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FCA challenges lenders over arrears and forbearance

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  • 25/02/2014
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FCA challenges lenders over arrears and forbearance
The FCA has challenged lenders to improve their arrears and forbearance management following a thematic review which found several counts of bad practice at firms.

The regulator said since its last review in 2009 lenders had improved practices and were now treating customers better and offering a wider range of forbearance options.

However, the FCA warned firms needed more flexibility to deliver tailored outcomes for borrowers with more attention paid to the specific personal and financial circumstances of each customer.

It said some lenders had failed to adopt proactive and forward-looking strategies to spot borrowers who were in financial difficulties and that lenders had not always put customer outcomes first.

The FCA said ‘one size fits all’ frameworks had left vulnerable customers in financial difficulties due to a lack of flexibility and recommended front-line staff should also be given more power to make decisions. At present some firms’ senior management and front-line staff could not demonstrate they understood the risks to customer outcomes, it said.

Some lenders who had outsourced the monitoring of arrears customers to third parties were branded ‘inadequate’ by the regulator as they were unable to demonstrate sufficient oversight or deal with complaints from customers correctly.

Rigid systems and processes, partly caused by a lack of investment, sometimes made it difficult for customers to engage, the regulator added.

The FCA said it was ‘concerned’ about the risks posed to borrowers by interest rate rises and said lenders must identify those most at risk and have strategies in place to deal with these customers.

Fees and charges were also under fire as the FCA highlighted one firm who levied multiple arrears charges where more than one mortgage account existed on a single property while another charged customers a fee when it chose to cancel a field visit.

Clive Adamson, director of supervision at the FCA, said: “Since we last looked at arrears management we have been pleased by the progress that firms have made. However, there is still work to do.

“Lenders need to treat customers in financial difficulty fairly. We want firms to take further action to strengthen their arrears management practices and invest in their systems and people to make sure that they get this right.

“We are already working with firms and trade bodies to help them embed a culture centred on delivering the best outcome for customers based on their specific circumstances.”

Paul Broadhead, head of mortgage policy at the BSA, said most of the report’s recommendations were already in practice at mutual lenders across the UK.

“Tick-box arrears management is dead and buried, and has been for some time. The right approach hinges on lenders listening to a borrower’s circumstances and providing the most appropriate solution from the options available. 

“Arrears at building societies are well under two-thirds of the level in the market as a whole reflecting their more personalised approach.”

While no firms were named in the report last week Yorkshire Building Society refunded thousands of customers in arrears after the FCA questioned whether the fee charged was correct.

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