A Second Wave of Financial Difficulties
"Open for business," cries the country as we begin to emerge from our 12 week hiatus. A twelve week period which has cost billions to the UK economy and businesses alike, a 20.4% fall in GDP in April highlighting the seriousness of the recession.
These 12 weeks have cost us, they have (most importantly) cost lives, they have cost businesses and some individuals have been left with a reduced or no income at all. We must not ignore the impact COVID-19 has had on those individuals, even those who have not suffered reduced income are left with uncertainty about the future (will we have a “V” shaped recovery?) and an anxious wait to learn just how secure their job is as the recovery begins to take shape.
Early in the lockdown the Financial Conduct Authority (FCA) acted quickly to place requirements on firms to offer a three month payment break where customers have been placed in financial difficulty thanks to the virus. This has been in place for over two months now and will have served customers well, to date. However, the FCA were not as clear on how we should exit customers from their three month payment break, they have now, helpfully, released their view.
In essence firms should:
Contact customers who are coming to an end of their payment referral to ascertain if they are still in financial difficulty.
Where a customer is unable to begin making monthly payments again the firm should look to impose a further payment break, or agree an affordable payment plan in line with the customer's income and expenditure. The suggestion is that this payment plan should be reviewed three months after creation.
As part of the above, contact firms should try to agree a plan on how the missed payments could be repaid. This could be through additional monthly payments spread over a longer period of time, extension of the loan period, or in one payment if the customer can afford it.
It’s important to note that the worst has not passed in respect of financial difficulties; the initial payment freeze was designed to help those customers who lost their income early in the pandemic or were given a reduced income due to furlough. This was wave one for financial difficulties.
Another wave is likely, that wave is to be made up of customers who lost their income due to the recession. Many will not be made redundant until the furlough scheme ends, so now is the time to ensure your staff members are fully briefed on your financial difficulties strategy and this includes the need to allow anyone asking for a three month deferral to be granted it, as long as they ask prior to 31 October 2020.