FCA Consult on Strengthening Protections for Customers in Financial Difficulties
The FCA is consulting until 13 July 2023 on amendments to CONC and MCOBS to strengthen protections for customers in financial difficulties. CP 23/13 is part of a package of measures the regulator is taking to protect customers from the cost-of-living crisis.
The FCA’s Financial Lives Survey 2022 has identified 12.9million customers (24% of UK adults) who are at risk of financial difficulties or are in financial difficulties. This is a rise of 2.2million since the 2020 survey. This is of no surprise, we are all well aware of the current economic challenges arising from the war in Ukraine, the pandemic and UK specific factors which have caused a spike in inflation and bills and which are pushing the poorest UK consumers into difficulty.
Applying to consumer credit lenders, mortgage lenders/administrators, premium finance firms, home purchase providers/administrators, firms providing consumer hire, P2P operations and debt collections firms, CP23/13 aims to create a stronger framework for supporting customers in financial difficulties by incorporating requirements from the Tailed Support Guidance (TSG) into the FCA Handbook.
It aims to do so by:
broadening the scope of relevant consumer credit and mortgage chapters to make clear to firms that appropriate support should be provided to customers in or at risk of payment difficulty
enhancing expectations around customer engagement and providing information including on money guidance and debt advice
expecting firms to consider a range of forbearance options and take reasonable steps to ensure arrangements remain appropriate
for consumer credit, expecting firms to take into account the customer’s individual circumstances when providing forbearance (which is already expected for mortgage firms)
As part of this, the FCA will produce guidance which will help firms calculate ‘necessary and reasonable costs’ when setting fees and charges. This is a welcome step as many firms have been grappling with this issue as they have been conducting value assessments, although it’s important to make those responsible for consumer duty implementation aware of the upcoming requirements as they may trigger a fresh value assessment. If you would like to view our new value assessment template please click here.
The consultation proposes to strengthen requirements in relation to firms’ implementation of the FCA’s Vulnerable Customer Guidance, by creating a new obligation to consider the vulnerable customer guidance when developing procedures to assist customers in financial difficulties, for example considering the communication needs of vulnerable customers. It also requires firms to be more proactive in identifying financial difficulties, using third party disclosures or disclosures in relation to another product as a trigger to intervene. Underlining the new requirements will be the obligation to review policies and procedures at appropriate intervals with a clear expectation to use an outcomes-based approach rather than a fixed period of time.
A list of required forbearance options is included, most of which firms will have in place anyway, however it is an opportunity to check you have all of the following:
suspending, reducing, waiving or cancelling any further interest and charges
allowing deferment of payment of arrears
accepting no payments, reduced payments or token payments for a reasonable period of time
agreeing a sustainable repayment arrangement with the customer that allows the customer a reasonable period of time to repay the debt
transferring the debt to an alternative credit agreement (refinancing) to help the customer reduce the debt over a reasonable period of time in such a way that does not adversely affect the customer's financial situation
for articles in pawn under a regulated credit agreement, considering extending redemption periods and delaying intention to sell where appropriate
Whilst provisions in relation to signposting free debt advice remain, they have been strengthened so now firms must not only inform the customer of the availability of that advice but actually explain the benefits of debt advice. This is a fair departure from current practice for most and will require some training of front line staff, as there is a suggestion that the explanation should take account of the customer’s own circumstances. For example, making a self-employed customer aware of business debt advice providers.
There is promise of guidance on affordability assessments, such as income and expenditure, however the consultation is unhelpfully lacking detail around this point, so this one will be one to watch!