Customers Who Are Experiencing Financial Difficulties: Review Current Practices
As 2021 enters the final quarter, the UK faces a tricky winter. The impact of the pandemic on the population’s finances is clear, and there are a number of matters that could put even more strain on customers.
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Research undertaken by the Birmingham Business School looked at household data to try to understand whether the design of the furlough scheme had actually worked to prevent household financial distress during the pandemic. Although the study concluded that the furlough scheme had minimised financial distress at the lowest cost to taxpayers and that furloughed individuals did have their expenditure reduced, those on furlough tended also to be lower earners and have used savings to help them get by, meaning that wealth inequality for this group has increased - furloughed workers are now exiting the scheme and returning to work with higher spending needs and reduced savings.
The cost cap on contactless spending increases from £45 to £100 for each transaction in mid-October, with some concerned that such a large rise is likely to ‘disconnect’ shoppers from the reality of their purchases, leading to overspending – particularly as customers are encouraged to spend more on socialising after the end of lockdown and in the run up to Christmas.
And as we head into winter with the prospect of increasing gas and electric bills, and potentially higher costs at the petrol pump, the financial sector is likely to see customers in financial difficulties in far greater numbers than ever before.
Now is the ideal time to review current practices for dealing with customers who are experiencing financial difficulties.
Having robust and up-to-date procedures for dealing with customers in difficulties clearly helps with regulatory compliance, but it can also help get the best return for the firm too. The ultimate aim is to support the customer towards their being able to get back on their feet and keep up with their payments.
Auditing current procedures and practices against CONC 7 will highlight any potential weaknesses or gaps. It’s important to consider actual practice as well, as this can help to highlight gaps in staff knowledge. The requirement to consider forbearance for customers in default or arrears is second nature to most firms, but reviewing the customer base, their current and likely needs over the winter, and which forbearance options are most suitable will set a valuable benchmark against which to measure what happens in practice.
Just as important as forbearance options is the information that customers should be given.
In almost all cases, customers should be advised about the availability of free debt advice in a meaningful way. It will depend on the customer’s situation whether it’s more appropriate to give them the contact details of two suitable free advice providers and a short explanation about how they could help the customer, or whether the customer should be put through directly, but this information should always be more than just the name of a single free debt advice provider.
Forbearance and information must be based on a good understanding of the borrower’s circumstances – without this, there’s the risk that support options become generalised, and missed opportunities to help customers back on their feet. It’s important that everyone speaking to customers understands why they need to ask how the issue affects the customer, how long it’s likely to last, whether it’s happened before and how it worked out, and how the issue is likely to impact on the customer’s ability to pay. This information might also be needed to consider whether it’s fair to pursue the debt, particularly if the amount owed is relatively low. Firms that are signed up to the Lending Standards Board should note that a revised Standards of Lending Practice for personal customers was published in early April 2021.
Best practice in financial difficulties goes further than the immediate treatment of customers.
In August, the FCA published their response to a scheme of arrangement for the wind-down of Provident Personal Credit Limited, stating that it has concerns about the scheme, which will offer customers “significantly less” than the amount of redress they were owed. The FCA reminded firms as part of this response, that regular assessments of firm financial resources are essential, and that if it is determined that the firm is or soon will be in financial difficulty, this must be reported to the FCA immediately.
With the FCA’s focus on how the pandemic will affect the financial wellbeing of a significant proportion of UK adults, ensure that your staff are clear on the identification and support of customers in financial difficulties. Our dedicated course takes learners through techniques that have been tried and tested, covers questioning skills, empathy and active listening, what to say, when to say it, and how to support customers.
This online course, priced at just £15, is accessible at the delegate’s convenience, and provides a certificate upon successful completion, allowing firms to track and record each user’s progress. For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.bell@rbcompliance.co.uk.
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