FCA reminds lenders to support consumers

On 16 June 2022, the FCA wrote to more than 3,500 lenders in a Dear CEO letter to remind firms of the standards they should meet, to support borrowers affected by the rising cost of living, including those in financial difficulty.

The FCA urged firms to act now to ensure borrowers struggling with payments and customers in vulnerable circumstances could access the help they need.

Firms were also reminded to treat both existing and new borrowers fairly, as set out in the FCA Principles and to follow the Tailored Support Guidance for mortgages, consumer credit and overdrafts. This guidance was issued to address the exceptional circumstances arising out of COVID-19 and assist borrowers in financial difficulties due to the rising cost of living.

The FCA also emphasised the obligations set out in the Vulnerable Customer Guidance and the rules in MCOB 13,  CONC 5D, CONC 6 and 7 detailing the expectations of firms when dealing with borrowers in financial difficulty.

The changing pressures on consumers

The FCA expects firms to consider the changing pressures on consumers, in particular those consumers most impacted by the rises. According to analysis by the Institute of Fiscal Studies, a quarter of the population have low financial resilience, which is likely to increase over the coming months. The poorest households may face average inflation rates as high as 14%.

The changing economic environment means that there will likely be a high demand for credit and rising interest rates and lower disposable income may make borrowing less affordable or unavailable for some consumers.  

Firms are likely to see more customers in financial difficulty and in vulnerable circumstances. The impact of these pressures on consumers are not just financial and are likely to extend to physical and mental health. Those with low mental capacity or struggling to access support will be least able to respond to these challenges.

Findings from FCA review

An FCA review of outcomes for borrowers in financial difficulties highlighted concerns that some vulnerable customers were not getting the support they needed. Lenders were not discussing with borrowers the potential benefits of money guidance, free debit advice or helping and supporting them to access these.

The review also highlighted that most firms did not consistently identify specific needs and circumstances of customers with vulnerable characteristics or explore customers circumstances. Doing so would allow firms to provide appropriate help and tailored support based on specific individual circumstances.

What firms need to do

Firms need to ensure they are well placed to support customers, not only now, but as the situation becomes more challenging in the months ahead. The FCA expects firms to:

• Provide customers with an appropriate level of care and support taking particular care to ensure vulnerable customers are treated fairly
• Give borrowers in financial difficulty appropriate tailored forbearance that takes into account their individual circumstances
• Support borrowers showing signs of financial difficulty, by making them aware of and helping them access money guidance or free debt advice
• Only charge fees and charges that are fair to cover costs
• Consider financial pressures and the impact on expenditure when taking on new borrowers
• Encourage mortgage borrowers to think about switching to a less costly option where available
• Help consumers avoid falling victim to scams or illegal money lending

Next steps

The FCA will continue to monitor outcomes and take appropriate action as necessary.

The regulator will publish detailed findings on the work completed relating to borrowers in financial difficulty later this year and plans to consult on the future of the Tailored Support Guidance, which may include changes to the FCA Handbook.

Firms are reminded that the expectations set out in the Dear CEO letter are based on existing principles to act in the customer’s best interests. The FCA noted that it is working to improve consumer outcomes in line with the new Consumer Duty.

Firms should ensure that:

• Customers are encouraged to use a range of communication channels to access the help and support they need
• All customers including those who may be vulnerable can discuss their needs and firms respond flexibly to these needs and circumstances
• Communications set the right tone and explain the benefits of early engagement when there is a risk of financial difficulty, emphasising the support the firm can provide
• Management and staff are able to cope with the potential increasing numbers of borrowers in financial difficulty
• Staff are competent and trained in having conversations with customers in financial difficulty, including those who are vulnerable
• Quality issues and errors are quickly identified and rectified
• There is adequate oversight of the customer experience and customer outcomes
• Policies and processes are fit for the current cost of living pressures