FCA firms required to engage early with customers in payment difficulty

Consumer credit firms have been required since November 2024 to engage early with customers who are in or approaching payment difficulty, according to a review of problem debt and homelessness risk published by the Centre for Homelessness Impact and the University of Bristol's Personal Finance Research Centre¹. The same review sets out the wider benefit and debt enforcement changes that affect low-income households, including the reduction in the Universal Credit deductions cap and the planned removal of the two-child limit¹.

The report states the requirement plainly:

The review places this alongside other measures affecting household budgets. From April 2025, the overall cap on deductions from the Universal Credit standard allowance was reduced from 25% to 15%, a change the report describes as a new Fair Repayment Rate; Citizens Advice estimates this will benefit 1.2 million households, boosting incomes by £420 per year on average¹. In February 2025, 47% of all Universal Credit households were subject to deductions¹. The two-child limit is to be removed from April 2026¹. From April 2026, there will be multi-year funding for councils in England to help people manage priority debts, among other things¹.

The scale of the problem is set out in the same review. In 2024, the Financial Conduct Authority estimated that 9.5 million UK adults, or 18%, were over-indebted¹. In October 2024, the Joseph Rowntree Foundation found that 44% of the poorest fifth of households were in arrears on commitments and bills, with almost half of that group in arrears on three or more bills, owing £2,100 on average¹. A 2022 Department for Work and Pensions survey indicated that 88% of Universal Credit claimants and 80% of legacy benefit claimants were behind on bills and commitments, with Universal Credit claimants owing an average of £4,755 across all sources of debt¹.

The review identifies rent arrears, Council Tax debt and utility arrears as the most significant debt types, carrying severe and often rapid enforcement consequences¹. It says low-income renters typically manage multiple overlapping arrears, often owed to public bodies as well as private creditors, and that inadequate income and benefit deductions force households to make trade-offs between essentials¹. On housing costs, it reports that low-to-middle income renters in the private rented sector spend 41% of their income on housing, compared with 30% for social renters and 18% for mortgagors¹.

Why it matters for households

For anyone behind on a consumer credit agreement, the November 2024 requirement means firms are expected to make contact and discuss the position before arrears escalate, rather than waiting for missed payments to build up. The review does not set out the specific forbearance options firms must offer, and no detail of how the requirement is being enforced has been reported.

The benefit changes operate on a different timetable. The lower deductions cap took effect in April 2025, so affected Universal Credit claimants have already seen the maximum taken from their standard allowance fall. The two-child limit removal and the council funding for priority debt work are both dated to April 2026, so their effect on household budgets has not yet been felt.

The review's own framing is that debt and homelessness reinforce each other: debt damages mental and physical health and reduces people's capacity to engage with landlords and services, while homelessness generates further debt through higher living costs and disrupted benefit claims¹. It also notes that targeted support alone cannot offset structural risks without wider system reform¹.

What happens next

The two-child limit is due to be removed from April 2026, and multi-year funding for councils in England to help people manage priority debts begins from April 2026¹. The review also refers to the government's Financial Inclusion Strategy published in November 2025¹. No further dates for the early engagement requirement are given.

Households dealing with arrears can read how lenders must treat them when they fall behind, what to do when a creditor refuses a repayment offer, and how much can be deducted from Universal Credit. For borrowing more generally, there are guides to payment holidays on loans and credit cards and to rights under the Consumer Credit Act.