Firms should learn lessons from the Covid-19 pandemic to help struggling customers

Sheldon Mills outlines the research behind the Borrowers in Financial difficulty project and what it means for firms and consumers.

The Covid-19 pandemic saw many people rely on government support to see them through an anxious and troubling time for many. Both consumers and small businesses also turned to credit facilities from lenders to help make ends meet.?

During this time of financial stress, the Financial Conduct Authority set out how we expected lenders to behave and issued guidance to make sure consumers and businesses alike were properly supported as some faced severe difficulties.?

We acted quickly to help consumers and businesses manage the financial impact with guidance, designed to enable lenders to support customers for mortgages , consumer credit and overdrafts which on the whole firms used positively.?

Our Borrowers in Financial Difficulty report??

We launched our Borrowers in Financial Difficulty project to make sure the good practices shown by firms during the pandemic were not forgotten and to call out those firms that did not appropriately help those customers finding themselves in financial difficulties.?

Our new report sets out how some firms must do a lot better to support borrowers in financial difficulty, such as encouraging customers to engage earlier when facing difficulties.?

While many firms did a lot of good through the pandemic, other lenders can build on that success by signposting to the availability of free, independent debt advice when appropriate and making sure their fees and charges are fair and no higher than necessary to cover the reasonable costs of the firm. Lenders should consider, when engaging with customers, whether it would be appropriate to reduce, waive or cancel fees and charges.?

So far 32 firms have been told to make changes to improve the way they treat customers after we looked at how they behaved during the pandemic and seven of these firms have agreed to pay ￡12m in compensation to nearly 60,000 customers.??

Our recent Financial Lives study found 7.8 million people are finding it a heavy burden to keep up with their bills, an increase of around 2.5 million people since 2020.?

It’s important for firms to make themselves aware why some consumers in financial difficulties don’t engage, so they can take steps to make borrowers more comfortable in approaching lenders.?

Our wider research revealed that among all borrowers in financial difficulty, 12% recall being contacted by one or more lenders, 28% proactively contacted one or more of their lenders to discuss their financial difficulties and 8% did both with different lenders. Many of those struggling were in denial that there was an issue, so didn’t want to contact their lender as this would mean acknowledging there is a problem. For others, we found they had so many credit products that it was too overwhelming to think about which lenders to contact.?

The research also shows that over half of the borrowers in financial difficulty had suffered a negative life event, through no fault of their own, and were facing financial difficulties as a result. Additionally, a significant proportion had physical or mental health issues, which needed to be taken into consideration when seeking support on their financial difficulties???

People with poor mental health or who were experiencing a negative life event, such as a bereavement, said they did not have the emotional strength to deal with the debt and contact a lender as they were dealing with their own personal challenges.?

To be clear, we are not asking lenders to carry out debt counselling activities. We are only asking that lenders consider what more they can do to help consumers understand the potential benefits of debt help or money guidance and to help them access these services, such as through the government backed MoneyHelper service.?

Given the exceptional challenges now facing consumers, it’s vital that the sector learns lessons from the pandemic. Firms must take immediate action to make sure they support customers now and in the challenging months ahead.??Where necessary, we will restrict or stop firms from lending to people until they can prove they can meet our requirements.?

As a regulator we want to work with firms to make sure consumers are not left high and dry during a difficult period, with our hopes of calmer waters soon.?