Lenders volunteer to pay £12m compensation following FCA review
The Financial Conduct Authority (FCA) has identified the need for £12m compensation to be paid to borrowers who have been unfairly treated while struggling to meet repayment agreements.
In a report published today, the FCA found examples of firms delivering good outcomes for customers, but others were found to need to significantly improve the support available for borrowers in financial difficulty.
Just 30 per cent of firms (15 out of 50) reviewed sufficiently explored customer’s circumstances, which meant among the others repayment agreements were often unaffordable and unsustainable.
The FCA has already told 32 firms to make changes to improve the way they treat customers and so far, seven of these firms have voluntarily agreed to pay £12m in compensation to nearly 60,000 customers.
The FCA will also be closely reviewing a further 40 firms in the coming months to make sure they are meeting its expectations to protect customers from harm.
The FCA expects lenders to learn the lessons from good and poor practice during the coronavirus pandemic to help borrowers during the cost-of-living squeeze.
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During the pandemic, the FCA put in place guidance that led to more than five million payment deferrals for mortgage and credit customers. This was followed by guidance on tailored support.
“While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers”, the FCA’s executive director of consumers and competition Sheldon Mills said.
“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.”
Good practice would mean firms were encouraging consumers to engage earlier when facing financial difficulties, offering tailored support, particularly for the vulnerable, and letting those in difficulties know about the availability of free, independent debt advice when appropriate.
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Lenders are also supposed to ensure their fees and charges are fair and only reflect the reasonable costs that firms incur.
They should also consider, when engaging with consumers, whether it would be appropriate to reduce, waive or cancel fees and charges.
As pressure on household finances continues, the FCA expects more customers will need support from their lenders.
The regulator’s recent Financial Lives survey of 19,000 people showed that more expect to struggle in the months ahead. Nearly eight million people are finding paying for the basics a heavy burden which is two and a half million more than in 2020.
The FCA encourages consumers to get in touch with their lenders if they are struggling with payments.
Consumers can also contact the government backed MoneyHelper service for tips on living on a squeezed income and to access free debt advice.