FCA fines highlight the need for better customer support
The 18th-24th March marks the tenth
The 18th-24th March marks the tenth Debt Awareness Week which is coordinated by StepChange Debt Charity. In concurrence and to spotlight the issues associated with problem debt, the FCA has joined forces with other regulators to warn financial service firms about debt collection activity and the strain this can cause to customers.
Collectively, the FCA, Ofgem, Ofwat and Ofcom have published a joint letter via the UK Regulators Network (UKRN). It details guidance about how firms should support customers in financial difficulty – as consumers continue to experience financial strain and are at risk of falling into arrears and being subject to collections actions from firms.
The FCA has been clear that firms who fail to meet these expectations may face robust action.
The matter of debt and vulnerability are often intertwined, which serves as a timely reminder of the FCA’s plans to review firms’ treatment of customers in vulnerable circumstances. Previously, in 2020, the FCA fined firms a total of £90 million for failures in how they treat customers in arrears, with firms paying over £570 million in compensation to customers.
It’s clear the higher standards of consumer protection introduced through the FCA’s Consumer Duty – an industry improvement in how customers in financial difficulty are treated – is something the regulator is striving for.
It should be at the forefront of firms’ minds that customers subject to collections activity are highly likely to be in vulnerable circumstances due to financial difficulty and may also have other, non-financial characteristics of vulnerability.
Consumers in vulnerable circumstances may already find it difficult to engage with creditors and their vulnerabilities may be exacerbated if creditors take an inappropriate approach.
This latest regulatory guidance includes ensuring customers in debt do not receive excessive communication – which when provided, should consist of supportive language that doesn’t use intimidating or threatening tones.
Also, firms should clearly signpost to information about free debt advice and how to access it, for example, through warm referrals, whilst making it as easy as possible for advisers from free debt advice organisations to contact creditors on a client’s behalf.
With these points in mind, what are the crucial steps firms should take now to ensure they’re protecting customers and meeting these higher debt collection standards?
1. Consider the vulnerability timeline
Firms should start from the position that customers in collections are highly likely to have characteristics of vulnerability, for instance, inadequate income, over indebtedness and other aspects of financial difficulty arising from health and injury. It’s equally important to establish how long the vulnerability might last. For example, is it temporary or permanent, as this is likely to influence your ability to deliver a personalised customer experience. Firms should then act in accordance with the expectations under the Consumer Duty and the FCA’s guidance for firms on the fair treatment of vulnerable customers.
2. Set the right tone
There is a foreseeable risk of harm if debt collection communications are perceived to be intimidating or unsupportive. The testing of customer communications is paramount to a firm’s success in providing clear and easy-to-understand information. Communications should aim to provide a positive customer response, whilst paying particular attention to those who may be considered vulnerable and may require more verbal support rather than written guidance.
3. Utilise your management information (MI)
Prevention is better than cure. That’s why it’s important that firms fully utilise the power of their MI to predict potential vulnerability in their customers, whilst developing preventative treatment strategies to deploy at the right time to improve outcomes.
4. Product governance and stress tests
Faulty financial service product design or distribution may create an inherent risk of default for some groups of customers. For instance, if the assessment of a customer’s long-term affordability of a product has been ineffective or if a product has not been tested to ensure that it will be sold to customers in the way it was intended. And therefore, it’s vital that stress-testing and the strength of governance for financial service products and services are front and centre of a firms’ minds.
5. Put customer interest first
It’s important to consider how a firm’s customer treatment strategies actually help those in distress and improve their recovery from debt. This will require the purposeful use of MI to monitor the effectiveness of such strategies whilst leading to the positive repair of a customer’s debt burdens.
6. Substance over speed
Firms should be careful not to prioritise staff KPIs and quick customer interactions above suitable, good advice and support. Quick-fix treatments can lead to unsustainable treatment strategies that result in poor customer outcomes and ultimately require more customer touchpoints in the long run.
7. Training and development
Investing in staff training and developing their skills and competencies so they can engage with customers effectively is critical, especially when dealing with customers who may be considered vulnerable with mental health issues.
8. Warm handovers
Firms may want to enable ‘warm’ handovers between frontline and specialist teams internally, and to external customer support organisations such as free debt advice organisations. This will pave the way to fairer treatment of customers with vulnerabilities.
What can TCC do to help?
TCC’s team of subject matter experts work with businesses to make sure their debt collection practices are robust and compliant. The regulator has clearly signalled in their latest business plan that they will be conducting a review into how firms treat customers in vulnerable circumstances. Coupled with the regulator’s continued emphasis on achieving good outcomes through the Consumer Duty and its Borrowers in Financial Difficulty (BiFD) work, it’s vital that these considerations are high on a firm’s agenda.
Get in touch today for expert advice on whether your firm’s debt collection practice is hitting the regulatory mark.