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StepChange response to FCA consultation on support for borrowers in financial difficulty

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The FCA consulted on changes to rules and guidance designed to ensure regulated financial services firms better support customers facing payment difficulties.

StepChange welcomes the FCA’s proposals. Widespread financial precarity means that financial difficulty is common among those who hold unsecured credit products and mortgages. In May 2023, 44% of UK adults reported finding it difficult to keep up with household bills and credit commitments, while 8% met StepChange’s definition of severe problem debt.

Currently, too many people who need support to address debt problems either do not get help, or get the help they need too late. When people experiencing financial difficulty do seek help, that help is too often ineffective.

In our client surveys, half of respondents tell us that they were in difficulty for over a year before they accessed debt advice, while recent research commissioned by the FCA shows that the extent and effectiveness of creditor support for those struggling with debt repayments is variable.

Not accessing help, accessing help too late or being let down by poor support lengthens and deepens financial difficulties unnecessarily, results in fewer options for customers to resolve their issues, and causes worse outcomes and additional harm to those affected.

StepChange has also highlighted a specific problem of ‘safety net’ borrowing, currently affecting an estimated 13% of UK adults, where using credit to keep up with bills and existing credit commitments leads to poor outcomes.

We welcome the FCA’s proposals to bring key elements of the Tailored Support Guidance (TSG) into FCA rules and guidance. Shifting the focus of intervention to an earlier stage, taking steps to improve the effectiveness of signposting to money and debt advice, and strengthening requirements to agree sustainable forbearance and repayment agreements has significant potential to improve outcomes for struggling consumers.

However, we are also disappointed the proposals focus narrowly on transposing and updating elements of the TSG and do not incorporate important learning from the impact of payment deferrals.

The Consumer Duty rightly places a central focus on good outcomes as an organising principle of financial services regulation. However, the proposals in this consultation are not yet fully aligned with the Duty.

An effective strategy to address barriers to improving support and delivering better outcomes for customers in financial difficulty must be cross-cutting and address issues including:

  • The need for firms to develop and maintain an evidence- and data-driven early intervention strategy, focused on a proactive approach to identifying signs of pre-arrears difficulty and intervening effectively, building on learning from repeat overdraft use rules.
  • The central importance of a simple, clear and attractive offer of help to engage struggling consumers, building on learning from pandemic payment deferrals (and more recently the Mortgage Charter agreed with lenders).
  • Changes to credit information to ensure the system is effective at enabling firms to identify difficulty promptly, provides reassurance to consumers that they will not be disproportionately punished for seeking help and rewards those who maintain repayment agreements (building on the early steps of the Credit Information Market Study proposals).
  • Targeted changes to rules and guidance concerning revolving credit that have a direct impact on creating, extending and deepening financial difficulties journeys, shaped by the Consumer Duty obligations to ensure credit products are properly adapted to the financial circumstances and needs of customers.
  • An effective compliance and enforcement strategy to address persistent problems of firm conduct and culture where they exist.

Consumers in, or at risk of, financial difficulty are among those most vulnerable to poor outcomes and acute harms. As part of the process of embedding the Consumer Duty, the FCA should place specific emphasis on ensuring better outcomes for this group. This should include guiding a holistic programme of work across the FCA’s workstreams to drive the change needed to prevent and mitigate financial difficulties journeys.