As we head into the summer, some parts of our lives are beginning to look more like they did before the global Covid-19 pandemic but in many other ways, we are just starting to get to grips with the bigger picture including the question of the long-term financial effects.
Consumers have had a number of options made available to them in the wake of the rapid spread of Coronavirus, and I think there are two key factors that are going to have very long-term Financial impacts. First, payment holidays. Over one million people have taken up payment holidays on mortgages, loans, credit cards, and other products. In many cases, this will have given then 3 months off from their regular repayments, with the understanding that they will still have to pay the total amount borrowed in full, with those three months now being added on to the original end date. In June the FCA announced that payment holidays could be extended an additional three months.
Another key factor in the long-term Financial effects of the pandemic is the government furlough programme. This allowed employers who knew their business would dry up during a pandemic to have their employees stay home, stop working and have 80% of their normal salary paid to them by the government. That scheme is set to end in October, but from August employers will have to recommence paying furloughed workers National Insurance and pension contributions. In September they will also have to directly pay 10% of furloughed workers pay, rising to 20% for the final month of the scheme. From July, employers are also able to return furloughed workers to work part-time, but if they choose to do so they have to pay 100% of those worker’s wages.
As the furlough scheme comes to a close and gets progressively more expensive for employers, there are going to be some very difficult choices to be made by companies who have been hit hard by the dramatic downturn in spending or those businesses who have been rendered fundamentally unable to operate by the conditions of lockdown. Businesses may decide to let people go, finding they can’t afford to bring them back or to have to pay their full wage while they are still unable to work, creating one of the biggest indirect long-term effects.
This raises some big questions about the state of play for workers who have already taken payment holidays. Many people are about to be in a worse financial situation than they were in the first two months of the pandemic when they were quick to take up the tools available. They can hope that the government decides to extend schemes further but it seems very unlikely that we’ll see furloughs and payment holidays given more than a few months extensions, if any. For people who have already taken up these offers and are now left with reduced to limited income, they face a very difficult road ahead in terms of paying off their lending. By the end of the year, I expect we could well see this having a knock-on effect in the Consumer Finance industry as organisations struggle to collect and recover money owed to them by people who simply don’t have it.
The Financial Conduct Authority is currently in the process of a consultation on the treatment of vulnerable customers, so we know this is a key area of interest for the regulatory body. The FCA guidance around Coronavirus includes a discussion of the pandemic making already vulnerable customers situations more difficult, as well as putting some people who would not previously be classed as vulnerable customers in newly vulnerable positions due to “sudden and significant loss of income”. Organisations need to be prepared for the long-term impact here: increased activity involving both recovering funds and receiving complaints from vulnerable customers, and I would recommend any Financial Services business to be mindful of who they have handling that work. At a time when many businesses will have reduced headcount, there will be staff being asked to pick up complaints or collections work who do not have specialised training in working with vulnerable customers and who will potentially be facing large volumes of complaints.
Staff who are dealing with high-pressure work with a high volume of cases, and may be working remotely with less support than they would normally receive, may need extra support and time off to deal with the stressful situation in a healthy manner and employers should be mindful of this. With the Financial Services sector being affected by the pandemic in a high-profile way, I think we may see some employees looking for work in other sectors, or, having had their first experience of working from home, seeking long-term home-based work if the bank or Financial Services business they work for is unable to offer that. On top of all of those factors, employers need to think about members of staff who are unable to return to work on the same timetable as the rest of their teams due to shielding high-risk family members or having to care for children full time who would normally be going to schools or nurseries.
So how can the Financial Services sector prepare to handle these intersecting issues of low headcount and high-pressure requirements? I think organisations need to think about ramping up their Collections and Debt Recovery capacity and investing in highly experienced Complaints specialists who are ready for the rising tide and who are adept in working with vulnerable customers. Whether it’s a whole new contract team on-site or an outsourced specialist to relieve your own team of the most high-risk calls, Kind Consultancy can help your Financial Services organisation be ready and fully prepared to handle the long-term impacts of the pandemic in the second half of 2020. For a confidential discussion around your business’s needs, contact me on 01216432100 or e-mail firstname.lastname@example.org