The number of people missing a credit card or loan payment in the UK is estimated to have almost doubled in just a month, new Which? research reveals, as the consumer champion warns scaled back financial support measures may not be sufficient to protect consumers in financial difficulty.
The latest findings from Which?’s consumer insight tracker reveal that approximately 370,000 more people defaulted on a credit card or loan in October than in September, with the estimated number rising from 410,000 to 780,000. This is the sharpest rise in missed payments of this type since the start of the pandemic.
Overall, 5.8 per cent of respondents to the Which? survey reported that their household had defaulted on at least one housing, credit card, loan or bill payment in October. This was a significant increase from September’s figure of 3.8 per cent, and was driven by the increase in defaults on credit cards and loan repayments.
A missed payment is an indicator of significant financial difficulty, and the large spike is highly concerning as it comes as the financial regulator reduces the level of support given to people who are in financial difficulty on 31 October – the same date that the government’s Job Retention Scheme also finishes.
With the Bank of England predicting that unemployment is expected to rise to around 7.5 per cent by the end of the year, and debt advice charity StepChange seeing 13,000 people seeking debt advice for the first time in August alone, Which? is concerned that the Financial Conduct Authority’s scaled back measures will not be enough to tackle the looming challenge to the financial wellbeing of huge numbers of people.
The FCA initially responded rapidly to the coronavirus outbreak, working with the banking industry to introduce a range of financial assistance measures – including payment holidays for mortgages and other forms of credit for those who are struggling financially as a result of the pandemic.
Which? has been warning since August about the need to prepare robust plans to help people through the winter months, after its research indicated that furloughed workers are three times more likely to have defaulted on at least one payment in the previous month. The consumer champion subsequently called for an extension of existing support measures until the start of next year.
However, the FCA has since announced that, from 1 November, lenders will be required to carry out assessments of individual circumstances in order to provide support, rather than consumers being able to self-report their financial difficulty.
Which? has serious concerns about the industry’s capacity to handle a potential deluge of requests for urgent assistance.
Recent research from the consumer champion found that 22 per cent of mortgage holders had contacted, or attempted to contact, their lender since the start of the pandemic and 61 per cent of those requested a payment holiday.
Worryingly, more than half (56%) reported having a problem doing this – with issues including long call wait times, and no responses to email or phone messages.
While it will always be better for a customer who can afford to continue to make payments towards their credit card or loan payments to do so, these figures suggest many people are struggling financially and will need support from their lender.
The consumer champion fears that the additional requirement to assess people’s personal circumstances could create a significant backlog with firms who are having to deal with consumers needing financial support as their payment holidays come to an end, and an additional influx of people seeking help after the government’s job retention scheme finishes on 31 October.
Which? does not want to see consumers denied support altogether, or facing delays that mean they are unable to access help before missing a payment. It believes the regulator should be prepared to move quickly to reintroduce measures similar to the original support if the industry struggles to cope with demand.
Which? is also opposed to a return of normal reporting of financial support on consumer credit files, as this risks pushing large numbers of people facing temporary financial hardship into long-term difficulties.
Currently, payment holidays are not marked on credit files as it has been acknowledged that these are exceptional circumstances. However after 31 October, if a lender offers a payment holiday or agrees an arrangement with a consumer to make reduced payments, these will be reported as missed payments.
Which? believes it is not fair to penalise customers who fall into financial difficulty at this stage of the pandemic through no fault of their own, when people who needed help at the start were able to take payment holidays without facing the same consequences.
Gareth Shaw, Head of Money at Which?, said:
“This significant increase in missed payments is a warning sign that large numbers of people could be on the brink of really struggling financially, and it reinforces our concerns about the impact of the government, regulators and industry rolling back vital support.
“There is a real risk that the additional hurdles customers face could mean help is delayed, or impossible to access at all – which could leave many facing serious debt problems.
“Firms need to be proactive and flexible with people who need urgent help, and if there is evidence that customers can’t get the support they need quickly enough, the regulator must be prepared to introduce stronger measures.”
The Consumer Insight Tracker is an online poll conducted monthly by Populus on behalf of Which?. It is weighted to be nationally representative with approximately 2,000 respondents per wave.
The survey indicates that between 4.8% and 6.8% of households defaulted on at least one mortgage, rent, loan, credit card or bill repayment in October, with an average estimate of 5.8%.
Based on our survey and the ONS estimate for the number of households in 2019 of 27.8m, we estimate that between 267,000 and 553,000 households defaulted on a loan or credit card bill in September, rising to between 585,000 and 979,000 in October.
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