The Budget – Do the sums add up for UK families?

Published 07 March 2024

Yesterday the Chancellor delivered the Spring Budget in Parliament. The purpose of the budget is to update Parliament on the state of the economy and to outline the Government’s proposals for changes to the tax system. This was arguably the last big economic event we will see from this Conservative government. The Prime Minister has told us to expect an election by the end of this year, so it is unlikely we would see another statement before then. It goes without saying that there was a lot riding on this budget. The Conservatives will be hoping that the measures announced start to move the dial on their current ratings in the polls. Labour still maintains a significant lead. This was about appealing to potential voters. There were numerous mentions of the Conservatives being the party of lower taxation, trying to drum the message home. The big headline announcement was a further cut to national insurance. Someone earning £25,000 a year will save another £249 a year from the latest drop. This will be a welcome change for the average earners across the country, following the previous cut last November. But Sunak (when Chancellor) had previously pledged to take a penny off income tax by 2024, which hasn’t happened, so represents another broken promise. A further welcome announcement was the plan to extend child benefit to more families by raising the income level at which people start being charged for receiving the benefit. The budget included very little mention of pensions so did appear like the Government was trying to appeal to the working-age section of society. During the delivery, Jeremy Hunt said the economy was improving, having “turned a corner on inflation”. That said, there were still a range of pledges to help struggling families. These included the extension of the Household Support Fund for six months, and a longer repayment period for budgeting loans which can be used for essential items like furniture or white goods for those eligible. These proposals will help those hit hardest by the cost-of-living crisis, but no further long-term support was announced. Though the Chancellor did state that he was removing the charge on Debt Relief Orders. A welcome step for those trying to repay debts that they are struggling with. Fuel duty was frozen again, recognising the importance of not increasing the costs of keeping a vehicle running, a lifeline for many families in terms of getting to work, school and keeping businesses moving. Another welcome step was the announcement that vehicle leasing companies will benefit from full expensing with draft legislation expected soon for full expensing to apply to leased assets, representing a significant tax break. We also saw a commitment to green investment with a fund of £120m for green energy projects. Overall, a mixed bag of announcements. The Chancellor was keen to appeal voters, and historically the last budget of a government promises the most in real term gains. He may also be thinking about his own political legacy. Whatever happens at …

Is the cost-of-living crisis over?

Published 20 February 2024

Over the last few weeks, we have seen a lot of news pieces and data released about the country’s financial health and the associated impact on households. Inflation, recession, borrowing, spending, they have all been mentioned. Another phrase we have heard a lot in recent times is the ‘cost-of-living crisis’. We have been told we are in a cost-of-living crisis. A global pandemic that changed the employment status of many and war in Ukraine, causing energy prices to go sky high, resulted in many people struggling to manage their finances. To ease the burden, the Government offered support with the cost of energy, and others also qualified for separate cost-of-living payments to get through a hard winter. It’s unlikely the Government would have provided this level of support if it didn’t expect people to hit crisis point. Last week the final cost-of-living payment was paid to millions. The Prime Minister used it as an opportunity to say that the pressures were starting to ease, due to falling inflation and tax cuts. No further payments of this kind have been scheduled. Inflation might be starting to come down but it stalled at 4% in the most recent figures. It doesn’t yet feel like the economy is improving at any great scale. Last week it was also reported that the country just dipped into recession in 2023, blamed on people spending less – though apparently the figures suggest it won’t last for long, it does appear that there is very low growth. There was some good news however, as food prices have started to fall. Where does this leave family finances? There are some green shoots of good news like wages starting to rise, but at the same time debt advice providers are reporting high numbers of individuals that use their services are really struggling. New research published by Citizens Advice claims that politicians are burying their heads in the sand as five million people now find themselves in a negative budget situation. A significant proportion of society still doesn’t have enough money to make it through the month. It feels like there are now conflicting views on whether the worst is over for many, or that there is still more pain to come as individuals move off fixed rate mortgage deals and expected rises in council tax. Interest rates remain high in the hope that inflation will drop. It’s no surprise politically that the Government is telling us that things are getting better. It will be interesting to see what the Spring Budget entails early next month especially as election looms in the not-too-distant future. The Covid-19 pandemic and the introduction of the FCA’s Consumer Duty have shown that the regulator expects firms to really understand the financial position of their customers. At time when some families are struggling more than others, it demonstrates, more than ever, the need for an individual approach. It is fair to say that while things are starting to improve for some, times remain hard for …

