The FCA have seen a 15% increase in those deemed as ‘vulnerable’ to almost 28 million vulnerable adults. It will take time for these individuals to find their feet. So it is still relevant for businesses and lenders to be considering long term plans in helping this growing group of customers.
COVID-19’s Economic Impact
At the start of the outbreak, financial services firms began offering a series of government-backed support measures. These included furlough, loans for businesses and repayment holidays for consumers. They were eagerly taken up by millions. Many of these individuals and businesses will also have taken the support offered by financial services firms for business loans and payment holidays such as:
- Small and micro businesses taking up the Bounce Back Loan Scheme (BBLS)
- £Billions lent under the Coronavirus Business Interruption Loan Scheme (CBILS)
- Payment deferrals agreed on credit cards
- Millions of homeowners took out mortgage payment holidays
These schemes closed for new applications in the spring, following by the end of furlough in September. Businesses and individuals are doing all they can to find their ‘new normal’ but they need to get over the financial burden of the last year and a half.
Employment figures have made a tentative increase: In the last quarter: 0.1 percentage points higher than the last quarter but still 1.85 lower than before the pandemic. So things are still fragile. Unemployment and further financial hardship will continue to impact both consumers and businesses for some time. So what can we do?
Review business loans
Both business banking and consumer lending firms are acutely aware of this current situation. There are some key capacity and capability issues:
Although businesses are encouraged to start repaying loans as soon as possible, the first compulsory payments of government loans are not due for 12 months and organisations still have options to extend their payback period.
On the flip side, individual lenders will need to prepare their teams to undertake collections activities on a scale not experienced before. This volume increase will test the processes, people and systems already in place within their organisation.
Smart businesses will want to be sure that they will pass this test or they may find themselves suffering alongside their customers.
Consumer Lending In Line With FCA Regulations
For mortgages and consumer credit payment holidays, the FCA has more to say on long term active engagement and support for vulnerable individuals. Custom, tailored support is expected to be provided to those remaining in, or entering, financial difficulty. This in itself is not new, but the volume of customers expected to fall into difficulty presents a significant challenge to businesses.
To maintain the quality and accuracy of advice and support required by the FCA, firms should be reviewing their current processes, communication channels, and resources to ensure they can meet the expected demand.
As lenders review the challenges they face, they know that being proactive is the only way to weather the storms ahead. They know they are going to have to provide debt management advice and assistance on a scale not previously experienced, and combine that with a sympathetic but effective collections function to enable them to continue as a healthy, responsible business themselves.
So what steps can they take to ensure they have the capacity, capabilities, and expertise in place to meet these dual requirements?
Review and plan
At EQ, we have distilled assessment and review programmes into four key areas that ask the following questions:
Processes – Can your current processes scale up effectively and efficiently? Are there legacy steps that no longer suit your business? Do you have to include new considerations for COVID-specific situations? How do you incorporate the new regulatory guidance?
People – Do you have the right skillset and capacity in your workforce? Are your staff flexible? Can you upskill, train or increase capacity quickly?
Data – How up-to-date is your customer data? Do you have a single customer view across your operations? How effective are your data validation and cleansing and tracing operations? Can they quickly increase capacity?
Technology – Can your technology platforms carry the load? Do they match your processes and make them more effective? Can you use them to evidence regulatory compliance? Can you get the necessary Management Information (MI) and reporting data from them? Do they support your customer facing staff to do their jobs effectively?
Where to now?
This can be an overwhelming question. If you are struggling to answer any of these questions, then EQ can help. We provide full end-to-end support in dealing with customers in financial difficulties. From the early assessment of customers’ risk through debt administration, loan rescheduling, and collections.