The FCA has published Thematic Review 16/10: Early arrears management in unsecured lending (TR16/10). TR16/10 will be of interest to firms engaged in unsecured lending activity. It will also be of interest to trade bodies representing lenders, debt collection firms and debt advice providers, as well as to consumers and groups that represent consumers.

In TR16/10 the FCA reports on its thematic review into how firms are treating customers who fall into arrears. This includes how they are engaging with customers, what forbearance options they offer and what outcomes this leads to. The FCA’s review examined a range of unsecured lending products including credit cards, personal loans, store cards and point-of-sale finance. The firms reviewed varied from large retail banks to smaller single product providers.

Key findings in TR16/10 include:

  • consumer credit lenders are improving the way they deal with customers in arrears;
  • in many cases, firms are thinking about what would constitute fair outcomes for their customers and organising their staff, systems and processes to deliver this but in some areas firms still need to improve their practices;
  • overall, most firms are complying with the majority of the requirements under the Consumer Credit sourcebook (CONC) and other relevant standards. But in some instances, firms were breaching the FCA’s rules or had only recently implemented changes to ensure they were fully complying with its requirements. Section 3 of TR16/10 highlights some of the specific breaches the FCA has observed;
  • whilst the FCA found some areas of specific concern in individual firms, the retail banks and credit card providers reviewed were generally more effectively complying with the rules and more consistently achieving fair outcomes for customers. In contrast, this was not evidenced to the same degree across the retail finance and online personal loan providers where the FCA saw some of the worst practices;
  • a firm must treat customers in default or in arrears difficulties with forbearance and due consideration (CONC 7.3.4R). The FCA reviewed forbearance that firms offered and saw that repayment solutions offered to customers varied quite significantly both in terms of short, medium and long term solutions offered and the way in which payment difficulties were classed as temporary or longer term. In addition, the FCA found that firms’ intentions towards helping customers in arrears varied across the sample. Some firms focused on identifying customers who can recover quickly and those who cannot. When customers could not recover quickly depending on the customer’s circumstances, these firms sought to obtain an affordable repayment solution or end the agreement to prevent further detriment. Some other firms primarily sought to collect payment as soon as possible. The FCA’s findings indicate that a firm’s culture influences how much due consideration and forbearance it gives to customers in arrears difficulties.

The FCA has given feedback to each of the firms reviewed on the good and bad practices observed. The FCA expects these firms to review their practices in light of the feedback and make relevant changes. In addition, all firms which collect consumer credit debts are encouraged to read TR16/10, consider its findings and to make improvements where necessary.

View FCA thematic review on early arrears management in unsecured lending, 13 December 2016