The UK Financial Conduct Authority (FCA) watchdog has today, 1 April 2014, announced that approximately nine million Britons are in serious debt, with the problem spanning across all income levels. In a report called ‘Consumer credit and consumers in vulnerable circumstances’ (the ‘Report’), which publishes findings from the Government’s Monetary Advice Service, has also revealed that of the 9 million Britons in debt, only 1.5 million have sought advice on their debts and 1.8 million are in denial about the state of their finances.
According to the Repot, over the last two decades, the UK population has
become increasingly more indebted, primarily owing to a significant increase in
mortgage debts. In its entirety, the UK owes approximately £1,476 billion, an
average of nearly £56,000 per household, £6,000 of which can be attributed to
consumer debts. The most common factors contributing to unmanageable debt are,
according to the Report, a change in circumstances and high levels of
accumulated debt. Low savings, income volatility and high debt/income ratios
have all been found to reduce people’s resilience to income shocks and increase
the likelihood of problem debt occurring. The Report categorises borrowers into
three distinct types, survival borrowers (who use credit for their day to day
expenses), lifestyle borrowers (who use credit for large and/or one-off events)
and reluctant borrowers (who tend to limit their use of credit) and suggests
that debt problems can be further compounded by an individual’s skills,
knowledge, confidence and biases, as well as through a lack of access to
credit. Indebtedness has also been found to have a detrimental impact on
people’s health and well-being, particularly in respect of mental health issues
including anxiety, stress and depression.
The Report has been published on the day that the FCA has taken over the
regulation of the UK’s £200 billion consumer credit industry from the Office of
Fair Trading. Over 50,000 businesses, including 500 payday loan companies will
now be regulated under the FCA’s new rules aimed at ensuring customers are
treated fairly and given the information they need to help them make informed
choices. Martin Wheatley, the FCA’s Chief Executive acknowledged, “We have a
big task ahead; it’s our job to make sure firms put their customers at the
heart of their business and don’t just see them as an easy target or a profit
line”. Wheatley also indicated the FCA’s approach to consumer credit providers
who fail to follow their new rules, “We won’t shy away from taking tough, decisive
action to make sure that the people who rely on these products are treated
fairly. There will be some firms that don’t get the message, or won’t
play ball, those firms should know that we won’t let them carry on”. In
the run up to today, the FCA has been assessing the market to understand where
and how the worst financial detriment occurs and will use the findings from the
Report to further develop its regulation of payday loan companies and the
consumer credit industry as a whole.
