Alternative protection products: Bridging the gap

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The government is committed to developing alternative protection products but, as debt spirals, how far away are we? Paul Walsh investigates.

At a Westminster Hall debate on Tuesday 2 May, Andy Love MP, a member of the Treasury Select Committee, called on the government to take urgent steps to conduct a review of the state of consumer protection and determine a plan of action to close the protection gap.

Given that the squeeze on real incomes continues at time of increasing consumer expenditure, he said, the problem of unprotected borrowers is likely to intensify if action is not taken.

A survey by the Citizens Advice Bureau in December 2012 revealed that debt problems are damaging people’s mental health, highlighting the harmful effects this can have on work, health and family life.

The University of Birmingham’s Financial Inclusion Annual Monitoring Report 2013 found that in 2012, the real value of workers’ wages fell back to 2003 levels, following several years of pay freezes and economic restructuring. Indeed, low-income households will not return to their pre-2008 earning levels until at least 2018.

On top of this, the payment protection insurance scandal has left the financial services industry with a tarnished reputation and there has been an erosion of confidence at all levels, with consumers feeling alienated by the level of doubt caused.

As a result, the number of borrowers in Britain safeguarding new loans and incomes from mishap has collapsed to almost 1%, and a record number of people in the UK are now resorting to payday loans.

The Financial Inclusion Task Force (TITF, now disbanded) concluded in December 2010 that, in the UK, the experience of banking and the financial services for poorer households has been ‘mixed’; and that, in order “to address the main difficulties that poorer households experience with banking and financial services, it will be necessary to explore new models and channels for the delivery of financial services”.

CUNA Mutual conducted research into the state of financial insecurity in the UK in 2013, surveying more than 2,000 households. Andy Love described these findings as “stark”. 44% of respondents claimed they were cutting back on heating and 59% on food, simply to make ends meet.

Two out of three were concerned about losing their job; six out of ten were anxious about their financial affairs and 20% said they would find themselves in financial difficulties within a month of losing their job.

The current state of play is that, thanks to the shadow of the PPI scandal, payment protection policies have been withdrawn from the market by all but the very small, specialist providers. With the scandal as toxic as it is, there is little or no prospect of the main players re-entering the market.

In January last year, the FSA and Office of Fair Trading released joint guidance on protection products and endorsed the development of a suite of lending products that are fair, transparent and affordable. 

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