Highlighted concerns from Reports about Borrowing Post Covid - Personal Debt
The Report from the All Party Parliamentary Group (APPG) on Alternative Lending May / June 2020 - included the following about Personal Debt.
The report was intended to help with the response to Covid, so that borrowers are better protected and adequately served, and able to play an active part in our economic recovery.
Money Advice
The Government in June announced an extra £38m given the expected rise in debt cases in the aftermath of Covid.
However it was noted that whilst this will help to alleviate capacity problems, the agencies will need to find ways to help new debtor groups they have not encountered before at scale, such as the self-employed and the formerly ‘Better-off’.
Forbearance
The Financial Conduct Authority (FCA) responded quickly to alleviate borrowing-related problems by instructing lenders to offer payment deferrals’, which has subsequently been extended.
This too was necessary, but lenders will need to be able to use a wider toolbox of forbearance measures to bring borrowers’ accounts back under control, instead of just one remedy, the ‘payment holiday’.
Access to Credit
Similarly, with regard to access to credit, consumers will need safe, available sources of liquidity to help them to deal with disruption to their budgets and play an active role in the recovery.
It was noted that existing “Alternative, not-for-profit lenders” will only be able to meet a fraction of the demand; ministers and regulators need to ensure a viable mix of alternative and commercial providers to ensure the availability of credit at sufficient scale.
Despite positive sounds from the Treasury at the time of the evidence sessions, ministers have since announced there will be no Bank of England funding for Non-Bank Lenders (NBL’s).
In their view this is an oversight: NBLs are the ‘small boats’ that provide loans to individual borrowers who banks won’t touch.
Their inability to lend due to lack of funding would significantly hamper the recovery.
Bailiffs and Debtors
Concerns about public sector debt management techniques have been widely aired. It was noted therefore, the Cabinet Office’s consultation on ‘Fairness in government debt management’ announced in June was welcome. A Government Debt Management Bill, plus a pre-action protocol to prevent any immediate bailiff action against debtors, are ideas well worthy of close ministerial consideration.
Credit Files
On consumers’ credit files, again, the FCA moved quickly to prevent the reporting of ‘payment holidays’ back to Credit Reference Agencies. This might have helped in the short term, but it will leave ‘black holes’ in consumers’ files for the long run.
The FCA and the CRAs need to quickly find a way to restore the integrity of credit files, otherwise both lenders and borrowers will suffer.
Fears over Illegal Lending
The Panel heard a consistent message about the risk of increased illegal lending as a result of Covid: job losses and tighter underwriting policies create perfect conditions; lending business closures and new forms of online illegal lending greatly exacerbate the threat. It was noted that the Government should address the risk as a priority, through a combination of preventive and punitive measures, as detailed in the findings section of the Report.
Bloom’s comments on the Report
Bloom considers that the report was overall very constructive but yet again it appeared to miss the main problem - the lack of coverage available of alternative fair finance lenders in the UK.
Please note the following facts about existing Credit Unions and Responsible Finance Organisations (RFO's) in the UK
Bank of England statistics issued on 28th August 2020, shows there are now just 277 remaining Credit Unions in England, Scotland and Wales with 145 in Northern Ireland.
The Community Investment Steering Group Report Nov 2019 - Scaling up Community Investment in the UK states that there are only 23 active RFO's in the UK.
From these statistics it estimated that no more than 5 - 10% of the UK has any coverage available from a Credit Union or a RFO. There are 69 cities and over 48,000 towns in the UK. In the last 10 years many Credit Unions have been closed and NO services replace those lost to the massive detriment of the Community in which they were based.
Additional Observations
The Chief Ombudsman, Caroline Wayman from the Financial Ombudsman Service (FOS) has recently made the following observations.
When the last financial crisis hit, payday lenders grew out of consumers’ need for cash at a time of low wages and banks’ lack of appetite to lend. 2.
She says the constantly evolving credit market creates challenges for the service, especially given that some of the legislation governing it dates back to the 1970s.
The financial regulator’s decision (FCA) to force lenders to offer payment holidays has kept people from the ombudsman’s door so far, but the service is keeping an eye on complaints.
“We stand ready to help people who do have concerns,” she says. “But it would be good to try and get ahead of that wherever possible and help people to transition out of those arrangements. That’s not for us to do, but where we can contribute is being able to share insight from what we see in our cases and the things that can go wrong.”
