Debt and the pandemic: what are the next steps to help people in financial hardship?

On Tuesday 1 December, the APPG Debt & Personal Finance held an online event on ‘Debt and the pandemic: what are the next steps to help people in financial hardship?’ Guest speakers at the event included Bim Afolami MP, along with representatives from the debt advice sector, the credit industry, and the Financial Conduct Authority.

Bim Afolami MP, PPS to Work and Pensions Secretary Therese Coffey said the Government had provided enormous support for incomes through the pandemic and is now focused on helping workers and creating jobs. Mr Afolami described the Kickstart scheme, a £2 billion Government programme intended to help 16-24 year olds into work, and prevent long-term youth unemployment.  

Mr Afolami acknowledged the Treasury has adopted a ‘wait and see’ approach on retaining the £20 a week uplift to Universal Credit. In the meantime, he is calling on Government to offer more support to credit unions, and said new forms of finance, allowing early drawdown of wages, would be important to help households through. In addition, Mr Afolami said unless Government focuses on tackling high housing costs, it will be unable to make a real dent into increased financial hardship.

Nisha Arora, Director of Consumer and Retail Policy at the FCA described a series of measures the regulator has taken which have offered widespread relief and support.  Since the start of the outbreak, over 3 million people have benefited from payment deferrals, without facing negative marks on their credit files, and the regulator has also banned repossession of homes until the start of February 2021.

Ms Arora said that while most people have been able to resume payments after a 6-month period, the FCA has taken renewed action since the start of the second national lockdown. This includes extending the application window for payment holidays to address renewed economic uncertainty, and issuing new guidance to ensure firms offer borrowers tailored forbearance and support.

Stephen Haddrill, Director General of the Finance and Leasing Association described how since the start of the crisis, the lenders FLA represents have provided coronavirus-related forbearance to over 1.75million borrowers. Mr Haddrill said lenders of all sizes should have equal access to Government coronavirus funding support schemes to ensure a level-playing field of support.

Mr Haddrill added that he would like to see changes to some of the provisions in the Consumer Credit Act which relate to how lenders are required to treat borrowers in financial difficulty. Mr Haddrill said that updating some of these provisions would enable lenders to offer more flexible forms of assistance.

Phil Andrew, Chief Executive of StepChange Debt Charity welcomed the measures Government, FCA and lenders have taken to support people through the crisis. However, despite these measures, around 7 million people have fallen into an additional £10 billion of coronavirus-related arrears and debt. Among those hardest hit, the number of households facing a crisis debt situation has doubled, with 3 million people facing a serious debt problems as a result of the pandemic.

Mr Andrew said people who’ve fallen behind on council tax and rents face significant dangers, and called on the Government to provide stronger legal protections.  Mr Andrew added that the Treasury should accelerate and repurpose plans for a Government-backed no-interest loans scheme. This would give people in priority arrears relief from acute payment pressures and a longer adjustment timeframe, helping to stave off harmful bailiff visits and evictions.

Questioned on what more could be done, Ms Arora said the FCA was looking hard at whether it needs to widen its coronavirus-related guidance and put it on a stronger footing.  In addition, the FCA is set to issue new vulnerability guidance in the new year. This will provide more impetus for firms to design products and communicate in a way that meets peoples’ needs.  

Mr Andrew added that the numbers turning to debt advice are likely to soar, and we need to brace ourselves for what’s coming. According to Mr Andrew, one bank is expecting 1.4 million real time conversations in the next few weeks and months. This will pose a huge challenge for ‘tailored forbearance’. StepChange’s covid payment plan will help people in short-term difficulties, but further debt advice funding and policy action from Government and regulators will be needed.