Is the financial watchdog doing enough to help those stuck in debt?

Britain’s banks and other credit card lenders started the new week with a yellow card. Sort of. The Financial Conduct Authority delivered to them one of its “Dear CEO” letters reminding them that they’ve been told to behave better with respect to their struggling customers and demanding they “review” their practices.

These are the sort of things that said CEOs find about as welcome as three separate burglar alarms going off near where they live during the early hours of a Monday morning, particularly with results season looming.

But the warning was timely nonetheless.

It was back in 2018 that lenders were first told they had to do better by their struggling customers by identifying and contacting persistent debtors; those showing signs of stress for at least 18 months.

The people among them who’ve been unable to get out of the pit since the new rules were supposed to have been implemented (September 2018) are now close to being designated PD36s – FCA speak for having spent three years sailing up a certain creek without anything resembling a paddle.

Lenders should now be about to contact these people once again, this time with proposed repayment plans designed to reduce their borrowings within three to four years.

They also have the option of cutting up customers’ cards so they don’t get into further trouble and of offering a degree of debt forgiveness. Care to guess which of those they’re likely to find more appealing?

Alongside the letter, Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA (which does love it’s long and wordy titles), had some advice for people who’ll be getting a letter: “If you can’t afford to meet the repayment schedule that the credit card firm is suggesting, don’t be afraid to tell them.”

And they should because the rules are, in theory, on their side. They’re supposed to prevent struggling borrowers from being faced with unreasonable demands that might, for example, prevent them putting food on their children’s tables.

Trouble is, advising stressed customers that they shouldn’t be afraid of challenging a big bank and asking for something better is a bit like asking a rabbit not to be afraid of a hungry python. That’s true even if they are unlucky enough to have lenders that fully embrace the new rules, which is asking quite a bit from the UK industry as currently constituted.

Old habits die hard and sometimes they’re ingrained. That’s true of both sides of this particular equation.

There are many reasons why people are often reluctant to respond to letters from their lenders. They may hope that the problem will go away, or that something will turn up. There’s also the fact that speaking to a bank whose predatory lending has contributed to your personal crisis might very well feel like spending a week locked in a dark room with only a constant stream of The Exorcist for company.

Some people in “persistent debt” don’t recognise themselves as such, or don’t want to see themselves as in that category.

Contacting one’s lender and responding to its communications is, it should be stated, sound advice, but the better plan is for people in this situation is to speak to an organisation that has expertise in the field and can help. Debt charity Step Change or Citizens Advice are examples of those who might assist troubled borrowers with saying no.

The FCA’s attempt to take the predatory out of predatory lending is entirely laudable, but sometimes it doesn’t empathise as well with the victims of those practices as well as it might and these organisations do.