A Financial Conduct Authority (FCA) thematic review into unsecured providers like credit card and payday loan firms found two thirds have improved arrears practices, but a third pushed far too hard to secure payments quickly.

The regulator said those who actively engaged with customers, putting them at the ‘heart of what they do’, saw the benefits of positively engaging and agreeing sustainable payment solutions.

However, Jonathan Davidson, executive director of supervision – retail and authorisations, said: “We found that firms whose culture was not motivated by securing fair customer outcomes were focused on securing payment as quickly as possible – which could mean delays, undue distress and the avoidable exacerbation of debts before customers with longer-term financial difficulties secured an appropriate repayment solution. We expect firms to embed a culture of doing the right thing for the market and consumers.”

The regulator added firms must treat customers in default or in arrears difficulties with forbearance and due consideration. The regulator urged firms to consider their cultures and approach to customers in financial difficulty and drive improvements if necessary.

The FCA reviewed customer case files, observed interactions and interviewed collections staff to see how policies and procedures were applied in practice.

The review found a small number of firms reviewed had a culture that was strongly focused on achieving fair customer outcomes, offered forbearance that supported this and were well organised to deliver forbearance effectively. However, slightly under two thirds of firms had policies aimed at achieving fair outcomes for customers but the firm’s intentions and policies were not always carried out by staff in practice. It also found some of the shoddier practices from around a third of the firms which pushed for fast payment with no consideration for the circumstances of the people involved, resulted in ‘poor customer outcomes.’

From 1 April 2014, the FCA became responsible for the regulation of approximately 50,000 consumer credit firms.

Lenders on the hook for compensation payout over unfair arrears practices

Meanwhile, in October the regulator revealed around 750,000 mortgage customers may be in line for compensation after it found widespread instances of unfair arrears billing caused by out of date IT systems.

The FCA launched a consultation to offer guidance to mortgage lenders such as Bank of Scotland after a court case in 2014 which ruled the bank had been double billing customers by adding arrears to the mortgage balance while chasing separate payments.

The regulator found some lenders had inadvertently been mirroring Bank of Scotland’s behaviour because they were unaware of how their own IT systems operated.

Auto-capitalisation of arrears without customer consent was banned in June 2010 because the FCA said it lacked transparency. Firms removed the practice from their policies and it was thought the method had been brought to a halt. However, because of the way some systems are built, when an event triggers the need to recalculate a customer’s mortgage payment, such as an interest rate change, arrears are added to the overall balance automatically without the customer’s consent.

Unaware their systems were automatically continuing the practice, some firms pursued customers for arrears through their collections teams to organise separate payment plans.

Victoria is group editor, Mortgage Solutions and Your Mortgage at AE3 Media. Previous titles include editor of What Mortgage and Credit Today and a stint freelancing for various titles, including The Guardian, Which? and Money.co.uk

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