07 Oct 2022 | Posted In Money advice news

New research from StepChange and Amplified Global has shown that two in three StepChange clients surveyed felt they could have been referred to debt advice sooner by their creditors, underlining the need for earlier intervention, constructive communication, and proactive signposting to debt advice

The report assesses the extent to which communications from creditors help people take action to resolve their debts. It finds that while communications can sometimes be effective, many of those surveyed said they faced barriers to getting the help they needed. Only a minority felt the communications they received had helped them understand their options or reassured them that help was at hand.

Initial barriers to getting help included feelings of shame and embarrassment (56% of respondents), a lack of awareness about the seriousness of their financial situation (35%) and a lack of information about how debt advice could help them (34%).

These barriers were often found to be compounded by communications from lenders. Nine in ten survey respondents said they triggered negative emotions including fear, helplessness and being overwhelmed. The common use of legal and regulatory language was regularly found to inhibit understanding and reinforce negative emotions. Just 38% of respondents felt that the communications they received helped them understand their options and only 27.5% of people felt these communications reassured them that their creditors would help them solve their problems.

Overall, more than two thirds (69%) of those surveyed felt they could have been signposted to debt advice earlier, with over half (53%) of StepChange clients surveyed waiting more than a year before seeking debt advice.

The Financial Conduct Authority’s (FCA’s) final Consumer Duty rules raise expectations on the consumer outcomes delivered by both communications and support offered to people in financial difficulty. With the cost of living crisis affecting the finances of so many households, the report aims to establish an open dialogue between the advice sector and the credit industry to address these issues and ensure a clearer, more reassuring message on how and where to access help.

The findings echo those published by the FCA in June of this year, which also highlighted the need for firms to be swift to respond to consumers in financial difficulty, particularly in the light of the ongoing cost of living crisis. Its Dear CEO letter to more than 3,500 lenders reminded them to provide tailored support to struggling borrowers, including effectively directing customers who need it to money guidance or free debt advice.

Recommendations put forward by StepChange and Amplified Global™ to the government, industry and regulators aimed at addressing the issues raised by the report include:

  • Simplifying creditor communications and giving people a clear plan of action by developing objective measures to evaluate the readability and effectiveness of communications for people in financial difficulty and simplifying and improving the tone and presentation of text so people feel confident creditors can and will help them.
  • Better and quicker identification of financial difficulty and reducing barriers to help by reviewing the early identification rules and firms’ implementation of them and reducing the impact on credit records of asking for help with payment difficulties.
  • Reviewing the Consumer Credit Act requirements on creditor communications to ensure content prescribed by legislation and rules does not overwhelm people and lead them to disengage.

StepChange Head of Policy Peter Tutton said:

“These findings are designed to help the advice sector and creditor organisations decide how best we can work together, and with regulators, on practical steps that would deliver earlier and better identification of financial difficulty and vulnerability, improve the effectiveness of communications and ultimately improve outcomes for customers.

“By developing messaging that focuses on helping people to resolve their situation, empathetic communications that recognise the emotional impact of financial difficulty, and the presentation of a simple, clear plan of action, creditors can ensure better outcomes for more consumers. We hope the experiences outlined in this report will inform further steps by government, industry and regulators to improve the effectiveness of creditor-consumer dialogue and get people to the help they need earlier and with less anxiety.”

Faith Reynolds, Amplified Global Research and Strategy Lead, said:

“People are deeply affected by financial difficulties and the communications they receive as a result. Words inform interpretation and the way we make sense of the world around us. Debt communications aren’t working well to help people get the support they need in a timely manner. Now’s a good time to reassess the purpose of legal and regulatory communications so they deliver the good outcomes envisaged by the FCA’s Consumer Duty. Amplified Global™ looks forward to continuing its work with StepChange to make sure credit and debt communications lead to more people getting help quicker.”