Since March last year, the Financial Conduct Authority (FCA) has been monitoring lenders’ responses to borrowers facing financial difficulties as part of its Borrowers in Financial Difficulty (BiFD) reports.
In the latest update, the regulator said it had told 32 firms to improve the way they treat customers and seven of these firms have volunteered to pay compensation.
The FCA said it would be reviewing an additional 40 firms in the coming months to make sure they are meeting expectations and protecting consumers from harm.
Insufficient support for customers
The latest BiFD report published today found that just 30 per cent of firms sufficiently explored the specific circumstances of their customers, which meant for the majority, repayment agreements tended to be unsustainable and unaffordable.
The FCA said firms should do more to encourage customers to engage with them when payment issues first arise.
It also said tailored support should be offered, especially for vulnerable borrowers. Its study found that some firms did not do enough to engage with customers and sometimes the messaging was in the wrong tone.
Firms putting up ‘unreasonable barriers’
It also found instances where there was “excessive friction or unreasonable barriers”, such as customers being transferred between departments where information was not collected adequately so they had to constantly repeat their circumstances.
The FCA said there was inadequate signposting to independent, not-for-profit debt advice and said most firms communicated through online and written communications which meant opportunities to discuss benefits of support were missed.
The regulator said firms should consider the fees they charged, including the impact this had on customers as well as whether fee charging was fair and cost reflective.
It also said firms should consider a range of forbearance such as reducing, waiving or cancelling fees and charges. Switching to interest-only payments or extending repayment terms were also suggested.
The FCA found that firms typically did not show they had considered how circumstances could change for customers over time.
Action on lenders may be taken
Sheldon Mills, executive director of consumers and competition at the FCA, said: “While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers.
“Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.
“We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.”
