FCA joins with other regulators to warn firms about debt collection

On 18 March 2024, the UK Financial Conduct Authority published a news story calling on firms to improve debt collection practices. All of the regulators feel that this is particularly important given many consumers continue to feel cost of living pressures.

The news story also includes links to:

– a joint press release; and

– a copy of the joint letter dated 18 March 2024.

This joint letter follows on from a letter published on 28 June 2023 (see the press release and the joint letter dated 28 June 2023).

The latest joint letter makes the following points for financial services firms:

– firms should start from the position that customers in collections are highly likely to have characteristics of vulnerability and should follow FCA’s expectations under the consumer duty (including its finalised guidance) and its vulnerable customer guidance;

– the consumer duty strengthens existing requirements;

– there is foreseeable harm if a debt collection communication sent the customers are perceived to be intimidating or unsupportive (and communications should be tested)

– firms may want to encourage ‘warm’ handovers between frontline and specialist teams; and

– the FCA aims to publish its policy statement before June 2024 on its response to Consultation Paper 23/13.

The FCA reminds financial services firms (and this point should not come as any surprise) that debt collection rules and guidance apply to both debt collectors and to lenders taking steps to recover payments due under credit agreements or consumer hire agreements.

FCA tells firms to improve their treatment of struggling small business borrowers

On 12 July 2022, the UK Financial Conduct Authority published a press release telling firms to improve their treatment of struggling small business borrowers together with (a) its review into small and medium enterprise collections and recoveries and (b) a ‘Dear Chair’ letter to firms.

The FCA reviewed the practices of eleven banks. It found a number of issues including:

– lenders not treating small businesses fairly when trying to agree sustainable payment plans (for example, arranging clearly unaffordable payment plans);

– staff not having the right training to provide effective support to consumers and to make fair decisions;

– lenders not having clear policies to help staff identify and support vulnerable customers; and

– not having quality assurance and testing for their processes to ensure that they deliver fair results for consumers.

The FCA has given feedback to individual firms. It has also written to the chairs of all retail banks with small business customers. The FCA makes it clear that their ’Dear Chair’ letter is based on the existing principles, rules and guidance. It reminds firms that it will not wait for the introduction of the consumer duty in 2023 to take action where it finds evidence of customer detriment.

The ‘Dear Chair’ letter makes it clear that “all regulated firms offering lending to individuals and relevant recipients of credit (“RRCs”) should consider the findings and recommendations and where necessary, act on them“. The FCA expects “accountable Senior Manager(s) to proactively engage to achieve good practice when overseeing SME collections and recoveries“.

The FCA has set out some of its expectations in the ‘Dear Chair’ letter. These include:

– Where borrowers are treated as if they have a regulated credit agreement, either by requirement or voluntarily, firms should be able to demonstrate they are meeting these standards.

– Policies and procedures are clear with adequate information to support staff to make judgements when required.

– Systems and controls should be arranged to help with the delivery of fair customer outcomes.

– Firms should be able to accurately maintain records and be able to use such records to test whether they have delivered fair outcomes. Firms should also be able to produce customer records without gaps in a timely manner;

– Firms should be able to demonstrate forbearance and due consideration are being offered in accordance with CONC 7.3.4R (where it applies).

– Where CONC 7.2.1R applies, the firm must establish and implement clear, effective and appropriate policies and procedures for the fair and appropriate treatment of customers, who the firm understands, or reasonably suspects, to be vulnerable.

– The management of third parties should be subject to a suitable risk framework that helps ensure fair treatment of SMEs

– The FCA encourages all firms to carry out both quality assurance and customer outcomes testing for customer processes. This assurance should follow a holistic approach so that the customer’s overall outcomes are understood and these are assessed for fairness. There should be clear evidence that root cause analysis is effectively identifying opportunities to improve customer outcomes.

– Staff should receive suitable training that equips them to effectively support SME customers to receive fair outcomes during collections and recoveries.

– Senior management should receive effective MI that allows holistic oversight of SME customer treatment during collections and recoveries

– Senior managers responsible for collections and recoveries should have suitable levels of awareness and oversight of SME customer matters including treatment during collections and recoveries.

The FCA is expected to publish its review of its final findings into firms’ provision of appropriate support to borrowers in financial difficulty both during and after the COVID-19 pandemic, and next steps. This publication is currently expected on Q3 2022.

FCA urges consumers struggling with price rises to seek help

On 6 July 2022, the UK Financial Conduct Authority published a press release urging consumers struggling with rising prices to seek help from their lenders. This press release follows the publication of a recent ‘Dear CEO’ letter, and press release, to consumer lenders.

The FCA and MoneyHelper are urging consumers to:

– contact their lenders if they are struggling to make their payments;

– contact MoneyHelper if they are worried about money

The FCA and MoneyHelper have also published five top tops:

– open up and talk to someone about your challenges

– work out your debts

– prioritise your debts

– shop around for affordable credit

– set a budget

This press release is in a long line of financial difficulty communications from the FCA. The FCA is expected to publish its review of its final findings into firms’ provision of appropriate support to borrowers in financial difficulty both during and after the COVID-19 pandemic, and next steps. This publication is currently expected on Q3 2022.

