There are a number of areas where consumer credit firms need to improve their practises when it comes to dealing with customers in early arrears, the Financial Conduct Authority (FCA) has said.
This came despite the regulator admitting that many firms had already improved the way they dealt with such customers.
The FCA reviewed consumer credit firms’ policies and procedures for handling customers in arrears and tested outcomes by reviewing customer case files, to see how the policies and procedures were applied in practice. It also visited firms to observe their approaches to dealing with customers and to interview staff involved in arrears handling.
It found that forbearance and repayment solutions offered to customers varied significantly in terms of the range of solutions offered, and the way in which payment difficulties were assessed. It also found that a firm’s culture influenced the approach it took to giving due consideration and forbearance to customers in arrears difficulties.
The review found:
- A small number of firms reviewed had a culture that was strongly focused on achieving fair customer outcomes, offered forbearance that supported this and were well organised to deliver forbearance effectively.
- Slightly under two thirds of firms had policies aimed at achieving fair outcomes for customers. However the firm’s intentions and policies were not always carried out by staff in practice.
- Around a third of the firms had a culture that was less customer-centric than other firms in the sample and focused on securing payment as fast as possible, often at the expense of giving due consideration to customers’ circumstances. In these firms there was widespread evidence of poor customer outcomes.
Although the review only looked at range of unsecured lending products, the FCA noted that it was relevant to firms offering other forms of lending, as well as any firms involved in debt collection.
It also noted that it had given feedback to each of the firms sampled, and it expected those firms to review their practises in light of the feedback given.
Jonathan Davidson, executive director of supervision – retail and authorisations, said: “Firms must treat customers in default or in arrears difficulties with forbearance and due consideration. We found that firms who put customers at the heart of what they do saw the benefits of positively engaging with customers and agreeing sustainable repayment solutions. However, we found that firms whose culture was not motivated by securing fair customer outcomes were focused on securing payment as quickly as possible – which could mean delays, undue distress and the avoidable exacerbation of debts before customers with longer-term financial difficulties secured an appropriate repayment solution. We expect firms to embed a culture of doing the right thing for the market and consumers.
“We have seen increased engagement and positive change taking place in the industry when dealing with customers in early arrears. However, as our report outlines, there are a number of areas where there is a need for significant improvement. We encourage all firms to consider their culture and approach to customers in financial difficulties and to make improvements where necessary.”