FCA survey shows 12 million UK adults struggling with debt payments

Written by Ruby Hinchliffe
23rd October 2020

A staggering 12 million UK adults – 18% of the country’s population – had “low financial resilience” in July, according to the Financial Conduct Authority (FCA).

The UK regulator’s report, which is based on responses from 7,000 consumers, suggests these 12 million adults could therefore “struggle with bills or loan repayments”.

Younger and BAME consumers have suffered the most, says FCA

More than a third of consumers with loans, credit cards and mortgages say they’re worried about making repayments on these products.

The FCA urges these borrowers to speak to lenders “about options available to them”. It will launch a “package of support” for people in financial difficulty from the end of October.

The data also suggests two million of these consumers fell into low financial resilience since February 2020, during the COVID-19 pandemic.

“Due to the impact of the pandemic, many of those who have experienced changes in employment and increased stress are now likely to have low financial resilience,” says the regulator.

“These consumers are more likely to fall behind on payments.”

Young people and BAME adults suffer the most

Of the UK’s adults, the FCA’s report suggests younger people, as well as Black, Asian and Minority Ethnic (BAME) minorities, are likely to be more affected financially by the pandemic.

Whilst 31% of adults had experienced a decrease in household income in July, 37% of BAME adults took an income hit – a six percentage point difference.

BAME adults are also more likely to experience reduced working hours. And those aged 25-34 are the most likely to have had a change in employment due to the pandemic.

And 42% of renters – a large proportion of which are younger adults – said they are worried about falling behind on rent payments.

As a result, 19% of young adults say they’re more likely to seek debt advice over the next six months, compared to 2% of those aged 55-64.

This has prompted the FCA to put a support package in place which works in tandem with UK lenders.

“Our surveys have shown that younger and BAME consumers have been impacted more than others, with a large amount of the population already having seen significant changes to their financial stability since the start of the pandemic,” says Sheldon Mills, the FCA’s interim executive director for strategy and competition.

How the FCA wants lenders to help

Aneesh Varma, founder and CEO of Aire, a UK credit reference agency, says that “for lenders, the problems are three-fold”.

One is that the effect on borrowers is highly unpredictable. “If unemployment reaches 10-15% as anticipated, many more people will fall into financial difficulty,” Varma highlights. He adds that this would reduce disposable income and affordability for many more.

“Second, the usual tools in place for lenders to assess their customers are no longer helpful,” says Varma. He points out that traditional data sources are “just not dynamic enough”.

“Third, the regulator will quite rightly hold lenders to account over their treatment of consumers […] – it’s not good enough for them to turn their back and brace for default,” says Varma.

The FCA has built its support package in accordance with recent lockdown measures. These have seen northern cities like Manchester and Liverpool endure second lockdowns.

The regulator calls on firms to “be flexible and offer a full range of shorter and longer-term options”.

These include suspending, reducing, waiving or cancelling further interest or charges. As well as no or reduced payments, a repayment plan and tailored support for overdraft customers.