Flac warns over unsecured consumer debt ahead of winter energy price hikes

The Free Legal Advice Centres' report said rising inflation, higher energy costs, the PUP being phased out, and the wage-subsidy scheme probably being removed will put a lot of people under pressure
Flac warns over unsecured consumer debt ahead of winter energy price hikes

Eilis Barry, chief executive of the Free Legal Advice Centres, said: "We need more solid data in order to create policies that will protect vulnerable households from further stress following the pandemic."

The Government and banks have been warned the plight of distressed households struggling with consumer debt arrears from the fallout of the pandemic will likely be made worse as utility bills soar this winter.   

In a major report, 'Pillar to Post', the Free Legal Advice Centres, or Flac, said the problem of unsecured debt had been "incubating" since the onset of the Covid crisis and will be exacerbated by the energy prices crunch. 

The costs of heating and lighting homes are set to climb over the winter months as huge spikes in European wholesale prices are passed on to households. 

Flac said its warning is based on an assessment of the 36,000 payment breaks that lenders had provided for customers of unsecured or consumer loans last year, as the Covid restrictions first hit hard.  

Many people availing of the payment breaks returned to paying unsecured loans "on an extended term" only, pointing to an unresolved issue over unsecured debt for many households even before the recent hike in energy bills, it said. 

Flac said the figures were published by the banking industry group, Banking and Payments Federation Ireland, as well as the Central Bank. It also criticised what it said was the failure of banks to provide new figures on payment breaks and consumer debt this year.   

"The publication of this paper is very timely. As we emerge from the pandemic, a full resumption of economic activity gets underway and a return to work is envisaged, this is a critical time to reassess the damage that may have been done to households in terms of personal finances and the dangers of over-indebtedness that may result," said Eilis Barry, chief executive of Flac. 

"We need more solid data in order to create policies that will protect vulnerable households from further stress following the pandemic. The information provided in the payment break data thus far is limited in detail and is compounded by a failure to update the position of the households affected into 2021," she said. 

Paul Joyce, who is Flac's senior policy analyst and a lead author of the series of debt papers, said "the sudden and significant spike in energy and other costs" ahead of the winter months may put many households into difficulty. Arrears on consumer unsecured debt had been “incubating”, he said. 

There will be pressure on the Government to halt cuts to the pandemic unemployment payments (PUP), Mr Joyce said.

“With rising rates of inflation, increased energy costs, the PUP being phased out, and the wage-subsidy scheme probably being removed or tapered in some way -- all that will put a lot of people under pressure," he said. 

Separately, Tricia Kielty, head of social justice and policy at SVP, said it was a bad time to be cutting the payment levels for people on the PUP given the scale of the energy price hikes. Any cuts could be carried out following "a proper poverty-assessment", Ms Kielty said.

The SVP is also calling for the Government to set up a non-means tested fund for households struggling with energy bills this winter, she said.

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