Further Household Debt Could Hurt Businesses

16th March 2018.

The Financial Conduct Authority (FCA) has warned that a worrying number of borrowers may be “in too deep” with their borrowing.

The financial watchdog has warned lenders to strengthen their credit checks to prevent households from sinking further into financial distress. Consumer credit is approaching levels not seen since the financial crisis, and experts are concerned about the long-term effects. Lenders must scrutinise their client’s finances and only approve loans for those who are financially capable of repayment. As Brexit uncertainty and high inflation tighten its hold on households, it’s no surprise that many are struggling to pay the bill. It is therefore important that financial services provide the right advice and action.

As personal finances become increasingly erratic and people struggle to buy the essentials, retail becomes less of a priority to consumers. While financial institutions help households, businesses will have to help themselves. Directing attention towards cash flow will help offset profit falls, and even encourage those consumers who can afford to spend. At the Credit Protection Association, our debt recovery services offer a way to free up cash flow and improve business finances, allowing our members to try something new without falling victim to the credit frenzy.

According to Jonathan Davidson of the Financial Conduct Authority (FCA), the consumer credit sector has served around 39 million people with loans to help finance a car, a big purchase or so they could make ends meet towards the end of the month.

“There are a significant number of households that are in so deep that the slightest sign of rough weather could see them in over their heads,” said Mr Davidson.

There is further concern that in the event of an economic downturn, many tightly squeezed households will have to nothing to cushion the fall.

Mr Davidson added that the FCA would take action against firms whose business models were “predicated on selling products to customers who can’t afford to repay them”.

“And it’s not just unacceptable, it is unsustainable – the reputation damage of running a business of this kind will see confidence, and customers, drain away,” he added.

When individuals start to lose the thread on their finances, it does not just affect them and their families, but also their businesses. Service and retail sectors rely on customer engagement, so any change in spending habits directly affect their revenue. In response, businesses should look to their own cash flow to either expand or create enough savings to survive for a bit longer.

The FCA has announced penalties for businesses who do not respect the financially distressed, so owners should not pressure consumers into payments they cannot afford. Instead, investing in new technology or renovations could attract new customers, and will allow businesses to offset the slow retail season. At the Credit Protection Association, our debt recovery services allow our members to invest in something new, while our credit reports and company directories ensure it remains protected.