The cost of living crisis is affecting us all, and for those that have borrowed money, whether it be to purchase a home, car, or something else, it may be more difficult for them to make the required repayments.
As the price of the basics goes up, including food, fuel, gas and electricity, monthly repayments have stayed the same, meaning that those already struggling to make ends meet are even worse off.
It's already becoming increasingly difficult for some families to heat their homes and put food on the table, let alone make the repayments on expensive items such as a car.
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For some, a car is as important as the aforementioned goods; without a vehicle, many would be able to get to and from work, look after elderly relatives, or take their children to school.
While it is not necessarily the fault or responsibility of lenders to take their customers' financial difficulties into their own hands, there have been calls for more lenient practices to be put in place to help the most vulnerable.
Lessons learned from Covid-19
The Financial Conduct Authority (FCA) has recently said that it hopes financial lenders can take lessons from the Covid-19 pandemic and assist where they can to ensure their customers don't spiral into debt.
Coronavirus was an unprecedented time for the world, and while we are all feeling the after-effects within the economy right now, we mustn't allow the most vulnerable in our society to struggle further.
Finance lenders need to help customers more
The FCA discovered examples of finance lenders from across various sectors delivering positive outcomes for their customers, though others need to step up their game and help those that need it.
The report found that only a quarter of automotive finance lenders monitors vulnerable customers, compared to 80% for credit cards, 60% for mortgages, and 50% for retail finance.
That means that three out of four people with a car on finance may not be getting the support they need to repay, potentially causing them to rely on credit cards or borrow more to avoid having their car taken away and their credit score left in tatters.
Of the 50 firms the FCA reviewed, only 15 sufficiently helped customers with circumstances beyond their control, meaning agreements were often unaffordable and unsustainable.
Seven firms out of 32 that the FCA approached regarding how they treat customers have agreed to pay 60,000 customers a total of £12 million in compensation.
It's a positive start, and we could see more firms taking action to improve the support available to their customers, with the FCA monitoring a further 40 companies in the next few months.
Cost of living crisis
Executive Director of Consumers and Competition at the FCA, Sheldon Mills, said: "While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers.
"Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.
"We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly."
There are several actions that firms should actively be introducing to avoid their customers from facing further hardship.
- Encourage consumers to engage earlier when facing financial difficulties.
- Offer tailored support, particularly for those with vulnerable characteristics.
- Let those in difficulties know about the availability of free, independent debt advice when appropriate.
- Ensure their fees are fair and only reflect the reasonable costs that firms incur.
- When engaging with consumers, consider whether reducing, waiving or cancelling fees would be appropriate.
While there's a long way to go to help the millions of people in the UK that are struggling to make repayments, the FCAs actions should help those that need help the most get the support required to help them through this challenging time.