We have all been watching the news and feeling first-hand the cost of living going up. To tackle inflation, now at a 40 year high of 9%, the BoE have raised the interest rate to its highest point for 13 years. News reports suggest as many as 50% of UK population are now borrowing cash to make ends meet. The FCA reports that More than 80% of adults reported an increase in their cost of living in March 2022 and 27% are now classed as having low financial resilience.
The FCA has today sent a Dear CEO letter to 3,500 lenders and unregulated BNPL firms reminding them of their obligations. Customers who fall behind with payments must be treated with forbearance, and sustainable repayment plans developed based on their financial circumstances. In addition, the FCA has updated guidance on treatment of vulnerable customers – appealing to firms to taking extra care to ensure people with a vulnerability do not get a worse outcome.
This is now a top priority for the regulator. During the pandemic, the FCA’s guidance on tailored support for borrowers in financial difficulty and guidance on vulnerable customers provided relief for many. The changes implemented by firms then will be tested rigorously as everyday costs outstrip wages and more customers find themselves in difficulty.
The FCA is reminding lenders that they should provide support to struggling borrowers, tailored to their specific circumstances and only charge fees which are fair and that cover the firm’s costs. In addition lenders should:
- 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 customers in vulnerable circumstances.
- effectively direct customers who need it to money guidance or free debt advice.
Supervisory data analysis and assessments covering 400 firms have identified 34 where standards fell short, and improvements are required.
Interestingly, the FCA has included Buy-Now-Pay-Later lenders in its Dear CEO letter, urging them to raise their game. The unregulated sector is widely thought to contribute to unaffordable debt.
With The Consumer Duty final rules expected at the end of July, we can anticipate a focus on good outcomes, and expectations to identify and address ‘reasonably foreseeable harm’.
What can firms do now?
For those consumers who are struggling to make payments firms need to undertake a full analysis of the customer journey to identify gaps where they may be receiving poor treatment. From this analysis action plans can be created to make improvements. While some outcomes may not be those consumers immediately see that they want, they may be in their best longer-term interests. But at all stages consumers need to be well supported and treated in relation to their circumstances.
How can BDO help?
We have helped several clients to establish robust procedures for the treatment of vulnerable customers and customers in financial difficulty. We also provide specialist resources on an interim basis to help you manage increased customer demand. To discuss how we can help further please get in touch with Richard Barnwell.