The Financial Conduct Authority has found "disappointing" inconsistencies in how lenders manage mortgage arrears.
In its thematic review of long-term mortgage arrears published today (December 6), the regulator found inconsistent handling of vulnerable customers and instances where customers did not receive the right level of support because their vulnerabilities were not identified.
The regulator said it had provided feedback to the firms in its sample and in some cases was considering whether further regulatory action is necessary.
Despite this the FCA found firms generally treated customers in long-term financial difficulty appropriately.
But it warned of some inconsistencies in firms’ arrears management practices that may result in a poor customer experience and have the potential to cause harm.
The FCA said: "This was disappointing, particularly given that we have previously issued detailed guidance on good and poor arrears management around areas such as customer engagement, quality assurance and customer vulnerabilities.
"We have previously taken action against firms where we have identified poor practice and weak oversight.
"We found isolated examples of harm where customers were unable to recover from their arrears position and their mortgage debt continued to increase. This was observed where customers were on high interest rates."
The regulator is expected to review how vulnerable client policies are implemented within the industry next year, after it moved it maintain its definition of consumer vulnerability earlier this year.
The FCA also found examples where customer case file notes had insufficient information which resulted in customers having to repeat their circumstances on multiple occasions and may lead to the customer being disengaged.
In some examples, customers received inaccurate information because the firm had not reviewed the correspondence before it was issued.
The FCA also found examples where firms would repeatedly pursue arrangements to pay, when it may have been suitable for them to consider alternative options for the repayment of a customer’s arrears.
Gemma Harle, managing director of Intrinsic mortgage network, part of Quilter, said the results of the review show "worrying circumstances" at what is an inevitably stressful and financially complicated time for customers.
Ms Harle said: "The impact of improper processes is drastic. It can mean people spiral further and further into a debt vortex.
"Customers with long-term mortgage arrears need to be treated as vulnerable. For some the process of actually getting in touch with a lender is the first mountain to climb, so a consistent approach across the industry is key so these types of customers don’t bury their heads in the sand and wait until the problem becomes insurmountable."
Ms Harle said the industry must come together to improve the approach to long-term arrears and give customers the best chance of getting back on track with payments.
She added: "However, lenders should treat the illness rather than the symptoms and need to do more to identify and engage customers that are at risk of falling behind on their payments so they can nip the problem in the bud."
In instances where the regulator identified appropriate arrears practices, it found some firms had appointed designated call handlers to maintain a consistent point of contact for customers and saw examples of firms agreeing reasonable arrangements on sustainable terms.
The review intended to examine the impact of extended forbearance in long-term arrears cases, following a previously identified trend of increasing arrears but falling home repossessions.
The regulator said extended forbearance could potentially cause harm to customers if the arrangements were unaffordable and debt continued to grow, but overall found no evidence of widespread harm to customers as a result.
The FCA said it expects firms to review their practices in line with guidance on good and poor practice and make necessary changes where appropriate to meet its expectations in minimising harm to customers.
rachel.addison@ft.com
