The Poverty Premium: A consumer perspective
On Monday, 22 February 2021 ESAN hosted the first of a series of special webinars. Carl Packman from Fair by Design, presented the findings of a recent PFRC report looking at recent changes in relation to the poverty premium (the extra costs of being on a low income) to understand how the costs and types of poverty premium have changed in the last few years.
National poverty charity, Turn2Us has launched a Coronavirus appeal in association with the Telegraph. Funds raised through the appeal will provide crisis grants to help people who are unable to work and who need money to pay bills or make essential purchases; as well as helping expand their online and helpline services for the increasing number of people in need of them. Turn2Us has seen
an unprecedented surge in demand for their services since the onset of the Coronavirus pandemic.
The FCA said 45,000 customers of the UK’s biggest payday lender would be compensated after it found that letters threatening legal action from non-existent law firms had been sent to customers, in an attempt to boost collections by increasing the pressure on people in debt. In some cases customers had been charged for the letters.
The practice ended four years ago before the FCA had responsibility for payday lenders and credit, so it does not have powers to fine Wonga. Which? welcomed the tougher line being taken by FCA on irresponsible lending. The FCA stated that it “expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments”.
Shelter warns that almost 4 million families are living without any safety net.
Some 3.8 million families have only enough money to pay their rent or mortgage for a month if they lose their jobs, the housing charity has said.
Shelter, which surveyed 7,500 people, said high housing costs and stagnating wages meant many were living on a financial knife-edge.
Shelter’s findings were based on a YouGov survey of 7,500 adults who pay rent or a mortgage. It says 44% of working families with children under the age of 18 could be one paycheque away from losing their homes if they became unemployed because they have little or no savings.
Its researchers also found that 29% of families would immediately be unable to afford to pay for their home if they lost their income.
Read more here.
The Financial Conduct Authority has confirmed the final rules that will govern the £200bn a year consumer credit market, which includes approximately 50,000 firms, from 1 April 2014.
The rule changes will give consumers additional protection from rogue practices and put the onus on credit providers to ensure that they treat customers fairly at all times.
The biggest changes come for payday lenders and debt management companies, including:
- limiting -overs to two
- restricting (to two) the number of times a firm can seek repayment using a continuous payment authority (CPA)
- a requirement to provide information to customers on how to get free debt advice
- requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money
Consumer credit providers will need to ensure that they give customers the right information to make informed choices, that their services meet consumer needs, and that people in difficulty are treated fairly. Read more here.
The FCA have also announced they will start a review of the market as soon as they take over responsibility on 1st April:
Payday lenders and other high cost short term lenders will be the subject of an in-depth thematic review into the way they collect debts and manage borrowers in arrears and forbearance, the Financial Conduct Authority announced on 12th March.
The review will be one of the very first actions the FCA takes as regulator of consumer credit, which begins on 1 April 2014, and reinforces its commitment to protecting consumers – one of its statutory objectives. It is just one part of FCA’s comprehensive and forward looking agenda for tackling poor practice in the high cost short term loan market. Read more here.
Money Advice Trust welcomed the rules saying:
We believe the transfer of regulatory control to the FCA will provide a boost for consumer protections. We especially welcome rules that require customers with high-cost credit in clear financial difficulty to be referred to free debt advice services. Nine out of ten people who speak to a National Debtline adviser say they feel more in control of their finances as a result.
The new two tier regime of regulatory scrutiny should help ensure consumers are protected from some of the worst practices in the industry. Mandatory affordability checks have the potential to prevent much of the harm we see in some credit markets, and so it is important these are rigorously enforced.
The review looked at how firms treat customers in arrears or financial difficulty. This is of particular concern as the possibility of interest rate rises looms. The review finds that arrears management in firms has improved since the last review. However, mortgage lenders and administrators need to place greater emphasis on delivering consistently fair outcomes for customers based on their individual circumstances.
FCA is working with industry to help them improve their practices. This includes better support and empowerment of front-line staff and greater flexibility to support fair treatment of individual customers, based on their specific personal and financial circumstances. FCA also wants firms to take proactive steps to identify borrowers who could be susceptible to potential interest rate rises and have strategies to treat these customers fairly.
Read more here.
This paper by Citizens Advice summarises the changes to benefits that have already taken effect and those still to come, and looks at what companies can do to identity customers in difficulty. It outlines steps companies can take to understand their customers, to proactively work with them, forbear from taking action that may make matters worse, and refer on those who need help.
It is also important that creditors are proactive in looking out for signs of potential financial difficulty and offering support accordingly. Forbearance and breathing space from their creditors will help customers who are having to adapt to a reduced income or a change in the way that their benefits are paid to avoid reaching breaking point.