What has happened?
The FCA expects lenders to learn the lessons from good and poor practices during the coronavirus pandemic to help borrowers during the cost of living crisis. In a report, Borrowers in Financial Difficulty following the Coronavirus pandemic – Key Findings, published in November 2022, the FCA records examples of firms delivering good outcomes for customers and of others that it considers must do better to support borrowers in financial difficulty.
What are the key points of the report?
The FCA has set out in the report its findings in the four key areas which lenders1 need to focus on to improve outcomes for borrowers in financial difficulty. These are:
• engaging with customers,
• the effectiveness of conversations with customers,
• helping customers to consider and access money guidance and debt advice, and
• fees and charges
1 specifically, the FCA highlights as being in scope of the report mortgage lenders and administrators, smaller deposit-taking lenders, non-bank mortgage lenders, credit card and loan providers, high-cost credit firms, motor finance firms, and retail finance firms.
The FCA wants firms to consider the contents of this report and to take immediate action where necessary to ensure that they are well placed to support customers now, and as the situation becomes more challenging in the months ahead. In summary, firms should focus on the following areas:
- encouraging and facilitating customer engagement,
- sufficiently resourcing their operations and ensuring staff are well trained and experienced,
- providing appropriately tailored forbearance to customers which takes account of their individual circumstances,
- ensuring effective management oversight and quality assurance of forbearance processes and the customer outcomes achieved,
- making customers aware of (and helping them to access) money guidance and/or not-for-profit debt advice, and
ensuring that fees and charges for those in arrears or payment shortfall are applied fairly and only reflect reasonable costs incurred
The following is a summary of actions the FCA and firms in the sample have taken, to date, in response to the findings:
- The FCA has identified areas for improvement across all firms and 32 out of 65 firms have been asked to make material and significant changes to their processes.
- Of these 32 firms, 25 have made changes based on FCA feedback or their own assessments, and one firm has exited the market.
- Of the 32 firms, 12 firms have been asked to undertake past business reviews, or a similar review of the treatment of borrowers in financial difficulty had already been independently initiated by the firm.
- All 12 of the above firms have appointed third parties to assist with their past business reviews or to assess their forbearance policies and procedures.
- So far, 7 of the 32 firms asked to make material and significant changes have provided remediation to customers. This is either following FCA reviews or through wider pieces of work being initiated within the firm on the treatment of borrowers in financial difficulty.
- At the time of writing, these 7 firms have estimated that they need to provide £12.38 million in remediation to 59,491 customers.
The FCA will be closely reviewing a further 40 firms in the coming months to make sure they are meeting its expectations and to protect customers from harm.
The FCA intends to continue to monitor data to assess how firms are considering and delivering forbearance. Some of its efforts will be focused on firms with a customer base that may be more likely to struggle with the rising cost of living. Over the coming months, the FCA will also be investigating firms that, based on the range of data sources available, appear to be outliers and potentially not delivering good outcomes. If the FCA identifies firms that are not meeting its expectations, it has undertaken to take robust action, including asking firms to make changes to their processes, to undertake past business reviews, and remediate customers where appropriate.
Firms should, according to the FCA, be:
- encouraging consumers to engage earlier when facing financial difficulties,
- offering tailored support, particularly for those consumers with vulnerable characteristics,
- letting consumers in difficulties know about the availability of free, independent debt advice when appropriate,
- making sure their fees and charges are fair and only reflect the reasonable costs that firms incur, and
- considering, when engaging with consumers, whether it would be appropriate to reduce, waive or cancel fees and charges.
Firms may also wish to review the relevant June 2022 Dear CEO letter to lenders, available here: The rising cost of living – acting now to support consumers (fca.org.uk)
How can we help you?
If you’d like to know more about how we can help you with your mortgage lending or consumer credit/retail finance arrangements, including past business reviews and forbearance policies, or any other regulatory compliance issues, our expert team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.