The Financial Conduct Authority (FCA) has found that many firms are improving the way they deal with customers in early arrears. However, there are a number of areas where consumer credit firms still need to improve their practices.

 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.

In response to the Financial Conduct Authority’s (FCA) thematic review of ‘Early arrears management in unsecured lending’, Mike O’Connor, Chief Executive of StepChange Debt Charity, said “This review is very welcome and adds substantial weight to the argument that people in debt need better protections. 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. The variable picture the FCA describes accords with what our clients say about their experiences with creditors. 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’ [1] scheme. This would help to ensure that 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.”