Financial Conduct Authority warns businesses to stop misleading credit adverts

On 6 May 2022, the UK Financial Conduct Authority published a press release and a ‘Dear CEO’ letter to consumer credit firms telling them to stop using misleading terms in their advertising.

The FCA has written to almost 28,000 consumer credit firms “warning them not to use terms such as ‘no credit check loans’, ‘loan guaranteed’, ‘pre-approved’ or ‘no credit checks’ when marketing loans”. The FCA’s concern is that firms are giving consumers a misleading impression that they will automatically get a loan.

The FCA’s ’Dear CEO’ letter says:

– it expects authorised firms who are issuing and/or approving consumer credit financial promotions to “ensure that all communications of financial promotions are clear, fair and not misleading and otherwise comply with the rules set out at CONC 3. This includes ensuring that those to whom a financial promotion is addressed, or at whom it is directed, understand the nature of the firm’s regulated activities”;

– it has identified a number of financial promotions including phrases like “‘no credit checks loans’, ’loan guaranteed’, ‘pre-approved’ or ’no credit checks’” (some of which could lead consumers to believe that there are no credit checks);

– some firms promoting high-cost short-term credit have failed to include the late payment warning under CONC 3.4.1R;

– whilst the FCA is aware that some advertising media “might appear to pose challenges for firms in meeting” the FCA’s requirements, those rules are “media neutral” and the FCA considers it possible to comply (but it is relaxed on some minor changes to the warning for platforms which do not accept logos);

– some promotions have failed to include a representative APR; and

– certain promotions by credit brokers fail to state they are brokers and not lenders (as required by CONC 3.7.7R).

The FCA also reminds firms of the requirement to comply with the codes published by the Advertising Standards Authority.

Whilst the FCA says the ’Dear CEO’ letter applies to credit brokers and firms providing high-cost lending products, it has clear read-across to other consumer credit products.

FCA publishes ‘Dear CEO’ letter to mortgage intermediaries

On 29 October 2020, the UK Financial Conduct Authority published a ‘Dear CEO’ letter to mortgage intermediaries. The FCA says the “market is working well but there are potential harms“.

The letter also says:

– the FCA will prioritise its focus for supervision work on the second charge and lifetime mortgages markets;

– for second charge lending, the FCA will review the suitability of advice, if customers are getting a product that meets their needs and if customers have understood the product and are being treated fairly;

– for lifetime mortgages, the FCA has three areas of concern: (a) personalisation of advice, (b) insufficient challenging of customer assumptions and (c) a lack of evidence to support to suitability of the advice.

– mortgage fraud is an inherent risk within the sector (and firms should be alive to such risks);

– firms should be aware of cyber risks;

– firms should have appropriate oversight in place for all advisers, including appointed representatives;

– there should be appropriate oversight of trading names; and

– firms should consider the impact of Brexit.

The FCA plans to write to firms in December 2021 with an updated view on the risks posed by mortgage intermediaries.

FCA publishes ‘Dear CEO’ letter to claims management companies

On 26 October 2020, the UK Financial Conduct Authority published a ‘Dear CEO’ letter to claims management companies. This states that the FCA has “identified, and continues to identify, issues” including:

– misleading, unclear and unfair advertising;

– poor disclosure of pre-contractual information about fees and/or the availability of free alternatives;

– unclear fee structures (including the fact that “a CMC’s fee will significantly reduce the amount of redress they might otherwise receive“;

– poor service standards (including advice);

– failing to undertake sufficient checks and collect relevant information before presenting claims;

– certain CMCs having been established by, or having close associations with, individuals at previous firms involved in misconduct (including mis-selling of financial products); and

– some CMCs have been looking to use existing data to recycle and re-market claims, leading to nuisance calls.

The FCA concludes that “many CMCs have demonstrated a poor understanding of, and sometimes attitude to, their regulatory obligations“.

FCA publishes ‘Dear CEO’ letter to firms approving financial promotions

On 11 April 2019, the UK Financial Conduct authority published a ‘Dear CEO’ letter to firms approving financial promtions. This letter is aimed at firms approving financial promotions for unauthorised firms.

The FCA reminds firms:

– Before approving a financial promotion for an unauthorised firm, the authorised firm must ensure the promotion complies;

– Despite its earlier letter dated 9 January 2019, the FCA has found “a number of examples where it appears the due diligence carried out on a financial promotion may have fallen well short of the standard we expect”.

– The approver of a restricted financial promotion (ie one which can only be sent to certain persons) must ensure any restriction is complied with (and express reference is made to mini-bonds)

– Firms not complying are reminded of the FCA’s extensive enforcement toolkit.