Next steps on the Consumer Duty

Published 09 February 2024

We are now into the seventh month since the implementation of the Consumer Duty. We know that many firms continue with their efforts and focus on meeting the requirements of the Duty and achieving improved consumer outcomes. No doubt firms will agree that it has been an intensive journey thus far. It was always meant to be about delivering continuous improvement in customer outcomes, but now is also an appropriate time to remind firms of the upcoming requirements as to the next steps in that journey. We specifically refer to two requirements which should be addressed by 31st July 2024. The first year of the Consumer Duty implementation focused primarily on new and existing products/services that financial services firms offer to retail customers. Closed products (i.e. products/services that are no longer marketed or sold, but active arrangements still exist) were due to be brought into scope a year later than new and existing products. That deadline is 31st July 2024. Some firms will have already progressed work in this area and will be well on their way to complying with the requirements for closed products, when they are brought into scope. However, for those firms that still need to carry out additional work in respect of their closed products, there is still time to ensure that you have addressed the requirements by the end of July. The next requirement is in relation to firms’ annual board reports. The FCA’s Policy Statement also sets requirements for firms to produce annual board reports for the board (or governance body) enabling the board/body to assess their compliance with the requirements of the Duty and whether they are achieving good consumer outcomes. Annual board reports should comprise of data and insights (MI) from all areas of the business (i.e. product design/development, marketing, sales, customer service, complaints etc) to provide an overall view of the firm’s compliance with the requirements of the Duty. Reports should also enable the board/governance body to identify where good/intended outcomes are not being achieved, allowing it to act to address any harm (or potential harm) being caused to consumers. Evidently, thorough, in-depth MI is key to developing an annual board report that will serve sufficient purpose for the board/governing body to meet its requirement to assess compliance and address harm. Many will have made sufficient progress in the data and MI they have collated over the course of their implementation journey, but firms should now be thinking about compiling the collective MI aspects into a board report fit for purpose. Remember, annual board reports and any actions on the back of each annual report need to be documented and retained for evidence. The FCA has previously stated that such evidence should be readily available, if the regulator feels the need to request it.

What’s happening with motor finance commissions?

Published 01 February 2024

The issue of disclosure commission complaints is something we have been following in recent times as part of our work on motor finance. On the 11th January the Financial Conduct Authority (FCA) announced that it would be undertaking work in the motor finance market – but on a different area- discretionary commission arrangements. The regulator banned these arrangements in 2021 but it was starting to see a high number of complaints from customers to motor finance firms, claiming compensation for commission arrangements prior to the ban. The FCA found that many of these complaints were being rejected because firms do not think they acted unfairly. As a result, the regulator is using its powers under s166 of the Financial Services and Markets Act 2000, to review historical motor finance commission arrangements and sales across several firms. They have told us in the interest of time they will appoint the skilled person to carry out the review. Firms that are part of the s166 project should have been contacted by now. There is likely to be a wider sample of firms that are contacted for some details as the FCA is keen to understand what has happened across the entire sector. The FCA should be in touch with these firms before the end of April. While the FCA carries out its investigation it has also paused the 8-week deadline for motor finance firms to provide a final response to relevant customer complaints. The pause will last until late September. Firms need to alter their processes to ensure the pause is in place and that complainants know what is happening. That includes ensuring all communication about the new deadlines and time limits is clear. There is some useful information for firms on the FCA website. The investigation is in its early stages, but possible outcomes may include customer redress schemes as well as new guidance for the sector. The FCA has asked firms to save relevant information in case of future complaints or redress schemes. The Financial Ombudsman Service also recently investigated some complaints that had been rejected by firms. It found in favour of the complainants in two recent decisions which can be viewed here and here. It’s worth firms taking the time to read these to get a sense of the approach the Ombudsman is likely to take in the future. There is no doubt that they will be involved in the project. It’s clear that there is a lot going on in the motor finance sector and there will be some uncertainty until we see the results of the FCA’s investigation. Experience from other sectors tells us the firms should make sure they are communicating with affected customers by explaining the current changes. Though much of the investigation will relate to historic cases, firms should be focusing on doing the right thing for their customers, particularly against the backdrop of the Consumer Duty. We will continue to engage with the FCA while the investigation is ongoing. If you have …

