Shortly before the FCA took over responsibility for regulating consumer credit, it announced that it would carry out a thematic review into how payday lenders and other high cost short term credit (HCSTC) providers collect debts and treat borrowers who experience financial difficulty. The thematic review looked at a range of firms, including both large and small HCSTC lenders and both online and high street lenders.
The FCA has now published the findings of its review in Thematic Review 15/3: Arrears and Forbearance in High-Cost Short-Term Credit (TR15/3). Key findings in TR15/3 include:
- in a number of cases the FCA found evidence of serious non-compliance and unfair practices;
- most firms were implementing significant changes, but none of the firms the FCA reviewed were sufficiently prepared for FCA regulation and they had not yet adapted their businesses to meet the required standard. The FCA found that a number of firms had implemented revised policies and procedures, retrained their staff on how to identify vulnerable customers, started to monitor compliance more effectively, and revised their staff incentives. However, the FCA also found that the level of reform that was required to bring policies, procedures, processes and IT systems up to scratch was substantial, and that some firms were struggling with the pace of change needed. They all – to varying degrees – lacked the necessary oversight, risk management and compliance monitoring. This had led to poor outcomes for many customers;
- firms had experienced systems failings that had led to customer detriment. Many of these were only dealt with due to the FCA’s review and firms were too often failing to consider the impact on their customers. In particular, all firms had experienced failings in their systems that had resulted in errors in account balances, the erroneous application of fees and charges, or the taking of payments at the wrong time, including duplicate payments;
- firms were generally not good at recognising customers with financial difficulties or those who were vulnerable, resulting in poor outcomes. In particular, the FCA found that firms frequently failed to consider, or ignored, relevant information that they already hold on customers including their borrowing and repayment history. Firms were also missing relevant triggers or indicators presented by customers and generally did not have an open dialogue with their customers about their circumstances and forbearance options. Staff had a low awareness of the factors that might affect a customer’s ability to meet repayments;
- whilst some firms did explore forbearance options and sustainable repayment arrangements with customers, other pushed for immediate or unsustainable repayment;
- firms’ communications with their customers were sometimes unclear or misleading; and
- default and arrears fees and charges had reduced in most of the firms the FCA looked at. The FCA visited firms before the HCSTC price cap came into effect. However, in most firms there had been a reduction in their default and arrears fees and charges during the period of the review. The FCA found that firms had typically reduced the number of days they would charge customers interest while in default, rationalised the number of fees they charged to customers in default and reduced the level of their default fees.
View Payday lenders failing customers in arrears, says FCA, 10 March 2015