This guidance only applies to mortgages. It does not apply to consumer credit products which are covered by separate guidance which will be updated in due course.
Gareth Shaw, Head of Money at Which?, said: “The extension of these measures will bring relief to people who would otherwise struggle financially during the challenging months ahead.
“Mortgage lenders should make the process as straightforward as possible, ensuring people can easily access the support they need.
“Consumers should also consider their options carefully as a mortgage payment holiday will likely lead to increased payments in the future – so it is likely to be in their interest to continue making payments as normal if that is feasible.”
The Financial Conduct Authority (FCA) has today confirmed a package of targeted temporary measures to help people with some of the most commonly used consumer credit products.
Following a short consultation the FCA will be going ahead with the proposals outlined last week, which will give firms the flexibility under our rules to provide temporary financial relief to those facing payment difficulties during the coronavirus (Covid-19) pandemic.
Christopher Woolard, interim Chief Executive at the FCA, said: ‘We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic.
“The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time. The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.
‘Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.
‘We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week.’
The measures include firms being expected to:
offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus
allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months
make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force
ensure consumers using any of these temporary payment freeze measures will not have their credit file affected
The rule changes will be in force from today and the full range of measures will apply by Tuesday 14 April 2020.
This is to allow firms time to ensure they have the appropriate level of resources available to handle customer requests. All firms will be ready to receive customer requests by 14 April, although some firms including the major banks and building societies, will be adopting the changes today.
Consumers should check firm websites or social media posts for more information, and where possible use online services to request assistance.
This will reduce the pressure on firm call centres who are experiencing a high demand in calls due to the current pandemic situation. If consumers need to get in touch by telephone please be patient and, if you can, wait until after the Easter weekend, even if your lender is offering help sooner than the 14 April 2020.
In response to the consultation, the guidance now includes clarification on which products are in scope. In particular, the FCA are confirming that the following products are covered: guarantor loans, logbook loans, home collected credit, a loan issued by Community Development Finance Institution and some loans issued by credit unions, but only where these are regulated. The guidance also applies to firms which have acquired such loans.
These measures won’t replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty. Consumers in financial difficulty should contact the Money Advice Service (MAS) for further guidance.
Which? is calling on the financial regulator to urgently provide greater clarity on temporary measures to help people struggling financially because of coronavirus, as new research reveals the huge toll the outbreak is expected to take on people’s finances.
A survey by the consumer champion carried out between 20-22 March, just before the government asked people to stay at home to stop the spread of coronavirus, highlights that significant numbers of people are expecting to struggle with their finances over the next year.
With the Financial Conduct Authority (FCA) set to introduce temporary measures tomorrow designed to help consumers falling into financial difficulty as a result of the crisis, Which? can reveal people of all levels of working status are now expecting their household finances to worsen over the next 12 months, with those who work part time reporting the highest level of concern.
Taking the proportion of people expecting their financial situation to get better and subtracting the proportion who expects it to get worse, confidence among part-time workers was at -56 percentage points. The figure stands at -36 for those in full time work.
Of those that are retired, confidence in the future of their household finances stood at -49 for those on a state pension only and -45 for those with a private pension.
The research also shows that consumer confidence in the economy has plummeted. When asked whether the economy would be better or worse in 12 months’ time, confidence fell from -17 in February to -78 in March.
Worryingly, the financial impact of coronavirus follows a period in which large numbers of people were already reporting having cut back on spending, with 39 per cent of consumers in 2019 reporting that they reduced spending on essential items or took money from savings to cover their spending.
This indicates that a significant number of people may have already been close to the point of relying on credit to help manage their personal finances, and the impact of coronavirus could have pushed them to the point where they now need to depend on existing credit cards, loans or overdrafts.
Measures proposed by the FCA last week, due to come into force on Thursday, are designed to provide a temporary solution for consumers who until now have been financially stable. These include a temporary payment freeze on loans and credit cards as well as zero interest on existing overdrafts up to £500, with both put in place for three months.
However, while Which? is generally supportive of the plans, reassurance is needed that the measures can be consistently applied for customers across all banks, and that customers who take up these options will be fully aware of any longer term implications of using them.
This requires the FCA to be as explicit as possible about precisely when the payment holiday period starts – whether it is from the proposed launch date of 9 April, or from the moment the consumer requests support at any point during those three months.
There also needs to be a clear, industry-wide exit strategy for the temporary measures, which must ensure that customers do not end up in unnecessary financial hardship.
There is particular concern about how consumers will be moved off of their £500 interest free overdrafts after three months.
The consumer champion says it is vital that banks do not immediately place consumers back to their original arranged overdraft and rates at the end of any holiday period, and the FCA should consider “easing off” interest-free overdraft arrangements in a way that does not affect credit scores.
The consumer champion believes that greater transparency will make it easier for people to access services online and make it clear that only those in the most urgent need should seek to directly contact their financial institutions. This should reduce the burden on call centres, providing a greater chance of consumers getting the help they need in good time.
Gareth Shaw, Head of Money at Which?, said: “The impact of the coronavirus outbreak is going to cause a sharp shock to huge numbers of people across the country, and many who were previously in good financial health will now require help from their banks to see them through the coming months.
“While the FCA has taken positive steps to provide assistance, there needs to be urgent clarity so that banks can apply this support consistently for everybody who is eligible, and customers can decide whether these measures represent the best option available to them.”