Changes in Home Credit

Published 22 January 2024

Back in the early noughties, the home credit market was under intense scrutiny for a lack of competition which led to the then Competition Commission investigating the sector. It was thought that it was difficult for consumers to compare products or switch between providers to find the best price. Following the investigation an order was passed that placed various conditions on the sector. Fast forward to last week and we were pleased to hear that the Competition and Markets Authority, the successor to the Competition Commission, has suspended parts of the original home credit order and published an invitation to comment on a proposed review of the order. For some there may be no surprise that just one of the six original larger lenders active in the market remains today. We have seen the home credit market drop away under regulatory pressure and the activities of claims management companies driving complaints. Independent research suggests this might be as much as a 90% reduction. That generates questions and concerns about what happens when regulated credit is stripped away. There is growing evidence that this has led to the growth of illegal lending throughout the UK. Unfortunately, this more significant issue is not getting the focus it deserves. We continue to raise these concerns with both the FCA and HM Treasury. One of the drivers of the original inquiry was down to home credit customers having a lack of other borrowing options. This problem hasn’t gone away. Recent customers will face the same challenges. Many are likely to have turned to family and friends or loan sharks. And we know the lines between these two groups can become blurred quickly. This review covers the “Lenders Compared” price comparison website set up following the order. All lenders were required to list their products on the site, which was to be funded by the larger firms within the market. As larger firms like Provident, Non-Standard Finance and Morses Club have left the market, this is now unsustainable. There is also a question as to whether a price comparison site remains useful to consumers in this area of credit. There is likely to be more relevant information and advice that could be shared with these individuals. We all want consumers to be given clear information about their options for borrowing and the cost of loans, but there has been immense regulatory change in recent years. Regulation now sits with the FCA and lenders in this sector must comply. The introduction of the Consumer Duty is also redefining how firms and their customers interact. The market has changed dramatically since 2007, and parts of the order no longer make sense. The CCTA will call for the review to go ahead and question whether parts of the order need to be updated, given the current state of the market, nearly 20 years on. We will constantly push for more focus on the more significant access to credit questions. As always, if you have views to share, then …

