Firms should learn the lessons from good and poor practice shown during the coronavirus pandemic to help borrowers with the cost-of-living squeeze, according to the City regulator.
The Financial Conduct Authority (FCA) said firms should be encouraging consumers to engage earlier when facing financial difficulties; offering tailored support; letting people who are struggling know about the availability of free debt advice; and making sure fees and charges are fair and only reflect the reasonable costs incurred.
Various stop-gap measures, such as temporary payment holidays, were previously in place to help support people who suddenly saw their incomes cut due to the pandemic.
The FCA said its guidance had led to more than five million payment deferrals for mortgage and credit customers. This was followed by guidance issued to firms on offering tailored support.
The regulator said it had found examples of firms delivering good outcomes for customers, but others must do better to support borrowers in financial difficulty.
Just 30% of firms it reviewed sufficiently explored customer’s specific circumstances, which meant repayment agreements were often unaffordable and unsustainable.
The FCA has already told 32 firms to make changes to improve the way they treat customers.
Some firms have voluntarily agreed to pay a total of £12 million so far in compensation to nearly 60,000 customers, it said.
— Financial Conduct Authority (@TheFCA) November 3, 2022
The FCA will also be closely reviewing some firms in the coming months to make sure they are meeting its expectations and to protect customers from harm.
Its report said: “The economic outlook remains uncertain, and a greater number of customers are at risk of financial difficulty.
“Those who were able to pay their debts during the pandemic, in part due to Government support schemes (for example, furlough and the bounce back loan scheme), may now find themselves in financial difficulty, and challenges for those already struggling will be exacerbated.”
The regulator said it had observed instances where excessive friction or unreasonable barriers resulted in poor outcomes.
For example, customers were transferred between multiple departments and agents were not always taking adequate notes, requiring customers to repeat their circumstances. This could result people looking for help becoming disengaged, the FCA said.
Customers at some firms were being left on hold for long periods of time, with many examples seen by the regulator where customers were regularly moved between teams and transferred on multiple occasions.
Some firms’ staff training plans were not being applied effectively and there was a lack of use of different forbearance options such as reducing the interest rate, it added. Firms were also missing opportunities to highlight sources of debt help in some phone conversations.
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.”
The FCA said people should contact their lenders if they are struggling with payments. Consumers can also contact the Government-backed MoneyHelper service for money tips, it added.
Peter Tutton, head of policy, research and public affairs at StepChange Debt Charity, said: “At a time when more people are likely to be feeling the financial pressure arising from the rising cost of living and higher interest rates, this is a timely reflection on how to adopt good practices that can really help customers in financial difficulty to get better outcomes.
“Fear and embarrassment can make people reluctant to engage with creditors when they are facing financial problems.
“The language, tone and presentation of communications can make a real difference here.
“Embedding good training and an understanding of how to help overcome these barriers is something very positive that firms can do to help their customers, and ensure that referrals to debt advice are also better understood and more effective.”