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Managing Financial Distress – Supporting Lenders Through The Crisis

14 September 2020

It is generally accepted that lenders will need to prepare for an increase in customers suffering financial distress as a result of the Coronavirus pandemic.

We look at how lenders can prepare for the increased demand this will place on their customer-facing operations.

At the start of the outbreak, financial services firms began offering a series of government-backed support measures, including loans for businesses and repayment holidays for consumers, which have been eagerly taken up by millions over the past few months.
However with the furlough scheme due to finish on 31st October 2020, it is predicted that this autumn will see a significant rise in those struggling financially without recourse to government help.

This will inevitably mean thousands, or millions, of people entering financial distress and significantly increase demand for debt management advice, increased collections activity, and the need for more proactive customer communication programmes.
We look at what steps lenders can take to prepare their business to deal with this expected surge in financially vulnerable customers.

How many could become financially vulnerable?

As of mid-August, a total of 9.6m jobs had been furloughed across 1.2 million companies. Many of these individuals and businesses will also have taken up the support offered by financial services firms for business loans and payment holidays as below.

  • Over 1.2 million small and micro businesses have taken up the Bounce Back Loan Scheme (BBLS).
  • £13.4 billion has been lent under the Coronavirus Business Interruption Loan Scheme (CBILS).
  • Over 1 million payment deferrals agreed on credit cards.
  • Nearly 2 million homeowners have taken out mortgage payment holidays.

These schemes are due to end at the same time as furlough and the implications are obvious with unemployment and further financial hardship expected to impact both consumers and businesses.

Longer term economic impact

The ability of the economy to bounce back quickly remains uncertain and September will be a key month as schools go back, freeing up parents to return to more normal working patterns.
However with social distancing still a requirement, few offices are able to open at pre-Covid capacity levels. Combined with a new understanding of how effectively office-based staff can work from home, and many employers have little incentive or appetite to force workers to return to the office.

As we have seen, this has significant impact on the many businesses who rely on office workers, particularly for our high streets in towns and cities. The hospitality and retail sectors are two of those most seriously affected by the lockdown and a slow recovery in the footfall will lead to further closures and redundancies.

Supporting those in financial distress

Both business banking and consumer lending firms are acutely aware of this current and growing problem with several milestones due in the coming months that will test their capacity and capabilities.

Operational priorities are moving towards managing loans and debt collection, loan rescheduling, complaints, queries and forbearance for vulnerable customers. Firms know they have to balance these challenges with the continued regulatory requirements to treat customers fairly which could open the doors to more flexible options than the industry previously considered.

Business banking

Although businesses are encouraged to start repaying loans as soon as possible, the first compulsory payments are not due until Q1 2021. This gives lenders several months 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

For mortgages and consumer credit payment holidays, the FCA has more to say on long term active engagement and support for vulnerable individuals. [1] 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. In order 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.

Getting prepared

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? Are their technology, processes, people, regulatory understanding and data ready for the challenges ahead?

At EQ, we have full end-to-end capability to support lenders at every stage when helping customers deal with financial difficulties. We can augment their operations in activities from the pre-emptive assessment of customers’ risk through to debt administration, loan rescheduling and collections. EQ can supply skilled resource and/or technology for in-house operations or a regulated fully outsourced solution.

What you need to consider


Managing Financial Distress Process

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?


Managing Financial Distress People

Do you have the right skillset and capacity in your workforce? Are your staff flexible? Can you upskill, train or increase capacity quickly?


Managing Financial Distress 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?


Managing Financial Distress 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?

Managing Financial Distress Case Study Image


Lending Stream and EQ work together through COVID-19

Both businesses overcame the challenges of lockdown by using Zoom to recruit, as well as train employees for the specific needs of Lending Stream. This was the first time either organisation had handled a project in this way. At the time of writing, employees are already handling email and chat operations and have recently started handling voice calls.

Read more

Find out more about how to manage the rise in financial distress customers

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