FCA review finds room for improvement when dealing with customers in early arrears

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.’

The FCA reviewed 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.

The review revealed 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. Findings show that a firm’s culture influences the approach taken to giving due consideration and forbearance to customers in arrears difficulties. The review found that:

• 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

Feedback has been given to each of the firms in the sample on the practices observed in their businesses. These firms should review their businesses in light of feedback and make relevant changes. All firms across the wider industry should read the report and consider their culture and approach and make improvements where necessary.

Notes to editors

1. Read Early arrears management in unsecured lending thematic review[1].
2. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
3. On 1 April 2014, the FCA became responsible for the regulation of approximately 50,000 consumer credit firms.
4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
5. Find out more information about the FCA.