We find that consumers fall behind on credit payments significantly more when they lose their job.
Our economic analysis looks at the impact of income shocks on consumer outcomes such as consumption, borrowing and credit arrears. The analysis uses FCA survey data from the covid pandemic to quantitatively estimate the impact of income shocks.
This research offers an evidence base by which we can regulate firms conduct effectively. Better understanding the drivers of financial distress is crucial in ensuring we can deliver on our objective of protecting consumers.
We are particularly concerned with how firms can support consumers in changing life circumstances. This is part of our commitment in the Consumer Duty.
We are currently consulting on changes to our rules to help in strengthening protections for borrowers in financial difficulty.
We find that:
- consumers fall behind on credit payments significantly more when they lose their job or become long-term sick or disabled
- falling behind on a credit payment is nearly 2x more likely after a job loss and nearly 3x more likely after leaving work due to long-term sickness or disability
- going into arrears is more persistent for those who lose a job than for those who leave work due to long-term sickness or disability
- we do not find significant shifts in the number of consumers who use credit cards or overdrafts or increase their debt levels with these products
Authors
Daniel Bogiatzis-Gibbons and Eoghan O'Brien.
Disclaimer
Research notes contribute to our work by providing rigorous research results and stimulating debate. While they may not necessarily represent the position of the FCA, they are one source of evidence we may use to discharge our functions and inform our views. We strive to ensure research outputs are accurate, through checks including independent referee reports, but the nature of such research and choice of research methods is a matter for the authors using their expert judgement. To the extent that research notes contain any errors or omissions, they should be attributed to the individual authors, rather than the FCA.