FCA reminds lenders to support consumers struggling with the cost of living

16th June 2022

The Financial Conduct Authority (FCA) has written to more than 3,500 lenders to remind them of the standards they should meet as consumers across the country are affected by the rising cost of living. With household bills expected to continue to rise into the autumn, it is important that firms act now to make sure borrowers struggling with payments and customers in vulnerable circumstances can access the help they need.

The regulator’s wide-ranging work has looked at how borrowers in financial difficulty are treated by lenders. It has found examples of lenders providing the right support to their customers. However, most firms need to have better conversations to fully understand their customers’ individual circumstances, so they can provide appropriate tailored support and ensure that arrangements to pay back debt are sustainable.

The FCA is also concerned that some customers in vulnerable circumstances are not getting the support they need. And some lenders are not discussing the potential benefits of money guidance or free debt advice or helping and supporting borrowers to access these.

These concerns were seen broadly across the sector. More serious failings were found at more than 30 firms, largely in the consumer credit sector. The FCA expects these firms to make improvements in how customers are treated.

The FCA is therefore reminding lenders that they should provide support to struggling borrowers which is tailored to their specific circumstances and only charge them fees which are fair and that cover the firm’s costs.

In its letter, the FCA is also telling lenders to make sure that their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure. Consider and, if necessary, improve how they treat consumers in vulnerable circumstances. Effectively direct customers who need it to money guidance or free debt advice.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said “Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months. Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.”

“The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.”

Caroline Siarkiewicz, Chief Executive Officer at the Money and Pensions Service, said “With the rising cost of living, we recognise that this is a concerning time for many households. It is normal to experience worries about money, but it’s better to face them rather than ignore them and there are options available to help ease any immediate concerns.”

“We welcome the FCA’s letter today to lenders to ensure that those struggling or who face vulnerable circumstances are offered the support they may need and we encourage consumers to talk to their lenders as soon as they can if they are struggling to meet payments.

Joanna Elson CBE, Chief Executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said“This latest interest rate rise will be unwelcome news to homeowners with variable-rate mortgages, who will face this new additional pressure while also grappling with the same soaring prices the Bank of England is trying to tame. “

“Many mortgage-payers whose fixed rate deals are coming to an end soon will also be facing this additional pressure at the worst possible time.”

“Today’s action from the FCA to ensure financial services firms put in place the right support for customers in financial difficulty is welcome – and a timely reminder of how important it is to get the right support to people at the right time.”

“I would urge anyone worried about their finances to seek free advice from a charity-run service like National Debtline as soon as possible.  Whatever their circumstances, no one needs to go through debt problems alone.”

Richard Lane, Director of External Affairs at StepChange Debt Charity, said “Taken together, today’s rate rise and the FCA’s reminder to firms to treat their customers fairly suggest that the cost of living crisis still looks set to get worse before it gets better, even with the support measures that the Government has so far announced”.

“We urge anyone beginning to experience financial pressure or debt problems to take action rather than simply hoping things will improve.”

Kevin Still, Director at DEMSA said “DEMSA welcomes the clarity of the message from the FCA and the ongoing collaboration between the lending community, debt resolution providers, debt advice sector and specialist support providers. It is clear that there is work to be done and consistency of approach for those that are financially vulnerable is important, as it is likely that they will have multiple debts with a range of creditors.”

“Communicating expectations to unauthorised BNPL providers is important, aligned with the clear message of not waiting until the Consumer Duty policy rules in July 2022 to undertake reviews of current policies and practices, where embedding the FCA vulnerability guidance and inclusive design principles is important. DEMSA welcomed the opportunity to present at the Vulnerability Registration Service webinar this week around the new BSI international kitemark – ISO 22458 on consumer vulnerability.”

Sara Costantini, Managing Director at CRIF Decision Solutions said “We’re supportive of the FCA’s call to action for lenders today. The cost-of-living crisis is rampant, and lenders have a vital role in helping alleviate pressures on households by providing access to affordable credit. Despite this, many are being locked out of this financial support or face higher interest rates than necessary as lenders are unable to build a clear and accurate picture of people’s finances.”

“To achieve the FCA’s ask, adopting the right technology is imperative. Open banking data particularly gives lenders a much more in-depth and up-to-the-minute view of an individual’s financial circumstances than previously possible through traditional credit bureau data alone.”

“Combining the two to show an individual’s current situation enables lenders to conduct stronger affordability checks and make considered decisions around when someone in financial difficulty can afford to repay. Open banking is a key tool to unlocking vital financial data and enable better lending decisions – thereby helping mitigate the financial pressures households are facing.”