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Early Arrears Treatment

Recent actions taken by the FCA highlight that their focus on the fair treatment of customers, particularly those in financial difficulties, remains high on its priority list. Given the effects of almost eleven months of business-not-as-usual on consumers’ finances, the early identification of these customers is likely to be a cause for concern for the Regulator throughout 2021 and into 2022.

Early Arrears Treatment




We can use previous research and thematic reviews conducted by the Regulator to better understand what they might be looking for. The FCA investigated the treatment of customers in early arrears in late 2016, looking at unsecured lending products including credit cards, personal loans and store cards, from across the spectrum of business type and size.

Their focus at the time was on firm practices, from the identification of customers in probable difficulties to the point of default. Their report found that the majority of firms missed early opportunities to identify customers who were struggling with repayments and therefore also missed the ability to decide and to offer appropriate forbearance based on the customer’s circumstances. They also found that multiple engagements with the customer were required before their circumstances were recognised by the firm.

Given the effects of the previous 12 months, it is likely that the FCA will look to review this aspect of financial services again in the near future. Within the previous eleven months, regulator focus has been on ensuring that those who are experiencing difficulties as a result of the pandemic are provided with support to lessen the negative impact on their finances and to support a path to better financial wellbeing where possible.

In practice, this means offering payment deferrals if this is in the customer’s best interest, with the onus on the firm to tailor support to the customer’s individual circumstances. Firms have also been obliged to offer further tailored support where customers are not eligible for a payment deferral in both the long and short term, via reduced or token payments without changing contractual terms, and ensuring that balances do not escalate where there are payment deferrals.

Under the Coronavirus guidance for firms, the FCA has made it clear that they expect that firms will recognise where customers need this help, and further, that vulnerability is recognised and responded to. Firms must be confident that they are identifying and engaging with customers who are falling into arrears, are experiencing payment difficulties, and then understanding the customer’s circumstances well enough to be able to offer suitable support options.

One of the key findings in the FCA’s 2016 review was that in some retail finance firms, even those where firm culture was explicitly and strongly focussed on achieving fair customer outcomes, customer circumstances were sometimes mis-diagnosed and opportunities, therefore, missed to help customers tackle arrears at the earliest opportunity. In most cases, although culturally there were broadly good intentions to try and achieve fair outcomes, intentions and policies were not matched in practice, resulting in a failure to consistently pick up on indicators of financial difficulty and vulnerability and therefore to effectively apply their policies for dealing with these customers.

It is likely then that future reviews of firm response to the pandemic will have a strong emphasis on the identification and support of both customers in the early stages of financial difficulties, and of vulnerable customers; the effects of the pandemic mean that a larger proportion of the customer base is more likely to be one or both than ever before.

Much of the FCA’s 2016 review remains relevant today and provides an excellent base for understanding what the Regulator will be expecting to see in firm responses to affected customers in 2020/21. The report highlights approaches the FCA upheld as examples of good practice, for example, the use of dedicated teams to handle contact from customers with difficulty in meeting their repayments, and the practice of obtaining income and expenditure information for pre-arrears cases so that individual circumstances could be comprehensively assessed, providing a solid basis to make a decision on an appropriate forbearance option. Firm policies and practices that understood the difference between those who expected to have trouble in making a payment and those already in arrears were also viewed in a positive light.

The report shows that while all firms invested in training and guidance, some support for agents was focussed primarily on the collection of arrears, meaning that conversations with customers were limited to discussions around when arrears could be collected, meaning that an opportunity to identify the reasons for the arrears was missed. The FCA highlighted a lack of effective questioning and listening skills as an issue, as well as staff being unaware of when it is appropriate to probe customer circumstances, and an inability to determine what solutions might be appropriate for a given set of circumstances.

Training staff gives them the confidence to speak to and support customers in financial difficulties. Our dedicated Financial Difficulties 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. It also covers recording of the customer’s personal information in line with the General Data Protection Regulation and the Data Protection Act 2018.

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

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