The Finance & Leasing Association (FLA) has highlighted the need for changes to the Consumer Credit Act (CCA) following 526,000 Covid-related requests for forbearance to its members by mid-April.
Giving evidence yesterday to the Treasury Select Committee on the economic impact of Coronavirus, Stephen Haddrill, Director General of the Finance & Leasing Association, highlighted the need for non-bank lenders to have access to the Term Funding Scheme, and for critical changes to be made to the Consumer Credit Act to allow swift help for consumers in financial difficulty.
Haddrill said “By early April, FLA members had received an estimated 526,000 Covid-related requests for forbearance, and had helped almost 60% by that date with more in the pipeline. Lenders are rightly supporting their customers – in many cases, the lenders and borrowers know each other well.
“The non-bank lending sector relies heavily on capital markets and bank funding – two sources of finance which are currently closed. The result is that these lenders will not be able to provide new lending as well as forbearance – and when you consider that these finance companies provided £46 billion of funding during 2019 to SMEs for business investment and point of sale finance for consumers, that would be a huge loss to the economy right at the point when funding will be needed to help the UK recovery.”
“To remedy this, we want to see the Term Funding Scheme opened to non-bank lenders as a matter of urgency, and eligibility criteria streamlined to fast-track firms which are FCA regulated or already part of a British Business Bank scheme.”
“At a time when customers need quick and simple solutions to help them manage disruptions to their incomes, the inadequacies of the CCA have been thrown into sharp relief.”
“The CCA includes formal and complex modifying agreement provisions which requires a new agreement to be sent to the customer, signed and then returned before they are activated. Imagine how labour-intensive that process is when multiplied by the number of customers seeking forbearance.”
“In the next couple of months, a further problem which will manifest itself – the Notice of Sum in Arrears – an abruptly worded letter which the lender is required to send, even though a new payment arrangement has already been agreed. It will no doubt trigger another spike in calls as customers question why this has been sent. This is inexcusable when customers are already worried.”
“While the FCA is obviously aware of the problem, we have had little clarity on what happens at the end of this period of disruption to help consumers transition back to a normal payment schedule and firms back to normal business. A clear exit strategy is needed.”