Lenders to pay out £47m in redress to borrowers in difficulty

26th May 2023

Temporary measures forcing lenders to offer greater support to borrowers in financial difficulties could become permanent, under new proposals announced by the Financial Conduct Authority (FCA).

The FCA  also announced that 17 lenders will pay up to £47 million in redress to financially-distressed borrowers, after failing to offer appropriate support. The payments will be made to 195,000 customers, including borrowers with mortgages, loans and overdrafts. 

The measures were initially introduced during the pandemic but with the cost-of-living crisis deepening the FCA has been working with almost 100 lenders to ensure proper help is given to those who get into financial difficulties and fall behind with repayments. 

Under these rules and guidance, mortgage, consumer credit and overdraft providers have to provide the right support to customers struggling to make repayments, which may include making reduced or no payments temporarily or changing the mortgage or loan term, taking account of individual circumstances
ensure that repayment arrangements are appropriate, signpost customers to free, impartial money guidance and debt advice, not charge arrears fees that are higher than necessary to recover firms’ reasonable costs for consumer credit customers and consider the overall impact of support arrangements on mortgage balances.

Sheldon Mills, Executive Director of Consumers and Competition, said “Many firms have been following our temporary guidance, developed during the pandemic, to support borrowers in tough times. Our proposals today will help ensure this continues.”

“Where we see firms not providing the right support, we will act quickly to put this right. Firms are already paying up to £47m in compensation for not providing appropriate support to borrowers. If you’re worried about keeping up with payments, we encourage you to talk to your lender as soon as possible.”

Commenting on the announcement Richard Lane, Director of External Affairs at StepChange, said “High interest rates and inflation continue to place immense pressure on household finances, and demand for our services has been consistently higher this year compared to last, so the FCA’s proposals to ensure borrowers have the support they need are crucial.

“Our own research has shown that people showing signs of financial difficulty need help as early as possible to prevent them getting trapped in a spiral of harmful, unaffordable borrowing in order to make ends meet. Communications from lenders making demand for payment can be frightening for people experiencing problem debt, causing them to disengage, an issue which we’ve found to be more prominent among borrowers with additional vulnerabilities.”

“It must be a priority for lenders to focus on developing appropriate support for their customers, which identifies financial difficulty at the earliest possible stage, ensures support is tailored to individual needs, and makes effective referrals to free debt and money advice.”

Sho Sugihara, CEO and Co-Founder of Fuse, said “With a fifth of consumers (21%) reliant on credit for everyday expenses, there is a clear need for a change of approach across the finance sector. Organisations must begin to adopt a more outcomes-based approach if they wish to truly support borrowers facing financial difficulty – focused on vulnerability as well as affordability.”

“Two thirds (67%) of lenders acknowledge that the lending sector will need total reform if it is to truly prioritise borrowers’ financial health over profit. The new Consumer Duty regulations represent a promising first step – however it is essential that banks and other financial institutions are well supported with the technology and the expertise needed to successfully adapt to these rules if they are to boost customer protections. Transforming finance to ensure consumer interests come first will play an important role in facilitating more personal financial products that are suited towards the needs of the consumer, reducing risks of defaults and  long-term debt and instead promote a fairer financial system for millions across the UK.”