Many aspects of life have returned to normal and special Covid-19 special measures are no longer taken in a number of areas of everyday life. However, a recent Financial Conduct Authority speech highlighted the need for consumer credit firms to continue to offer appropriate support to borrowers in financial difficulty.
Nisha Arora, Director of Consumer and Retail Policy at the FCA, addressed the Westminster Business Forum on October 8, and emphasised that the “tailored support” credit firms have been required to provide for some time now could actually be more critical than ever. She mentioned price rises, the end of the furlough scheme and the end of the Universal Credit uplift as factors contributing to this. She also highlighted that, although the pandemic was well under way by August 2020, Citizens Advice took 40% more calls about debt problems in August 2021 than was the case 12 months previously.
Ms Arora said that “[a] key area of work will be a continued focus on outcomes for credit borrowers in financial difficulty.”
The FCA director explained that an effective tailored support regime was likely to include:
- Early engagement with customers when they exhibit signs of financial difficulty
- Appropriate assistance being granted to customers, in a way that satisfies their needs
- Consistent and appropriate reporting of information to credit agencies
- Giving high quality debt advice
She also highlighted that action was being taken against firms that did not meet the regulator’s standards – the FCA recently took formal action to stop one debt packaging firm providing advice, and following a review, five more debt packagers exited the market. In total, the FCA claims to have secured more than £900 million in redress for borrowers who have received poor treatment from firms.
As with many recent FCA speeches, Ms Arora’s address focussed heavily on “outcomes”. She said that the high-level outcomes the FCA wanted to see across the sector were:
- Borrowers have access to affordable products that are appropriate for their needs and don’t result in them becoming over-indebted
- Consumers have the tools to make informed decisions
- Firms treat customers fairly at all times, but especially when they fall into difficulty
- Firms engage in continuous innovation to ensure they can serve their customers better
There was a warning that:
“We want firms to take particular care with customers in vulnerable circumstances and at greater risk of harm, who may need more help to make decisions, or may be more susceptible to behavioural biases, or less able to manage debts”.
The speech then moved on to the new Consumer Duty obligation. Ms Arora said that, for credit firms, this will mean that:
“Firms will have to have a greater focus on consumer outcomes and act to enable these. They will need to test what happens when consumers use their products and services – if credit products are causing financial harm or aren’t delivering the right outcomes, firms will need to fix this.”
Other issues covered in the speech included the proposed changes to regulation of buy now, pay later arrangements, with the FCA director saying she expected a Government consultation on the regulatory framework for this sector to commence in the next few weeks.
Finally, she spoke of the rising volumes of high-cost credit complaints and of how many of these complaints are upheld by the Financial Ombudsman Service. She said that an effective credit market “may mean reduced levels of lending to some consumers, because a fair, responsible and sustainable market shouldn’t see credit being offered to people who can’t afford to repay it.” She also expressed her support for the Government’s pilot no-interest loans scheme.
In conclusion, Ms Arora spoke of how consumer credit remains a key area of focus for her organisation. Here, she said that:
“We will continue to prioritise our credit work, to help build a responsible, sustainable market that delivers the best possible outcomes for the millions of borrowers who use it every day.”