£12 million compensation to be paid to thousands of borrowers
The Financial Conduct Authority (FCA) said it would closely evaluate 40 firms in the coming months to make sure they are meeting its expectations in protecting struggling customers from financial harm.
The regulator added that it expected lenders to learn the lessons from good and poor practice during the coronavirus pandemic to help borrowers during the cost-of-living squeeze.
The FCA acted quickly during the pandemic to put in place guidance that led to more than five million payment deferrals for mortgage and credit customers. This was followed by guidance on tailored support.
In its new report, the FCA found examples of firms delivering good outcomes for customers but noted that others must do a lot better to support borrowers in financial difficulty.
The financial regulatory body revealed that just 30% of firms it reviewed sufficiently explored customer’s specific circumstances, which meant repayment agreements were often unaffordable and unsustainable.
The FCA had already told 32 firms to make changes to improve the way they treated customers and so far, seven of these firms had voluntarily agreed to pay £12 million in compensation to nearly 60,000 customers.
“While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers,” said Sheldon Mills, executive director of consumers and competition at the FCA,. “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 expected firms to encourage consumers to engage earlier when they faced financial difficulties; offer tailored support, particularly for those with vulnerable characteristics; let those in difficulties know about the availability of free, independent debt advice when appropriate; make sure their fees and charges were fair and only reflected the reasonable costs that firms incur; and consider, when engaging with consumers, whether it would be appropriate to reduce, waive or cancel fees and charges.
As pressure on household finances continued, the FCA believed more customers would need support from their lenders. Its recent Financial Lives survey of 19,000 people showed that more expected to struggle in the months ahead, with nearly 8 million people – 2.5 million more than in 2020 – finding paying for the basics a heavy burden.
The FCA encouraged consumers to get in touch with their lenders too if they were struggling with payments. Consumers could also contact the government-backed MoneyHelper service for tips on living on a squeezed income and to access free, expert debt advice.