Members of the Finance & Leasing Association (FLA) received an estimated 526,000 Covid-related requests for forbearance by mid-April, and have already helped almost 60 percent, according to the trade body.
Giving evidence yesterday to the Treasury Select Committee on the economic impact of Coronavirus, Stephen Haddrill, director general of the FLA, highlighted two key points: The need for critical changes to the Consumer Credit Act (CCA) to allow swift support for consumers, and the need for non-bank lenders to access the Term Funding Scheme.
Speaking after the MP session, Haddrill said that when customers need quick and simple solutions to help them manage disruption to income, the CCA’s “inadequacies have been thrown into sharp relief.”
He added: “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.”
Access to funding
For FLA members who are non-bank lenders, Haddrill explained that they rely 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,” he said, adding: “When you consider that these finance companies provided £46bn 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.”
Haddrill said the FLA wants 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.
The FLA had recently called for the change, warning the government that support requests to lenders had surged 1,000 percent.