Seven lenders to pay £12m compensation over unaffordable repayment agreements

The Financial Conduct Authority says seven lenders have agreed to pay £12m in compensation to nearly 60,000 customers to correct repayment agreements that were unaffordable and unsustainable, in the wake of the pandemic and the cost-of-living squeeze.

The regulator has also told a total of 32 mortgage and consumer credit firms to make changes to improve the way they treat customers.  The FCA’sresearch found examples of firms delivering good outcomes for customers –but others must do a lot better to support borrowers in financial difficulty.

The FCA research found that 30% of firms, or 15 out of 50 it reviewed, “sufficiently explored customer’s specific circumstances. It says that since the pandemic, the economic outlook has been dominated by cost-of-living rises, stoked by rising inflation and supply-side disruptions, driven predominantly by Russia’s restriction on its supply of gas to Europe and the risk of further curbs.

The FCA adds it will closely review a further 40 firms in the coming months “to make sure they are meeting its expectations and to protect customers from harm”.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said “While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers.”

“Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.”

“We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.”

The FCA has reminder lenders:

• Encouraging consumers to engage earlier when facing financial difficulties.
• Offering tailored support, particularly for those with vulnerable characteristics.
• Letting those in difficulties know about the availability of free, independent debt advice when appropriate.
• Making sure their fees and charges are fair and only reflect the reasonable costs that firms incur.
• Considering, when engaging with consumers, whether it would be appropriate to reduce, waive or cancel fees and charges.

As pressure on household finances continues, the FCA expects more customers will need support from their lenders. The FCA’s recent Financial Lives survey of 19,000 people shows that more expect to struggle in the months ahead. Nearly eight million people are finding paying for the basics a heavy burden which is two and a half million more than in 2020.

The FCA encourages consumers to get in touch with their lenders if they are struggling with payments. Consumers can also contact the government backed MoneyHelper service for tips on living on a squeezed income and to access free, expert debt advice.

The new report supports the FCA’s strategic commitments to setting and testing higher standards, putting consumers’ needs first and making sure that consumer credit markets work well.

Peter Tutton, Head of Policy, Research and Public Affairs at StepChange Debt Charity, said “At a time when more people are likely to be feeling the financial pressure arising from the rising cost of living and higher interest rates, this is a timely reflection on how to adopt good practices that can really help customers in financial difficulty to get better outcomes.”

“Fear and embarrassment can make people reluctant to engage with creditors when they are facing financial problems. The language, tone and presentation of communications can make a real difference here. Embedding good training and an understanding of how to help overcome these barriers is something very positive that firms can do to help their customers, and ensure that referrals to debt advice are also better understood and more effective.”