Updated: Feb 12
When we held the webinar addressing how the Covid-19 pandemic might impact on the propensity of consumers to be deemed as impecunious, our expectation was that it would be more likely that a greater number of consumers would fall victim to the financial challenges and, more importantly, be compelled to make a more realistic assessment of what might constitute a reasonable approach to spending money. I am conscious that defendant insurers are still placing store on the perception of available free cash as being the determinant of whether the recoverable hire charges should be assessed at the basic hire rate or at the credit hire rate.
The FCA have issued a report today titled “Financial Lives 2020 survey: the impact of coronavirus”. A copy can be obtained at the link below and it is well worth downloading. I think there are some really strong references and would suggest that it be included within the trial bundle in circumstances where impecuniosity is being alleged in order that counsel can address some of the points in the report in submission:
The report considers a number of issues based on the most recent release of the results from the ongoing survey being carried out by the FCA as to the vulnerability and resilience of people in the financial markets. As the title suggests, it reports on the impact of the Coronavirus pandemic on the economic and financial fortunes of consumers, something I would have thought the judiciary would have to take judicial notice of. There are some very helpful conclusions.
For example, people are described by the FCA as having low financial resilience if they are over-indebted or have little capacity to withstand financial shocks. They give an example of such low financial resilience in cases where individuals could not withstand even a £50 reduction in their monthly income or losing their main source of household income for even a week.
The report specifically identified that three in eight adults (38% or 20.0m) have seen their financial situation overall worsen because of Covid-19 and 15% (7.7m) have seen it worsen a lot.
They also note that groups that have been particularly hard hit include the self-employed, adults with a household income less than £15,000 per year, those aged 18-54, and BAME adults.
In addition, the research identified that, certain demographic groups were far more likely than others to have low financial resilience, and therefore be at greater risk of harm. Those least able to cope with a financial shock included unemployed adults (47%), renters (47%), adults with a household income of less than £15,000 (43%) and Black adults (34%).
On the issue of what might constitute a reasonable financial safety buffer i.e. the amount of savings that consumers were considered to need in order to protect themselves from a financial shock, the FCA said that:
“Having money set aside in an accessible savings buffer, to pay for an unexpected expense or to draw on if you lose your job, is a sensible plan.
While the amount that should be set aside might vary according to each individual’s circumstances, financial experts generally recommend a figure of at least three months of expenses(http://www.moneyadviceservice.org.uk/en/articles/emergency-savings-how-much-is-enough).Yet, in February 2020, 39% of adults (20.3m) said they could only continue to cover their living expenses for less than three months, if they lost their main source of household income.”
That may be something that Claimant’s might want to reflect in their evidence, if appropriate.
The report continues:
“People who use credit may be able to cope under ‘normal’ circumstances, and some will have no problems, such as those who pay off their credit or store cards every month. But a sustained income shock may push some into difficulties. This may be particularly true for those who are borrowing using high-cost credit or have levels of borrowing that are unsustainable. For example, in February 2020:
One in ten (10% or 5.1m) were constantly or usually overdrawn. There was no significant change in these numbers between 2017 and early 2020. Many were using their overdraft facility to pay for essential living expenses, such as their rent or mortgage payments.
One in twenty (5% or 2.8m) had persistent credit card debt because they were revolving a balance on a credit card and had paid more in interest, fees and charges over the previous 12 to 18 months than they had actually paid off on their card(s).
One in ten (11% or 5.6m) held one or more high‑cost loans, unchanged from 2017 (10%). It was very common for people to be using high-cost credit to cover day-to-day expenses.
Less than 0.5% (0.2m) told us they had borrowed from an unlicensed moneylender or another informal lender in the previous 12 months, unchanged from 2017.
A fifth (20%) of mortgage holders (3.5m) had outstanding mortgage debt at least four times their annual household income. This was a significant increase on the 14% of mortgage holders in 2017.
In total, 23.7 million adults (45%) were unable to cover their living expenses for three months or more or were borrowing in one of these ways in February 2020. This placed them at greater risk if they were to experience a persistent drop in income, for example due to furlough or losing their job.”
I do think this report is well worth reading and consideration should be given to determine how its conclusions might assist in sustaining assertions of impecuniosity.