The Analysis News & Opinions
Positive review from industry regulator, but more to do
The Financial Conduct Authority (FCA) has found that many firms are improving the way they deal with customers in early arrears. However, it also warned that areas of potential improvement still exist. The FCA’s review concluded that the
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 taken to giving due consideration and forbearance to customers in arrears difficulties. The review concluded that:
lA small number of firms 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. l 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. l Around a third of the firms had a culture that was less customer-centric than other companies 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. 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 benefits of positively engaging 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.
January 2017
“We expect firms to embed a culture
of doing the right thing for the market and for 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.” Feedback has been given to each of the
firms in the sample on the practices observed in their businesses. These firms will be expected to review their businesses in light of feedback and make relevant changes. Mike O’Connor, chief executive of
StepChange Debt Charity, added: “The FCA’s evidence shows that the treatment of people in arrears is inconsistent across the sector and leaves people facing a lottery as to whether or not they will get the advice and support to help them get back on their feet. “Consistency is crucial when people have
multiple creditors, and consistency in forbearance is particularly critical. “We have long argued for
the
introduction of a statutory ‘breathing space’ scheme. This would help to ensure that
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people seeking debt advice are no longer subject to the patchwork of procedures and voluntary forbearance schemes offered by creditors, and ensure that those in financial difficulty get the protections from spiralling debts and enforcement action that they desperately need.” Meanwhile,
the FCA, last month,
launched a market study to consider whether competition in the mortgage sector can be improved. The FCA will decide whether consumers
are empowered to choose on an informed basis between products and services and are in a position to understand whether these represent good value for money. It will set out to consider two questions
in detail: l At each stage of the consumer journey, do the available tools – including advice – help mortgage consumers to make ever more effective decisions? l Do commercial arrangements between lenders, brokers and other players lead to conflicts of interest or misaligned incentives to the detriment of consumers? The FCA will also review whether there
are opportunities for better technological solutions to problems identified, including greater use of digital channels to deliver information or advice.
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