Are we being encouraged to become further in debt?
Debt is something that many of us have had in our lives and whilst for many of us it is manageable, for others it can take over their lives. Most of the time, the debt that we are in is down to our own choices. However, we might not be as in control of what has happened as we may think.
In fact, the Financial Conduct Authority believes that borrowers, particularly those who are vulnerable, may be encouraged to take out debt. Especially from high-cost lenders or those lenders that offer repeat borrowing options.
What are the FCA concerned about?
Whilst the FCA recognise that debt is something that happens, it is down to them to ensure that lenders are acting in a way that is responsible. They ensure that borrowers are protected and that they do not end up in a debt which is harmful.
This includes repeat borrowing, or increasing the amount of debt that is already owed. Repeat borrowing can cause those who have poor credit histories, or who have low financial resilience, to juggle their repayments.
They may end up feeling that they have no other option than to prioritise their debts and decide which bills get paid and which will get put off until a later debt.
This can lead to spiralling debt, which can ruin their long-term financial situation and make them even more vulnerable in the future.
How do they believe that the high cost lenders are encouraging debt?
So, which tactics are the ones that the FCA are concerned about? It is more the idea of nudges in a certain direction, rather than obvious adverts which are encouraging debt.
One way that they do this is to use exotic holiday images or expensive cars within their marketing messages. They show it as a way to treat yourself, or to relax and unwind, which can then in turn encourage you to want spend out on this for yourself.
Another way that they subtlety try to influence is to present their borrowing process positively. They want it to be seen in a way that makes it appear easy and simple to do. They will also want it to be seen as beneficial to take out more credit from them.
The FCA believe that these lenders should be showing the risk of taking out too much debt to their borrowers. Not only this, but they should be ensuring that their potential borrowers understand and assess their own personal financial situation. Particularly when it comes to considering any further debt.
Of course, it is down to the lenders to ensure that they make the right decision for them. They should consider what will benefit them in the short-term and the long-term. No matter what type of marketing the lender themselves present to them.