Lenders told to support consumers struggling with the cost of living

17 June 2022

The FCA has sought to address the impact of the rising cost of living on consumers by writing to Chief Executives of over 3,500 lenders reminding them of the standards they are expected to uphold (the “Letter”). As consumers face increasing pressure, with the Institute of Fiscal Studies estimating that the poorest households may face average inflation rates of 14% (compared with the headline inflation figure of 9%), the FCA expects an increased demand for credit. The Letter states that firms must be alert to consumers’ needs, where they may be in vulnerable circumstances or experiencing financial difficulty for the first time and adopting a targeted approach.

Treating customers fairly

Treating customers fairly, both old and new, is the prominent theme of this “Dear CEO” letter, with the FCA highlighting that the impact on customers will not just be financial but can impact their physical and mental health. Promoting fair outcomes is of utmost importance. The FCA reiterates that its principles surrounding fairness set the standard it expects of firms, as well as rules relating to mortgages and consumer credit for customers in financial difficulty (MCOB 13, CONC 5D, 6, and 7, respectively). It also suggests that previous tailored support guidance (“TSG”) on mortgages, consumer credit and overdrafts in the context of coronavirus remains relevant to those in financial difficulty as a result of the rising cost of living, Similarly, the FCA signposts its Vulnerable Customer Guidance (the “Guidance”), reminding firms of their obligations and how they must continue to treat these customers fairly.

Expectations of firms

The FCA, in a non-exhaustive list, outlines that firms are expected to:

  • Provide appropriate level of care and support, identifying vulnerable customers and improving how they are treated.
  • Provide appropriate tailored forbearance that is both in a customer’s interest and takes account of individual circumstances.
  • Effectively direct those showing signs of financial difficulty to access money guidance or free debt advice.
  • Fees and charges imposed on customers must be fair and do no more than cover costs.
  • When accepting new customers, take account of the financial pressure they might be facing and the impact on their expenditure.
  • Consider what additional measures can be taken to encourage mortgage borrowers to contemplate switching to a less costly option where available.
  • Assist in preventing consumers falling victim to scams or illegal money lending.

Illustrating failings by firms towards customers, the regulator shared findings from its work observing firms’ obligations to customers in financial difficulty. It considered that most firms did not consistently consider customers’ circumstances to provide appropriate help and support tailored to individual circumstances, nor did they identify the individual needs of vulnerable customers. Further, customers were not assisted in accessing money guidance or free debt advice.

Though exempt from regulation, firms that offer Buy-Now Pay-Later (BNPL) products are urged to follow the guidance in this letter also.

Embedding Vulnerable Customer Guidance

Within the Letter, the FCA also reports  that it has concerns over the way retail banks treat vulnerable customers, and that work is needed in ensuring that these customers experience outcomes as good as those of other customers. The FCA acknowledges that the rising cost of living could increase the number of customers regarded as vulnerable, potentially leading to greater risk of harm, and emphasises that firms must implement the Guidance properly.

Next steps

The FCA will continue to monitor outcomes and scrutinise firms. Where necessary, it will action its supervisory and enforcement powers against firms who do not meet standards. It intends to publish findings from work on customers in financial difficulty later this year, with the intention to consult on the future of the TSG, which may include changes to the FCA Handbook.

While the Letter is based upon existing principles, the FCA emphasises that it will not wait to act to improve consumer outcomes, in line with the Consumer Duty rules, due to be finalised imminently. Firms are strongly encouraged to make the relevant changes to embed the expectations into their dealings with customers now, ensuring that it is well placed to support them before the consequences of the rising costs of living starts to bite.

 

Article co-authored by Anna Burdzy

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