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- Robert Bell
Why Your Firm Needs Financial Difficulties Refresher Training in the Current Climate
A speech delivered this month by Nisha Arora, the FCA’s Director of Consumer and Retail Policy stressed the importance of firms ensuring that credit works well for customers in the current climate. Noting that the availability of affordable credit had become even more essential to daily life in the UK since March, Arora highlighted “the need for many consumers, particularly the poorest and most vulnerable, to have access to affordable credit” given that more users than ever need access to credit “simply to make ends meet”.
The FCA state that between February and July, the percentage of adults with low financial resilience increased from 19% to 23%, and that around a quarter of all UK adults believe they will come out of the pandemic in more debt than before. Recent guidance and rule changes in CONC have facilitated focused assistance for customers who have found themselves in difficulties as a result of COVID-19, and both the Regulator and firms are now looking to the future of credit provision in a world in which almost a quarter of the population are experiencing some level of difficulty with their finances.
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The FCA’s creditworthiness rules should mean that, in practice, consumers are never granted credit that they won’t be able to afford, at least at the point at which it is taken out. The FCA are clear that firms shouldn’t just be considering whether the customer will repay – which is designed to make sure that the firm will recoup what it has loaned – but that the customer will be able to repay without those repayments having a significant impact on their financial situation and their ability to pay for other essential items.
It is inevitable, however, that regardless of affordability checks, some people will fall into debt that they cannot afford to repay, and it is at this point that firms need to offer tailored support to these customers, and above all else, treat them well. The benefits are cyclical – the customer is helped to get out of a sticky situation, their finances are better off for it, and it is likely their personal wellbeing is too. The firm recoups some repayment, and the customer is able to access credit again when they need to, and importantly, are more likely to be in a position to repay their debt. This movement keeps the economy turning – no one wants a repeat of 2008.
The FCA have made clear that whatever individual business operations are, and whatever the particular products and services are on offer, what matters is good outcomes for consumers. It is currently reviewing how regulation can support a healthy unsecured lending market, and has set out four outcomes:
That consumers should be able to find products that meet their needs and are able to make informed decisions about their best interests
That consumers should not become over-indebted by being given credit they cannot afford
That affordable credit should be available so people can manage their day-to-day spend, and meet unexpected costs and make essential purchases without becoming dependent on credit or entering a spiral of debt
That consumers should be able to take control of their debt at an early stage when they fall into financial difficulty – firms should be able to identify and provide support at an early stage.
The essential point here is that firms must be able to support customers and treat them fairly if they are unable to repay, and that early identification is crucial.
The provision of support is fairly straightforward, the FCA have clear rules within the Consumer Credit Sourcebook and have clarified their expectations on the fair treatment of customers in a number of publications outside of the Handbook. Depending on the situation, forbearance typically includes reducing or waiving interest or other charges or fees or allowing additional time to pay.
At firm level, beyond the policies and procedures covering fair treatment of those in financial difficulties, what matters is that staff are trained in the identification of those who are or who may be in financial difficulties, and that they are confident in discussing the customer’s situation and in choosing appropriate forbearance and support options.
We offer a dedicated online training course on the fair treatment of customers in financial difficulties. 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. The course defines ‘financial difficulties’ so that staff are confidently able to recognise the situation, identification of financial difficulties, the regulatory requirements, and how to offer support.
For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.bell@rbcompliance.co.uk.
