On 25th March, the FCA published a report on its key findings following a multi-firm review it conducted to monitor the implementation of the coronavirus Tailored Support Guidance since November 2020 and the operational readiness of lenders to support customers in financial difficulty. It is interesting to note that since March 2020, around 4.5 million payment deferrals were granted across mortgages and consumer credit products under the coronavirus Payment Deferral Guidance.
The key findings from the review pertaining to consumer credit providers are as follows:
- The conduct of income and expenditure assessments (‘I&E’) to inform customers’ affordability in debt collection processes were inconsistent across the sector. For example, some consumer credit providers carried out I&E assessments whereas others relied on customers’ representations of what they can afford and take this at face value. The FCA recommends that, as best practice, the determination of customers’ affordability at debt collection be informed by an I&E assessment which is substantiated by a review of supporting information such as bank statements, open banking data or is challenged (e.g. by using the Standard Financial Statement expenditure guidelines or ONS average expenditure data to challenge expenditure data). We recommend that firms allocate a buffer to customers’ disposable income in their assessment of affordability to allow for unforeseen and unplanned expenditure and hence make a repayment plan more realistic and resilient.
- Insufficient exploration of customers’ personal and financial circumstances at the debt collection stage to make an informed decision on the most suitable forbearance options for customers. The FCA recommends that debt collection processes should discuss, at least, the following (1) the reason the customer has missed a payment or is unable to make a future payment, (2) what the customer’s current financial position is including: whether they are able to meet priority bills, what other debts they have, what disposable income they have to meet their debts (this should be informed by an I&E assessment) and what the customer’s expectations are of future changes to their financial position.
- Quality assurance reviews were not sufficiently comprehensive for lenders to monitor customer outcomes throughout the customer journey. The FCA found that some lenders conduct ‘moment in time’ monitoring (e.g. reviewing single customer interactions such as listening to a call recording of a debt collection call). It is recommended that firms conduct end-to-end quality assurance reviews to monitor the entire journey since the customer sought help. This enables a firm to review the interactions with the customer before they started to experience payment difficulties and the outcomes after the customer sought help. In terms of selecting sample files for review, a good practice is to select files based on themes (e.g. vulnerable customers, customers in arrears or I&E calls).
- Some firms that operate automated forbearance processes have customer journeys that include leading questions or default repayment plans. It is recommended that automated forbearance processes give customers tools to enable the firm to identify the customer’s individual circumstances in order to direct customers towards an appropriate solution/outcome.