The FCA’s Consumer Credit sourcebook requires firms to establish and implement clear, effective and appropriate policies and procedures for dealing with customers whose accounts fall into arrears. Where a customer is in default or in arrears difficulties, a firm should allow the customer reasonable time and opportunity to repay the debt; and in considering the customer’s repayment offer, a firm should have regard to the provisions in the Common Financial Statement (CFS).

The customer outcome in the Standards of Lending Practice (the Standards) states that customers in financial difficulty, or in the early stages of the collections process, will receive appropriate support and fair treatment, across the different communication channels offered, in order to help them deal with their debts in the most suitable way. In particular one of the Standards provides:

“Firms should demonstrate an empathetic approach to the customer’s situation; listening to and acting upon information provided by the customer with a view to developing an affordable and appropriate solution.”

On previous occasions the Lending Standards Board (LSB) has been asked for its interpretation of what the Standards require in regard to affordability assessments, and its expectations as to when a CFS or equivalent should be completed. In light of this the LSB embarked on a research project that looked at the practices adopted by firms when discussing and agreeing with customers the repayment of any arrears or missed payments, including lump sums.

The LSB has now published a report on affordability assessments and repayment plans when customers are in financial difficulty. The report provides details on the findings from the LSB’s research together with its view on what constitutes good practice. Some of the key findings from the research are:

  • a welcome improvement has seen firms seeking to build a rapport with the customer at the outset of the conversation rather than dropping straight into completing an income and expenditure statement;
  • there are circumstances where completion of the income and expenditure statement is either not the best solution for the customer or the customer does not want to complete one;
  • firma are not always looking to take into account liabilities to other creditors and settle for a pro rata payment;
  • signposting to free money advice and the application of breathing space are common practice; and
  • interest and charges are usually suspended once an account has been defaulted with some firms applying this level of forbearance prior to default.

View LSB report on affordability assessment and repayment plans, 27 September 2016