On 10 September we hosted the latest Retail Banking Mixer in our In Conversation series. This session focussed on debt in the retail banking sector and we were joined by Mayoor Patel, Head of Legal (Retail & Wealth) at Lloyds Banking Group and Peter Tutton, Head of Policy at StepChange Debt Charity who gave their views on the latest issues affecting the industry.
Debt tsunami
The main topic of discussion was the approaching “debt tsunami” that is due to hit the UK economy when the COVID-19 forbearance measures and furlough scheme come to an end. The following main points were covered:
- the ending of the furlough scheme in October will bring uncertainty as no one can predict how many jobs will go back to normal;
- for many this will also coincide with having to restart mortgage repayments as their payment holidays end;
- consumers aren’t only worrying about credit as polls show that many are struggling to pay utility bills and council tax – it is clear that financially vulnerable consumers will need all sorts of financial help;
- it is important to ensure that, when these schemes end, the safety net is adequate to allow consumers to get the financial assistance they need.
Technology
The panel discussed how the pandemic was forcing change to the industry’s digital landscape:
- the government support schemes were designed to be delivered to customers quickly but they posed many operational challenges for lenders;
- one positive result of such challenges was that lenders were forced to utilise previously unexploited digital solutions to cope with the inundation of calls received from concerned customers;
- technology will continue to play a part as stakeholders will need to rely more heavily on digital solutions to help customers get back on their feet after getting into financial difficulties during lockdown and beyond;
- open banking might have a role to play in enabling the industry to successfully delivering future debt solutions.
Future forbearance measures
The conversation explored what future forbearance measures might look like as a result of COVID-19:
- the current forbearance framework is a good starting point but it is based on old guidance;
- when considering future measures, the focus should be on the outcomes that the industry wants such measures to generate;
- three key outcomes should be:
- ensuring that future debt solutions do not cast a long-term shadow for consumers;
- ensuring that debt solutions are consistent across the industry – it was suggested this should be a role for the regulator to be more proactive in how to achieve consistency; and
- ensuring early engagement of customers;
- lenders will need to be more flexible in tailoring forbearance solutions to customers’ needs in order to meet the regulator’s requirement of treating customers fairly based on their individual situations.
Breathing Space
The discussion also touched on Breathing Space as an additional debt solution:
- the panel agreed that Breathing Space is a positive step towards helping more people in debt get back on their feet by giving them adequate space to recover;
- there will be challenges around implementing the legislation, particularly in regards to the impacts of COVID-19.
With so much uncertainty, it was hard for the panel to predict exactly what might happen in the coming months but they advised that collaboration across the industry will be required to weather the storm.