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.
We found that firms typically charge borrowers in financial difficulty higher fees and charges for mortgages than for credit.The FCAIt 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.
“Firms generally did not demonstrate that they considered or took account of how circumstances may change for individual customers over time.”
Training ‘not applied effectively’
Signposting to money guidance and debt advice for customers struggling with repayments, the FCA found, was “inadequate”.
“We found most [lenders] missed opportunities to highlight the benefit of these services in telephone conversations,” the regulator said, adding that lenders need to train their teams on an “on-going basis”.
It added: “We found that in some firms training plans were not applied effectively.”
As for fees and charges for those in arrears or payment shortfall, the regulator said it found “a wide variance” across all the lenders it surveyed in the amount they charge for the same type of fee, as well as the number of times different fees could be charged.
“We found that firms typically charge borrowers in financial difficulty higher fees and charges for mortgages than for credit, for most fee types. This includes firms which provide both mortgage products and credit,” said the FCA.
As a result of the findings, the FCA has urged lenders to:
- Encourage and facilitate customer engagement;
- Sufficiently resource their operations and ensure staff are well trained and experienced;
- Provide appropriately tailored forbearance solutions to customers, which take account of their individual circumstances;
- Ensure effective management oversight and quality assurance of forbearance processes and the customer outcomes achieved;
- Make customers aware of (and helping them to access) money guidance and/or not-for-profit debt advice; and
- Ensure that fees and charges for those in arrears or payment shortfall are applied fairly and only reflect reasonable costs incurred.
ruby.hinchliffe@ft.com
