The subject of debt has been on my mind a lot recently, in relation to both our company and our customers.
It’s also been in the news. Some research released in January by the Financial Conduct Authority (FCA) and the Bank of England into Britain’s expanding consumer debt made for surprising reading.
Against the prevailing wisdom and headlines, chief among its findings was that the recent rise in consumer debt has been fuelled by the most creditworthy borrowers.
They were, in many cases, sensibly taking advantage of cheap car finance deals and interest-free credit card offers.
While highlighting what they believe to be at the core of the growth in consumer credit, they delivered a timely reminder that debt, and its many forms, is complex and dynamic.
The debt challenges we will collectively face in 2018 and beyond are not necessarily the same ones we faced a decade ago.
BrightHouse came through our own debt challenge recently. On February 2, we completed the refinancing of our corporate bond for the next five years, acquiring some new owners in the process.
Our refinancing was the last piece of the jigsaw for our full regulatory authorisation from the FCA. So the deal completion and our authorisation happened almost simultaneously.
“It sounds simple. It wasn’t. It took a lot of hard work from a lot of great people, and BrightHouse is a very different business these days”
Putting it that way, it sounds simple. It wasn’t. It took a lot of hard work from a lot of great people, and BrightHouse is a very different business these days.
We have been through huge amounts of change as we sought to bring our practices, affordability tests and forbearance measures in line with the evolving regulatory environment.
Now, thanks to our refinancing, we have a firm financial footing, while our authorisation means our regulator has recognised the work we have done to ensure we are lending responsibly and treating customers fairly.
Which brings me back to the subject of debt. Corporate bonds are one thing, but consumer debt is an emotive issue that generates a lot of headlines. And so it should be – it’s very personal.
People borrow for all sorts of reasons, which are linked to their stage of life and circumstances: buying a house, paying for a degree, getting a new sofa.
Whatever is behind the decision to borrow, lenders must do their utmost to give everyone the best chance they can to repay the money by ensuring that the debt is affordable.
This comes down to understanding your customers and specifically their ability to make the repayments, through detailed analysis of their income and expenditure. That is a responsibility we take very seriously.
“Debt is an emotive topic that rightly generates headlines, but it is a complex and dynamic issue”
Getting affordability right at the start is not enough. Our customers tend to be people on lower incomes with impaired credit histories and are less able to absorb financial shocks.
This places a special onus on us to provide constructive and responsible ways to help those who fall behind with repayments.
That is why we offer such diverse options for those who find themselves in financial difficulty. From payment holidays to reduced payments over an extended period, swapping your product for a cheaper one or returning it altogether and owing nothing further.
As I said, debt is an emotive topic that rightly generates headlines, but it is a complex and dynamic issue.
The Bank of England/FCA debt paper offers critical evidence that can usefully inform debate and future policy decisions.
The more understanding we can collectively amass about debt in the UK the better, not just for those who lend and those who borrow, but for everyone.