A look ahead at 2024

Published 09 January 2024

2023 was a busy year for the consumer credit sector and the CCTA. It saw the introduction of the FCA’s Consumer Duty, new research into the impact of illegal lending and further engagement with our key stakeholders- the FCA, the FOS and HM Treasury on a range of issues. Here we explore some of the developments we expect in 2024. Proposed changes at the FOS The FOS and its current consultation on their plans and budget will be one of our first priorities for the year at the CCTA. These proposals suggest a reduction in the case fee and levy which would be a welcome change for the sector. The FOS is also seeking views on whether Claims Management Companies should pay a case fee for accessing the FOS system. This is a proposal that we have pushed for in recent times. That one side of a disagreement should carry all the costs in a fight between two commercial organisations is unjust. It also allows for bad behaviour and poor quality complaints without consequences. That is why we will be pushing the Ombudsman to go ahead with the proposals. Will BNPL regulation finally arrive? Regulation of the Buy-now Pay-later (BMPL) sector has been expected for some time. We know that regulation is on the way. With the reported use of BNPL now so high it means that this must be inevitable. The unknowns are going to be the type of regulation and the timing. Last summer the Government suggested that BNPL might receive lighter regulation. That did not go down with consumers or other lenders wanting a level playing field. Reform of the Consumer Credit Act The long-awaited review of the Consumer Credit Act (CCA) is also expected. It is likely that parts of the Act will now become part of the FCA Handbook to be more flexible moving forward. We will be working on behalf of members to simplify some of the outdated parts of the Act for firms and consumers alike.  There will be an election…at some point We also know a General Election is coming this year. Sunak is hinting that it will likely be in the latter half of 2024. We will be engaging with politicians across the political spectrum ahead of the election, including Labour’s shadow Treasury team to brief them on the sector. It is crucial that any new government – Conservative, Labour or some coalition – understands the importance of credit for UK families and businesses. The Consumer Duty isn’t done July 2023 was the implementation deadline for the Consumer Duty, but that was just the start. The next steps for the coming year are likely to focus on governance and Management Information. It will be about how you are evidencing that you are doing the right thing for the consumer. The regulator is likely to explore several issues through the prism of the Duty. We have already seen this with value for money around bank savings rates and investment fees. A likely …

Borrowing and spending at Christmas

Published 15 December 2023

At this time of year, there are always stories about how people plan to pay for Christmas. Costs can quickly add up between presents, family expectations, extra travel, and hosting. Combined with the cost-of-living crisis currently facing many, it can be an expensive time of year. This year, different organisations have researched to explore our Christmas spending. New data from the Money and Pensions Service (MaPS) shows that one in four (26%) will likely borrow or use credit for upcoming holidays like Christmas. Consumers were planning to use different methods of borrowing, with credit cards being the most popular at 52%. The FCA also polled the public about their Christmas spending plans. They found that many parents felt pressured to spend, with over a quarter (29%) of parents with young children having already borrowed or intending to do so. The regulator has said that this pressure may mean more individuals are susceptible to loan fee fraud (when a customer pays for a loan they never receive). Therefore, the FCA runs its loan-free fraud campaign, which you can learn more about here. This all raises important questions about borrowing and lending responsibly, but also access to credit. Is it right to borrow? Can the applicant afford it? Will they be tempted to look elsewhere if they cannot access regulated credit? Will they become a victim of fraud? Firstly, no one should feel pressured to spend. Taking on more borrowing than manageable is not a good idea. Lenders must ensure any borrowing is suitable as part of their lending assessment. When individuals do feel pressure, they might exhaust the options open to them. We know, for instance, that consumers of alternative credit do not have many lines of credit available. This is where the likes of the FCA’s loan free fraud campaign and the Illegal Money Lending Team’s Stop loan sharks message become more critical. It is essential that Christmas borrowing does not push people into the hands of fraudsters or loan sharks. Illegal lenders will use this time of year to prey on the vulnerable. Consumers should always use a regulated firm to borrow so they are protected if anything goes wrong. This can be checked on the FCA’s register, and if someone suspects they have been a loan shark victim, this can be reported here. This returns us to the central argument about access to credit. We know that a lot of borrowing is cyclical. People take credit to cover significant life events and pay off in the coming months. It is not uncommon to borrow for a holiday like Christmas, but it needs to be manageable and not push people into the unregulated world. We need to remember that without access, the demand remains. There needs to be a varied credit market to serve the needs of different consumers to help them manage their finances.

