PRA Group, Inc., a global leader in acquiring and collecting nonperforming loans, has partnered with the UK’s largest debt charity, StepChange, to identify cost-of-living trends and practical responses to help support households in financial difficulty. 

The partnership has been proactive in working with UK Finance members, government, academics and regulators to identify ways to build the resilience of UK households left financially vulnerable by cost-of-living pressures. The main trends and solutions identified at a recent round table meeting are outlined below.

Note: The views below do not necessarily reflect the consensus opinion of participants or those of UK Finance, StepChange or PRA Group.

On cost-of-living trends, participants highlighted three key developments:

• Falling incomes: There is evidence of falling disposable income and higher credit card borrowing (e.g. credit card borrowing for those under 28 years of age is 50 per cent higher than pre-covid levels, based on participant data).
• Rental sector: While much of the mainstream focus has been on mortgage costs, there is evidence of vulnerabilities in the rental sector (the UK has around 37 per cent renters v. 28 per cent mortgage holders).
• Stable arrears, for now: Arrears have been stable and below pre-covid levels, but this could be disguising a lag effect as people cut back spending, use savings, use more credit, or delay seeking help.

On cost-of-living solutions, the round table highlighted a range of ideas to help households:

• Cross-sector approach: Regulatory standards in financial services need to be replicated by utilities, telecoms and the public sector.
• Credit scoring: Improvements in credit scoring and reporting are needed, as worries about credit scores are a major reason why people in financial difficulty are reluctant to contact their lenders for help.
• Affordable credit: Illegal money lending is on the rise, so there is a need for safe, affordable credit solutions and early conversations with creditors and the free debt advice sector to protect the financially vulnerable from going down this path. 
• Better communication: There is a role for simple and clear customer communications that encourage conversations as part of effective approaches to identifying financial difficulties earlier. 
• Coordinated advice: In cases where pre-arrears customers have multiple debts across banks, there needs to be a way to coordinate early debt advice.
• Best practices: Identifying and highlighting industry best practices may be helpful in setting out the building blocks and tools to help customers. 
• Education: Supporting financial education and saving needs to happen alongside debt solutions.

As a next step, PRA Group and StepChange will focus on exploring how practical changes to credit scoring and the way firms report credit history events could help encourage customers to seek support earlier and – by making regular debt repayments – improve their credit scores. Through our continued work with UK Finance members, government, academics and regulators, we will aim to achieve better outcomes for customers who are concerned about their finances in the years to come.