Spending squeeze and Universal Credit cut will plunge people into financial hardship: FCA
Nisha Arora, the FCA’s director of consumer and retail policy, gave a speech at the Westminster Business Forum, on debt regulation: Regulating for better outcomes – next steps in consumer credit | FCA.
Sarah Coles, personal finance analyst, Hargreaves Lansdown said: “The spending squeeze and the Universal Credit cut will plunge people into financial hardship, and could leave them at the mercy of companies taking advantage of their desperation. The FCA has warned that a wave of financial problems is on the way, and says it’s working to protect people from poor practice within the credit industry that can do even more damage when people are at their most vulnerable.
It’s been a perfect storm. We’ve been hit with soaring energy bills, fuel prices, and food costs, at a time when people are already reeling from the withdrawal of furlough support and the removal of the £20 a week uplift in Universal Credit. Even before these changes, HL research showed that 8% of people were struggling, and 24% were just about getting by, so we can expect these numbers to be climbing.
In a speech today, Nisha Arora, the FCA’s director of consumer and retail policy, said many people will fall into financial difficulty in the coming months. The FCA will be working with lenders to make sure they’re thrown a lifeline. It’s also cracking down on bad practices among some of the providers that vulnerable people tend to turn to when they hit problems with debts.
It highlighted the companies that advertise debt advice, but essentially charge fees to package up debt, and have an incentive to recommend expensive options. In July, after it reviewed the market, five companies stopped offering regulated debt advice, and it used its formal powers to stop a sixth.
The FCA is also looking into high cost credit, and while this covers a massive range of different kinds of lending, Arora pointed out that complaints to the Ombudsman about this kind of debt are rising and 60% of them are upheld. This indicates that they’re granting significant numbers of expensive loans to people who should never have had them.
At this end of the market, it’s a delicate balance, because they’re trying not to cut people off from formal debt at the point when they need it most, because it would raise the risk of them turning to informal and often far riskier debt. Yet the FCA needs to make sure they’re not allowing these formal lenders to make life even harder for desperate borrowers in the long run.
If you hit financial trouble, you don’t have to go it alone, and you don’t need to turn to expensive companies charging fees to help. The best place to start is with a debt charity like National Debtline or Stepchange. They won’t charge to help you, and will talk you through all your options to help you find the solution that’s right for you.”