Changes at the FOS

Published 08 December 2023

Earlier this week, the Financial Ombudsman Service (FOS) published its Plans and Budget consultation for 2024/25. While these are first steps, we believe that they are heading in the right direction.  The consultation details changes to the organisation’s funding model, including a £100 reduction in the case fee, a decrease in levy payments and plans to consult on charging professional representatives, which include Claims Management Companies (CMCs), to bring cases to the FOS.  We have been working on reform of the organisation and the complaints system for some time. Members will know that we have engaged with the FOS from the board level to the frontline teams interacting with firms daily, so it is good to see some steps in the right direction.   Firstly, it is good news that the proposed case fee is set to drop as this affects all firms. Businesses have endured year-on-year increases in recent times. We have often discussed the burden the case fee places on firms, particularly for small and medium-sized businesses, so it is promising that the FOS wants to try to bring this down.  It is also promising that the Ombudsman will move forward with plans to charge CMCs to access its service. CMCs have long been a feature of the alternative lending market.  We have raised the poor practices shown by some CMCs again with the FOS and those responsible for regulating the sector. Firms see many poor cases brought by CMCs due to the lack of incentive to submit a higher quality claim when they bear none of the financial cost.  Lenders have struggled with poor practices, including receiving a high volume of cases where they have no record of the customer ever taking a loan. There have been concerns that customers weren’t even aware that CMCs were bringing cases in their name, as the proper authority has not been obtained. This put a significant strain on many businesses so it is good to see that they will now be charged a fee. Hopefully, this will encourage them to bring forward only legitimate cases.   Firms will still pay a case fee in these circumstances, but CMCs will also be charged if these proposals move ahead. FOS are seeking views on the amount as part of the consultation. These changes could be significant, but they are still at the consultation stage. Some of the proposals would need secondary legislation to be laid before Parliament by HM Treasury before they could be implemented. Still, it is promising to see the start of that process with some publications from the Government in recent days.  As you would expect, we will continue to engage with the FOS on its plans. Our CEO, Jason Wassell, will attend the FOS Industry Steering Group next week to discuss these proposals in more detail. And the association will also submit a formal consultation response.   We encourage members to do the same or share their views. If we can demonstrate how these changes would help firms and better support those customers …

Level playing field in consumer credit?

Published 03 December 2023

BNPL and Big Tech shake things up Unsurprisingly, consumer credit regulation plays an essential part in the lending market. A level playing field in consumer credit is a crucial principle. Firms of different sizes and formats and providing various products need access to the market. We can see some areas where we may come off track with the current discussions about regulating Buy Now Pay Later (BNPL) and Big Tech entering into financial services. These developments open up some great discussions about how consumer credit is regulated. They pose some challenges for the Financial Conduct Authority (FCA). More BNPL firms come into FCA regulation, but BNPL is still unregulated This issue came back to the front of my mind with the end of a set of temporary permissions that some firms had to provide FCA-regulated products while sitting out the regulatory regime. Those firms with regulated credit products must now have the correct FCA permissions. It has brought in some BNPL firms like Klarna into the FCA orbit. The vital point is that the BNPL product is still not regulated by the FCA. It is interesting to see what is happening, made more difficult by rumour and speculation. Regulation of BNPL continues to be a hazy area. There have always been regulated firms providing the unregulated BNPL product, including some CCTA members. We need clarity and want a level playing field for all consumer credit firms. Some firms, though far fewer, still say that BNPL is not a credit product and should continue to be a non-regulated product. Did the Government wobble on regulation? Our last City Minister, Andrew Griffith, was thought to have been floating a lighter regime for BNPL, and indeed, we had heard him say directly that this was a cheap form of accessible credit. I took from what we heard that this was a way of filling some of the growing gap between supply and demand. However, that raises questions about that level playing field in consumer credit. The flag was raised, and many organisations rushed to join the battle. It is also fair to say that this pause in regulation raised considerable concerns amongst the debt charities. There were joint letters of complaint and plenty of words on why BNPL regulation should be pushed on. It will be interesting to see whether the new Minister is sceptical or returns to the more traditional view. Our long-held position is that we should try to keep the regulatory burden to a minimum so we can certainly understand those promoting new products looking to develop their case for exception. However, we need an even approach. Big Tech enters That theme continues into the FCA’s interest in Big Tech potentially entering into financial services. There are some big questions about whether those firms can create a market advantage from the large amounts of data they hold. A debate that we know will roll into 2024 and beyond. We know that data is an integral part of the market. We …

