While our daily news feeds focus primarily on vaccinations, the world economy, political intrigue and celebrity misdemeanours, it’s easy to miss the good news. And recently, in financial services at least, there was good news for vulnerable people who find themselves in spirals of debt.
On 22 January 2021, the House of Lords debated the Financial Services Bill 2019-21 in what they call a “line by line examination”. As with many bills that travel through the bureaucratic wormholes of Parliament, the journey is an arduous and lengthy one, but scrutiny shouldn’t be rushed in these matters. They are matters of great import to those who struggle with finances, particularly because of Covid-19. And to have the bill pored over by those who don’t necessarily have the same financial problems should never be a significant distraction from the good it will eventually do.
The bill has two clauses we’re particularly interested in: 34 and 35. They relate to debt repayment plans and the UK government’s Help to Save scheme, respectively. Clause 34 tackles the subject of how to make financial life more manageable for those who struggle to pay their debts. These are people from all walks of life who may have found themselves in precarious financial circumstances either by their own volition or by means over which they had no control.
The clause mentions the Breathing Space initiative that comes into force in May 2021, which will provide legal protection for people who need professional financial advice. Getting the right advice, according to Money and Pensions Service, means people are less likely to fall into problem debt, and costs associated with debt recovery are subsequently reduced.
The statutory debt repayment plan will create a more flexible environment in which creditors must provide debtors with more time and alternative repayment methods to pay back what they owe. It’s a more realistic framework for people to get back on track with their finances instead of fall inevitably into even more debt, which is something we see far too often.
Help people with financial literacy
Clause 35 is the logical next step in encouraging financial literacy among those who need it most. It’s when people understand how their money can work better for them, however little they earn, that lifestyle changes occur. And here we’re also talking about mental health issues around financial anxiety and depression. Financial literacy is as important as reading skills, and any help we can provide as financially literate companies should be pushed to the front of everything we do.
While there will be pushback from creditors over how much time people should be given to find a safe route out of problem debt, we must err on the side of helping people as much as possible. The statutory debt repayment plan will encourage people to engage with their debt and enter more willingly into paying it back rather than ignoring it in the hope it will go away. The challenge now is how fast the UK government can get everything in place to make it happen.
“We’re really concerned that we’re building up a debt time-bomb for people. The sooner people start to obtain help with the money worries they have, the better it will be for their financial health and their mental health.”
Rhiannon Evans, head of policy and campaigns at Citizens Advice Cymru – BBC News
Problem debt was around long before Covid-19, but the pandemic has exacerbated the requirement for action. More people than ever before will need financial advice and a plan to get back on their feet. And there will be positive knock-on effects seen across many industries. Let’s take buying a car, for instance. More people finance a car than buy it outright, and there are a few different ways to do this, such as PCP and leasing. It’s easier than ever to leverage technology in financing your car, and a good case study for this is our work with MotoNovo.
Part of the digital solution we built was an online environment for MotoNovo customers to manage their own finance agreements. This form of self-service portal promotes financial literacy and a sense of control over money in and money out. Digital banking apps do the same thing in helping people manage their money better, such as our recent work with Dudley Building Society and its online dashboard for budgeting and setting savings goals.
Urgency to implement
So, the willing is there. Many banks, building societies, vehicle financing companies and other financial institutions are onboard with the benefits of helping people manage problem debt because there are obvious benefits around higher debt recovery percentages. And when you look at problem debt from a purely human angle, there’s no better feeling than knowing you’re helping someone out of financial difficulty.
The technology is there, the motivation to tackle mental health is there, and all it needs is a push to make it happen from a legislative point of view. With more time to find good financial advice, more encouragement to repay outstanding debt, and more motivation to save, better financial literacy is within our grasp. I commend the government in setting up these schemes, but let’s get it done while it means more now to so many more people.
As Lord Lucas in the House of Lords put it: “It would be far better to get something up and running, to review it pretty swiftly – perhaps after six months – and to produce a better version then and a better version a year or two after that. This is something that the industry will learn to work with, and we should aim at the start not for perfection but for something practical and effective.”