Understanding the Latest Updates to CONC

In April, the FCA confirmed final rules to strengthen protections for borrowers in financial difficulties. In practice, this will bring the Tailored Support Guidance (TSG) into CONC – with some new additions – with the aim of protecting customers facing payment difficulties. Given the continuing cost-of-living crisis, the new rules and guidelines will broaden support offered to those in financial difficulties to require firms to understand when customers are facing or are at risk of payment difficulties and to provide support at an earlier stage.

New rules also ask firms to make changes around customer engagement and update and broaden forbearance options with more engagement with changing individual customer circumstances to ensure these arrangements remain appropriate. There’s also some practical guidance to help firms understand ‘necessary and reasonable costs’ around calculating fees and charges.

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The new rules will make permanent the requirement to support customers who are approaching financial difficulties. This builds on identifying and supporting customers who are already in financial difficulties. Firms will need to ensure that staff are well versed in picking up on red flags and subtle indicators that customers are beginning to struggle or are having to make changes to their finances.

Effective engagement with customers is needed here – both to identify these early indicators and to consider appropriate support. The FCA have also broadened their suggested forbearance options, although they highlight that these are not exhaustive and that firms are best placed to understand their customers’ needs – particularly in light of the Consumer Duty.  They have also taken pains to point out that repayment arrangements that are unsuitable or unsustainable – for example where they leave the customer with no disposable income – could cause harm, including forcing the customer to take out more credit. The FCA has introduced a requirement to ensure that repayment arrangements are sustainable.

Additions beyond the TSG requirements include:

• In relation to income and expenditure assessments, firms must complete these “objectively”. Further guidance is not offered on this point, but firms should ensure that policies, procedures and practice set out that I&E assessments should be based on evidence, and that conclusions are reasonable and likely to be arrived at by any other reasonable person, given that evidence. There are also revisions to guidance stating that firms may “have regard to the spending guidelines in the Standard Financial Statement or an equivalent tool”. Firms will also be asked to make a record of the I&E assessment available to the customer to share with other lenders and debt advice providers if they request it.

• Firms will need to prevent escalating balances and will be required to reduce, waive, or cancel any further interest or charges to ensure the level of debt does not rise for the period of the arrangement. This removes the requirement to ‘suspend’ from the previous TSG requirements, to clarify that interest or charges should not be reimposed at a later date, which could cause confusion for both firms and customers, compound financial difficulties, and potentially reduce the amounts recovered by firms.

• There is more emphasis on supporting customers through appropriate accessible channels.

• Information given to customers to help them understand the implications of any proposed arrangement must include how it will be reported to their credit file in factual terms. The FCA have acknowledged lenders’ concerns that they cannot foresee how information they provide will be interpreted by others, so the guidance has been amended from “implications for the customer’s credit file” to “how it is/will be reported to the customer’s credit file.”

What do firms need to do now? 

The final rules and guidelines will come into effect on 4 November. On this date the TSG will also be withdrawn. This gives firms just a few months to assess required changes and incorporate them into policy and practice. First steps must be a gap analysis to identify any elements of the updates (older TSG-based elements as well as the new additions) missing in current practice. 

Although the policy statement confirms that the rules and guidance do not introduce new requirements on firms to take additional steps or create new processes and systems to identify customers who may be in financial difficulties, firms should audit current processes and policies to ensure that staff have the ability to identify trigger points. Management Information and governance processes will need to be adjusted to ensure that the updated requirements for fair treatment of customers are included, both in general MI and with the Consumer Duty in mind.

Our CONC guide helps firms of all types and sizes to understand what this complex and foundational document requires in practice. We’ll be updating our guide to include these new requirements – watch this space as the deadline rolls around. In the meantime, ensure your staff understand how to identify customers who may be approaching financial difficulties with our online Financial Difficulties course. Priced at £20, it is accessible at the user’s convenience and provides a certificate upon successful completion.