FCA regulatory update
Key themes from Martha Stokes’ speech to the 2023 CCTA Conference

Published 27 November 2023

Access to affordable credit allows people to manage their money and helps them cope in tough times. It requires a well-functioning market where customers are treated fairly, supported if they get into financial difficulty and are equipped with the information they need to make good decisions. Ensuring the regulatory framework supports these objectives is key for the FCA. REVIEW OF THE CONSUMER CREDIT ACT In July, the Government confirmed its intention to overhaul the Consumer Credit Act – moving much of the Act into the more agile regulatory framework of the FCA rulebook. This provides opportunity for a more coherent, flexible, less fragmented credit regime – a regime that can facilitate innovation as markets evolve. The FCA will be working with Government through the reform process to ensure consumer credit regulation supports a well-functioning and competitive market, whilst maintaining the appropriate degree of consumer protection. EMBEDDING OF THE CONSUMER DUTY Another significant regulatory change is the Consumer Duty which came into effect at the end of July. The Duty fundamentally changes expectations of the financial services industry by setting higher and clearer standards of consumer protection. It asks firms to deliver good consumer outcomes at every stage, placing consumers’ interests at the heart of businesses. The Duty will enable the regulator and markets to tackle future challenges; to act quicker, without consulting on new rules each time a new problem or opportunity is identified. As markets evolve and new benefits and risks to consumers emerge, the Duty requires firms to act to deliver good outcomes and protect customers from foreseeable harm. Examples of good practice are already being seen, and as firms continue to embed the Duty, the focus should be on those areas that will have the biggest impact on customers. Firms should be considering: is the product or service designed to deliver good outcomes for consumers? what is the target market for this product and are our communications clear to consumers? is there any sludge in the customer journey which interrupts or hinders good outcomes? Are there any barriers to complaints, for example, or unreasonable, punitive extra costs? Firms can expect to be asked to demonstrate how their business model and culture deliver good customer outcomes. The Duty fundamentally changes expectations of the financial services industry by setting higher and clearer standards of consumer protection. Complying with Consumer Duty is about adapting business to meet current and future needs. The rising cost of living, for example, is impacting budgets of UK consumers, putting pressure on their disposable incomes, and pushing more into financial difficulty. People who want to borrow, or have borrowed, will in many cases find it harder to pay off their debts. More customers will become vulnerable. The FCA is therefore asking firms to do more to encourage customers to speak up when they are in financial difficulty, playing a crucial role in engaging these consumers, for example by signposting debt advice services, offering tailored solutions and making sure additional charges are fair. Getting good outcomes …

