We believe our experience of dealing with problem debt makes us well placed to discuss the issues raised in this consultation. As a charity and consumer advocate with a mission to reduce the harm debt causes UK society we are concerned that financial services markets and credit markets in particular, should work better for those people most vulnerable to problem debt.
We continue to see how a combination of adverse circumstances, poor options and the conduct of financial services providers can increase consumers’ vulnerability to debt and make financial difficulties harder to deal with. Almost all of our clients, by definition will be financially vulnerable. Many have low incomes or have recently experienced a negative life event. Our research highlights how people struggling with financial difficulties are often forced to make choices between bad options – using expensive and unsustainable credit to deal with unaffordable payment demands by creditors for instance.
Problem debt has many causes but we see a strong link with firm’s conduct. We still see too much evidence of poor lending decisions, unhelpful or aggressive arrears management practices and product features causing or contributing to worsening financial difficulties. We hope the FCA’s future mission includes action to weaken the link between creditor conduct and problem debt.
A significant proportion of our clients report circumstances such as mental or physical health problems, reduced mental capacity and communication difficulties. This can reduce capacity to make decisions, comprehend information, and advocate needs with firms effectively. These ‘vulnerable situations’ combine with the risks of experiencing financial difficulties in a group of consumers with little or no power to discipline markets or the conduct of individual firms. So we give wholehearted support to the belief set out in this consultation that the FCA has a specific role to protect vulnerable consumers.
The needs of consumers who are more vulnerable to problem debt may not be well met by financial services, even though they may have little choice in using financial services (credit in particular) when this is likely to cause them harm. We believe that by its self, conduct regulation of financial services is unlikely to deliver the solutions that the most financially vulnerable consumers need. So we welcome the discussion in this paper on the boundary with public policy.