Treating Customers Fairly: FCA Business Plan 2021/22
It shouldn’t be any surprise that the FCA’s 2021/22 business plan shows that the Regulator has not taken its foot off the gas when it comes to fair treatment of customers. The major new item on the horizon is the proposal of the new Consumer Duty, which aims to set an increased standard of care for consumers, however, the FCA has signalled that both preventative and corrective action are high on its agenda for the coming 12 months.
The priorities for the Regulator over the 2021/22 year highlight its continued commitment to, and focus on, fair treatment, and the FCA is particularly concerned that customers of newer types of investment products, particularly those sold online, might be induced to purchase without realising the high-risk nature of the product.
Ensuring that customers who need it have appropriate access to sustainable credit remains a key aim, with the focus on ensuring customers do not become over-indebted with unaffordable credit, and that they can take control of their debt at an early stage when they do fall into financial difficulty.
Taken as a whole, the Business Plan looks like a significant gear shift in the framework the FCA uses to supervise adherence to TCF. The Consumer Duty, it is hoped, will prevent harms from happening in the first place, placing the onus on firms to understand how their customers act in the real world and to take customer outcomes into account, ensuring their needs are met. But where it spots harm happening, the Regulator has signalled it will take more immediate action. And that is mirrored in the enforcement action it has taken over the previous two years over unfair treatment of customers.
Moneybarn Limited Enforcement Case
In early 2020, Moneybarn Limited, a car finance provider, was hit with a £2.77 million fine for its treatment of customers who had fallen behind on loan repayments, while in financial difficulties. The major issues had been the firm’s failure to communicate the likely financial consequences of failing to keep up with payments to customers and the resulting default of over 1400 customers following unsustainable short-term repayment plans.
In this case, communications to customers should have clearly explained what their options for exiting their loans were, and what the termination costs would be. Particularly at issue was the failure to allow customers to clear their arrears over a realistic period, with repayment plans set up for the short term – on average three months - which meant in practice that customers who were already likely struggling, had to pay additional amounts on top of their monthly instalments in order to clear their arrears. Over one-third of affected customers were asked to make a one-off payment to clear their arrears, which had the effect of a double payment.
In addition, the FCA found that customers were not offered appropriate forbearance options; in the majority of cases the only option used was short-term forbearance repayment plans, which were not always affordable, and which left some customers without enough disposable income for other bills.
Barclays Enforcement Case
In another case at the tail end of 2020, the FCA fined Barclays £26million for unfair treatment of customers in arrears, having found evidence of several failures, including not following customer contact policies, failing to ask customers about their circumstances to understand the reasons for the arrears and therefore also offering unaffordable or unsustainable forbearance solutions. The Bank knew about the issues by 2013, but did not take steps to address them until 2018. The FCA noted that Barclays had begun a large-scale remediation exercise that paid over £273million in redress at the point of publication in December 2020.
Under the Consumer Duty, the actions of firms will be under even more scrutiny, as the onus will be on them to understand what outcomes customers should be able to expect from their services, and act in ways that support these outcomes. The big question will be around consistency – what does fair treatment look like in a motor finance firm providing services to non-standard customers, and what does it look like in a large Banking firm?
Staying on the right side of the Consumer Duty
In order to ensure that customers who need to access credit can, firms should bear in mind that the spirit of the Duty is fairness – so this doesn’t mean restricting customers who lie outside the bounds of ‘perfect’ outcomes for fear of falling foul. Understanding the customer base, then, is key here – an activity that the FCA’s Guidance of the fair treatment of vulnerable customers has already recommended. If the customer base is non-standard, then having in place robust processes for dealing with customers in financial difficulties, and a good range of flexible support options should go a very long way to staying on the right side of the Consumer Duty.
With the fair treatment of customers remaining high on the FCA’s agenda, regular staff training supports the practice of fair treatment and can demonstrate to the Regulator that your firm takes fair treatment seriously. Our online training course on Treating Customers Fairly explains the background to TCF, the FCA’s expectations and why compliance matters, and how each individual can play an integral part. Priced at just £15 per user, the course 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.firstname.lastname@example.org.