Sector-Leading Lenders Introduce Tools to Help UK Customers Manage Their Debt
Debt management can be considerably more complex for consumers who may not have a clear understanding of their repayment obligations, the options that may be available to them, or how different forms of borrowing compare. As many households continue to experience financial pressure, lenders are acknowledging that supporting consumers may mean providing accessible information and practical resources, alongside potential access to credit.
This move is reinforced by the recognition from the Financial Ombudsman Service that consumers experiencing financial difficulties may need additional support from lenders, including consideration of their individual circumstances, and appropriate arrangements for managing repayments.
The broader focus in the financial services industry is to ensure that responsible lending includes meaningful engagement with customers who may be encountering challenges with meeting their commitments, rather than focusing primarily on initial lending decisions.
How Financial Education Can Help Consumers Make Informed Borrowing Choices
Improving financial literacy is an important aspect of supporting borrowers. It might help them avoid debt-related difficulties or arrears, ensuring they know the differences between credit products and which may be most relevant to their needs.
Two loans with similar values might have very different repayment terms, interest rates or fees, which means the headline amount being borrowed may not be the only factor customers need to consider.
Educational resources help to address this by explaining complex topics clearly, showing how loan repayments might change based on the amount borrowed and loan duration, or encouraging potential borrowers to speak to a real adviser if they are dealing with a financial emergency.
Loan calculators are another useful tool. Borrowers can enter different amounts or repayment periods to see how a different loan term would affect the individual instalments and overall amount repayable. While an online resource cannot determine whether borrowing would be responsible and appropriate, it can give a consumer context so they can compare different scenarios.
Affordability checkers are similarly beneficial. Rather than considering whether or not a lending firm might approve an application, borrowers can access budgeting and affordability assessments to gauge whether or not potential repayments would be manageable alongside their existing financial commitments.
The emphasis on education and transparency helps consumers make decisions that are suitable for their requirements, while ensuring there is no misunderstanding about how extending a repayment period, for example, might increase the total cost of borrowing.
Why Lenders Are Expected to Provide Support for Customers Under Financial Pressure
Circumstances can and do change after a loan has been taken out. A consumer who could comfortably manage their repayments when they applied could subsequently encounter unexpected outgoings, a reduction in their income or another change to their household budget.
In these scenarios, communications between lenders and customers become vital. Borrowers may be reluctant to contact their lender if they are worried about keeping up with repayments, concerned about credit being removed, or doubt there is any help available.
Early engagement is especially important where a consumer might be starting to experience difficulties but hasn’t yet missed a repayment. Recognising a possible problem sooner can give both borrower and lender the opportunity to consider the right arrangement or support to prevent the problem from escalating.
Accessible information about the support systems in place may make it easier for borrowers at risk of financial distress to ask for help. This reinforces the importance of lenders taking each borrower’s circumstances into account when deciding whether or not to lend, rather than assuming the same repayment approach will be appropriate for every consumer.
What Support Services Do UK Regulations Expect Lenders to Provide?
The Financial Ombudsman Service states that lenders should respond, ‘positively and sympathetically’, while the Financial Conduct Authority (FCA) indicates that customers in or at risk of arrears should be treated with ‘forbearance and due consideration.’
While the specific measures lenders offer may vary and will depend on the circumstances, support may include changes to repayment schedules, extending repayment periods or discussing alternative arrangements.
As an example, UK direct lender Cashfloat publishes information about repayment options and provides access to online tools to help consumers understand potential borrowing costs and affordability.
Its resources also include educational material intended to explain aspects of borrowing in an accessible way, enabling borrowers to investigate different options in their own time before making an application.
This approach demonstrates the importance of distinguishing between providing access to credit and supporting responsible borrowing behaviours, with the latter requiring lenders to provide sufficient information for consumers to understand what they are committing to, and what assistance might be available if their circumstances change.
How Effective Lender Support Combines Education and Technology
Lenders demonstrating best practice often focus equally on financial literacy and equipping consumers with the knowledge they need to make sensible, responsible decisions, with online resources that anyone can access free of charge.
Rather than replacing responsible lending practices, digital tools ensure that consumers who do not wish to communicate directly with an agent, or for whom this poses a barrier, can learn about unfamiliar terminology, experiment with different repayment scenarios and assess their potential affordability at their own pace.
Although online tools and guides cannot provide a definitive answer as to whether a loan might be approved, or whether the individual’s budget will comfortably cover repayments, they can make it easier for borrowers to find the information that might help with their decisions and guide consumers to resources and support services when they need them.
For regulated lenders, this means customer support increasingly needs to extend beyond the point at which an application is approved or denied. Clarity, transparency and support services can help consumers understand their commitments and identify possible difficulties, or the likelihood of future repayment challenges, earlier on.
This supports compliance with the regulatory standards around the treatment of customers who are experiencing financial difficulty, while helping to improve consumer confidence and ensure borrowers understand how a loan might work, what could happen if their circumstances change, and what happens after a loan has been taken out.
