The Financial Conduct Authority has said “many” lenders, both mortgage and credit, “need to do a lot better” to deliver good outcomes for borrowers struggling with loan repayments.
According to the regulator, out of the 65 lenders it had reviewed, half have now been asked to make "material and significant changes" to their processes following their dealings with customers during the pandemic.
Just 15 of the lenders the FCA has reviewed so far "sufficiently explored customer’s specific circumstances", which meant repayment agreements were often unaffordable and unsustainable.
Seven of the 32 singled out firms have estimated that they need to provide £12.38mn in remediation to 59,491 customers following the FCA’s assessments, and one firm has exited the market.
A further 12 have appointed third parties to assist with their past business review or assess their forbearance policies and procedures.
In its findings, published today (November 3), the FCA said it identified issues across firms in the mortgage and consumer lending markets.
"We expect all firms to review these findings, make changes and if necessary, remedy any past failings," said the FCA.
The main areas of concern spanned engagement with customers, effectiveness of conversations with customers, helping customers consider and access money guidance or debt advice, as well as fees and charges.
The regulator said it will also be closely reviewing a further 40 firms in the coming months to make sure they are meeting its expectations and to protect customers from harm.
"While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers," said the FCA's executive director of consumers and competition, Sheldon Mills.
"Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.
"We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly."
Transferring borrowers between departments
The FCA's findings cover lenders' actions during the Covid-19 pandemic, a period which saw payments deferred on 1.8mn mortgages and 3.4-4mn consumer credit agreements.
For those customers who have missed loan payments, the FCA said some lenders have not done enough to engage with them and created “excessive friction” or “unreasonable barriers” leading to “poor outcomes”.
The regulator found examples where customers were being transferred between multiple departments and agents which were not always taking adequate notes, requiring customers to repeat their circumstances.
It also said it “did not see much use” of additional forbearance options, other than ‘arrangement to pay’ - the most common option which sees a lender change the monthly payment.
The FCA said: “We did not see much use of additional options, for example reducing the interest rate or making more structural changes to customers’ arrangements, such as agreeing term extensions or periods of time paying interest-only.