CCTA Academy
Online learning & development platform launched

Published 27 November 2023

Some of you will recall that, almost a year ago, we carried out a member survey to see how we could further improve our services as your trade association. Over 80% of respondents wanted the CCTA to enhance our learning and development offering. That has led to the launch of the CCTA Academy. As many of you will be aware, the CCTA has been working on introducing our new online learning and development portal, CCTA Academy. Those who attended our annual conference in Manchester in September will have heard me speak about the impending launch of the portal. I am pleased to announce that we have successfully launched CCTA Academy. Some of you could not attend the conference, so I wanted to take this opportunity to tell all our members about the Academy, its features and benefits. Members who register for the Academy will enjoy online compliance training for both staff and managers. The training covers industry-specific modules relevant to our membership, for example, tailored courses such as motor finance, retail finance, pawnbroking, high-cost, short-term credit, home-collected credit, personal loans and guarantor loans. In addition to a tailored course relevant to your industry, the compliance training includes modules on critical legal and regulatory topics. These modules include vulnerable customers, complaints handling, conflict of interests, financial promotions, anti-money laundering, anti-bribery, SM&CR conduct rules, whistleblowing and the Consumer Duty. Whilst these courses are relevant to all staff members, manager training courses also include advanced GDPR, SM&CR for managers and the Consumer Duty for managers. The CCTA Academy portal also has further features and benefits for members to utilise, and I wanted to cover some of those here: CPD ACCREDITATION All our courses are Continuing Professional Development (CPD) accredited. Learners earn CPD points for completing each module. Once completed, learners take an exam, which they must pass at a minimum rate of 80%. Upon completing each exam, the learner gains the relevant CPD points applicable to the module and a downloadable certificate of completion. Members are even able to add external CPD points earned outside the Academy. LIVE LEARNING SESSIONS From time to time throughout the year, CCTA (and its associate members) will carry out live learning sessions on key, trending industry and regulatory topics. All staff and managers signed up can attend these live learning sessions free of charge. These additional sessions help ensure ongoing learning and development opportunities for all registered learners. ADD YOUR COURSES AND CONTENT The portal includes a feature for firms to add your basic courses or content. Whether it is a document, video, audio or PowerPoint file, you can make these available to your staff by adding them to the portal library. ADD YOUR COMPANY POLICIES AND PROCEDURES The portal can also be part of your firm’s onboarding process for new starters and managing existing employees. You can add your company policies and procedures for staff to ‘read and accept’, recording their adherence to the policies and procedures. Over 80% of respondents wanted the CCTA to enhance …

Changing tides?
Cost of living and borrowers in financial difficulty

Published 27 November 2023

Undoubtedly, the Financial Conduct Authority (FCA) is taking the cost of living very seriously. To a certain extent, this is a continuation of a project that emerged from the COVID-19 pandemic. While there has been some good news around the fall in inflation and wage growth, a group of families will find themselves in a difficult position. The cost of living has been the highest public agenda item at times and then fallen away as other issues emerged and inflation started to fall. As winter approaches and energy prices become a more significant factor, we will see pressure increase again, though hopefully, inflation will be less of a feature. There may be a debate about the scale or direction of this issue, but it has been of crucial importance to the FCA. It is a key element within their work on Borrowers in Financial Difficulty. From our discussions with the FCA and our review of their communications, we can see that they want lenders to be more proactive. They push for more customer contact and expect forbearance options tailored to individuals. OUR STARTING DEFINITIONS Returning to the basics, below are the definitions the FCA use for the cost of living and borrowers in financial difficulty. Cost of living: The amount of money a person or household needs to spend on necessities, such as food, housing, and transportation. Inflation has been part of this story. Borrowers in financial difficulty: People having trouble making their loan payments. The idea of borrowers in financial difficulty, as a group, has been around for as long as lending has taken place. It has never been in firms’ interest to lend to those without a chance of paying back. DIFFERENT PHASES However, it was around the pandemic that the FCA used this term more, and it has since then become a standard part of our vocabulary. This FCA focus has continued as we moved into a phase of increasing inflation. There were three critical areas of increase: energy, food, and transport costs. Within those are pressures from the war in Ukraine and the global supply chain crisis. There is also debate over the impact of Brexit. In 2022, we saw this reflected in an inflation rate that reached 11% by the year’s close. However, in discussions with our members, we know that financial position is not as simple as sometimes suggested in newspaper articles. The red flags that we would expect to see have not appeared. (The FCA) want lenders to be more proactive. They push for more customer contact and expect forbearance options tailors to individuals. That may be because we have also seen wages increase. Pay rises have run way ahead of inflation at specific points, which means some families have found themselves in a better position. The issue of inflation may be falling away as we progress to a new phase. However, as we move into winter high energy prices are likely to come to the fore again putting some under strain. WHAT …