The FCA has released a new report into how firms are treating customers who fall into arrears, focusing in particular on how firms are interacting with customers and examining the different forbearance options that are being offered across a wide range of products, including credit cards, personal loans, store cards and point of sale finance. The thematic review examined the approach taken by firms from the offset (i.e. the point in time when customers start experiencing repayment difficulties) through to the different resolution procedures used by firms.

Pre-arrears: how to treat clients
Firms are required to monitor the repayment history of their customers and take appropriate action where repayment difficulties are identified under CONC 6.7.2R. This includes notifying the customer of the risk of higher debts, as well as providing the customer with contact details for obtaining free debt advice. The FCA found in its report that customers who had contacted firms to report financial problems were being treated on the same basis as customers who were already in arrears. There are no FCA guidelines on offering forbearance before a customer is in arrears but firms are reminded to have regard to the interests of all customers and treat them fairly. In addition, the following key advice was provided by the FCA in its report:

  • Firms should work with customers who give advance warnings of potential repayment problems to see what can be done to help;
  • Where available, firms should review information from other sources such as credit reference agencies and combine this with internal risk scores which take account of the way customers use their accounts;
  • Firms should take immediate action when repayment difficulties are identified and contact customers in writing to remind them of the missed payment as well as attempt telephone contact. Policies and procedures should be communicated clearly and implemented consistently, in particular with regards to vulnerable customers;
  • Staff should be suitably trained to pick up on signals or phrases that suggest the customer is experiencing financial difficulties, and then take the appropriate action; and
  • It is important to establish each customer’s circumstances, including what they can afford to repay and over what timescale.

Contacting customers
The FCA found in its review that not all firms were willing to contact customers at a time that suited them, contrary to CONC 7.9.4R. Firms that use technology are advised to not overlook the importance of identifying vulnerable or at-risk customers and should offer consumers the option of speaking to an adviser. Regarding written communication, firms are advised to ensure that any specific action they say they will take is in accordance with the firm’s policy. Other advice provided by the FCA in its report include the following:

  • Firms should make sure that internal administration is efficient and correspondence is kept in a secure location;
  • Staff should be trained in effective listening and questioning techniques;
  • All relevant information should be accessible to agents who will be dealing with customers, so they can make informed decisions.

The FCA also found that the firms which took part in the study provided contact details which were easily accessible to customers, both in correspondence and on websites. Many firms have also developed a risk-based approach to communication whereby low risk customers would be engaged less on the principle that they are more likely to ‘self-cure’ their financial problems.

Assessing a customer’s circumstances
The FCA discovered that a common problem for many firms was quickly identifying key indicators showing that the customer was in financial trouble, and instead communicating several times before the issues were addressed. Firms are encouraged to not be overly focused on obtaining payment as this had the tendency to result in unrealistic repayment plans as well as a failure to pick up on vulnerability criteria. At this stage of the process, firms should be focused on establishing the customer’s circumstances, including what they can afford to repay and over what realistic timescale. When options for repayment are discussed with customers, all the consequences should be set out fairly and equally to allow consumers to make an informed decision.

Forbearance options
While many firms that took part in the FCA study demonstrated a wide range of forbearance options (such as deferred payment of arrears, breathing space, token payments), many of these forbearance options were not set out clearly in policies or guidance and there were inconsistencies between firm policy and what firms offered in practice. Firms are encouraged to improve on this with clearer written policies as well as reviewing QA checks. In some firms, customers had agreed to a forbearance option that was not necessarily best suited to their circumstances, simply because an agent favoured one repayment option over another – firms are therefore encouraged to review their internal training procedures and ensure that agents are able to give objective advice, based on each individual’s circumstances. Staff at many of the firms were too focused on obtaining collection of arrears, rather than probing customer circumstances and determining what solutions may be best for a given customer. Firms are advised to improve staff questioning and listening skills as well as adopt better quality assurance models for training and monitoring. In particular, staff often failed to mention the following when explaining about the different forbearance options:

  • Explaining that a given option would result in a default being registered on a customer’s credit file;
  • Being unclear about the length of the forbearance option or implying that it would last for several years;
  • Failing to address the potential advantages of terminating a credit card account; and
  • Failing to address the potential advantages of adopting certain types of repayment plan.

Firms are also encouraged to adopt a flexible approach to accommodate the capabilities and requests of the customer as best as possible, such as changing the date of repayment to reflect the change in the date a customer’s salary was paid or agreeing to amended installment plans.

Joanne Davis is Head of Asset & Consumer Finance at Locke Lord LLP (Timothy Anson, London, Paralegal also contributed to this article)