The Next Cost-of-Living Shock: Six Actions Creditors Must Implement Now 28 APRIL 2026

As April closes, recent government warnings have changed the planning context for UK creditors. Darren Jones, Chief Secretary to the Treasury, has warned that disruption linked to the conflict involving Iran and the closure of the Strait of Hormuz could feed through into higher energy, food and travel costs for “eight-plus months” after the conflict ends. 

For creditors, this is not simply a macroeconomic issue. It is a customer risk, affordability risk, conduct risk, and an operational resilience issue. 

Many households have yet to fully recover from the first cost-of-living crisis. Savings have been depleted, essential expenditure remains elevated, borrowing costs remain material for many customers, and reliance on credit has increased. A further rise in energy, food, fuel, and transport costs will land on a customer base that has less capacity to absorb shocks than in previous cycles. 

The implication is clear: financial difficulty may emerge faster, earlier and with less warning.

Why it Matters for Creditors 

Creditors often identify distress through lagging indicators: missed payments, broken arrangements, arrears ageing, returned direct debits, contact avoidance or explicit customer disclosure. 

Those indicators remain important, but they are no longer enough. 

In a layered cost-of-living environment, customers can move from “coping” to “struggling” quickly. Some will continue making payments in the short term by cutting back on essentials, using further credit, missing other commitments or avoiding contact. By the time arrears become visible, the opportunity for a sustainable early intervention may already have narrowed. 

For regulated firms, this matters because Consumer Duty requires firms to avoid causing foreseeable harm and to support good customer outcomes. The FCA has also been clear that firms should provide accessible support and act proactively to help borrowers in financial difficulty. 

This means creditors should not wait for arrears data to confirm what forward-looking indicators already suggest. 

Creditor Risks are Broader than Rising Arrears 

Whilst the immediate risk is higher delinquency, the broader picture is a deterioration in customer outcomes, operational control, and evidential confidence. 

Creditors may see: 

As the latest cost-of-living crisis unfolds, the central question for creditors is not whether economic pressure will increase. It is whether operating models are ready to identify and respond to it early enough. 

Actions Creditors Should Take Now 

1: Re-test affordability assumptions

Affordability models, income and expenditure benchmarks, standard arrangement parameters, and settlement strategies should be reviewed against a sustained increase in essential costs. 

Creditors should ask: 

• Are current repayment arrangements still likely to be sustainable? 
• Do affordability tools reflect higher food, fuel, energy and travel costs? 
• Are customers on marginal disposable income being identified early?
• Are arrangements being reviewed at the right frequency? 
• Are front-line teams empowered to vary, pause or reset arrangements where circumstances change? 

The aim should be to prevent arrangements that look acceptable on paper but are likely to fail in practice. 

2: Re-segment customer risk

Traditional segmentation based on arrears stage, balance, product type or contact history may not be sufficient. Creditors should overlay additional indicators of financial resilience. 

Priority segments may include: 

• customers with recent broken arrangements
• customers making minimum or token payments
• customers with previous vulnerability or financial difficulty markers
• customers with high essential expenditure exposure
• customers recently cured from arrears
• customers with multiple accounts or multiple creditors
• customers in sectors or regions more exposed to travel, fuel or energy costs

 Segmentation should be used to drive treatment, not just reporting. 

3: Move intervention upstream

Creditors should bring forward supportive engagement before customers miss payments. 

That does not mean increasing pressure. It means creating earlier, lower-friction opportunities for customers to tell the firm if their circumstances have changed. 

Practical steps include: 

• softer pre-arrears contact for higher-risk segments
• proactive arrangement reviews
• digital self-serve income and expenditure refreshes
• clear signposting to support options
• improved vulnerability prompts
• earlier referral to specialist support terms or free debt advice where appropriate

 The tone is critical. Early engagement must feel supportive, not like accelerated collections activity. 

4: Make forbearance more adaptive

In a prolonged shock, one-off solutions will not be enough; creditors should review whether their treatment strategies allow for temporary, proportionate, and repeatable support. 

This may include: 

• short-term payment reductions
• breathing space before enforcement escalation
• temporary holds where circumstances are unstable
• realistic repayment resets
• better review points
• clearer exit routes from temporary support
• differentiated strategies for temporary shock versus structural affordability issues. 

The objective is not to defer risk indefinitely. It is to create sustainable outcomes and reduce avoidable failure. 

5: Prepare operations for uneven demand

Customer deterioration will not occur evenly. Some portfolios and segments will be affected sooner than others. 

Creditors should stress-test: 

• contact centre capacity
• hardship and vulnerability team demand
• complaint volumes
• breathing space and debt advice referrals
• quality assurance capacity
• supplier performance
• MI and daily operational oversight

Waiting until arrears volumes rise will leave too little time to respond. 

6: Strengthen governance and evidence

Boards, executive teams, and collections leaders should be able to evidence that they considered the foreseeable impact of sustained cost increases. 

That means documenting: 

• the scenarios considered
• the customer segments assessed
• the treatment changes made 
• the rationale for affordability assumptions
• the MI used to monitor outcomes
• the approach to vulnerable customers
• the controls over outsourced collections activity

In the current environment, good governance is not just having a policy. It is being able to show how judgement was applied as customer risk changed. 

How Arum Can Help 

Arum helps creditors strengthen collections, recoveries and customer treatment models in complex and regulated environments. 

We can support firms to respond quickly and practically by helping with: 

The organisations that respond best will be those that act before arrears data fully reflects the shock. They will use forward-looking insight, adapt treatment strategies early, and create clear evidence that customer outcomes and operational resilience were considered together. 

Whether you'd like to talk to us about navigating cost-of-living stressors with your customers, or another aspect of your business, we can help.

Fill out the form below, and we'll be in touch soon.

We'd love to hear from you. 

About the Author

Chloe Charles, Senior Consultant

Chloe is a Senior Consultant at Arum Global, specialising in collections strategy, systems, and operational improvement. With a strong academic foundation from Warwick Business School, Chloe works closely with clients across financial services and utilities to deliver practical, data-led solutions that improve customer outcomes and performance. She brings a thoughtful, client-first approach to navigating regulatory change and advancing modern collections practices.