The treatment of customers in persistent debt is the latest issue to be covered in a ‘Dear CEO’ letter from the Financial Conduct Authority (FCA).

The letter, written by Philip Salter – the regulator’s Director of Retail Lending and Claims Management – concerns how firms should handle customers whose debt problems have lasted for at least three years. As with many of the Dear CEO letters, it follows an FCA review that “identified some areas of concern where we believe there is a need to confirm our expectations.”

Many of the FCA’s rules in this area were introduced after the Credit Card Market Study’s final report in 2016.

The situations described in the letter apply whenever both of the following conditions are satisfied:

  • The customer has been in persistent debt for a continuous three-year period
  • For at least 18 months the customer has paid more in interest, fees and charges than they have paid towards reducing the principal balance on their card

Hence, a firm’s first objective is to ensure that their records allow them to identify customers who fall into these categories.

Once it has been established that the FCA’s persistent debt rules apply, then firms must help the customer to repay more quickly in a way that does not adversely affect their financial situation. The main issues the letter covers here include:

  • Firms must contact customers in persistent debt to set out a series of reasonable courses of action they could use to reduce their debt
  • Only in exceptional circumstances should a repayment period be extended beyond four years, and when it is extended, there must be no additional cost to the customer as a result
  • Firms’ communications regarding persistent debt must ask the customer to make contact to discuss their situation
  • Communications should include details of not-for-profit debt advice bodies and encourage contact with them

The letter also aims to put a stop to the widespread practice of automatically suspending a card when the customer has been in persistent debt. FCA rules only require a card to be suspended when a customer does not respond – within a reasonable and specified timeframe – to the repayment options offered by the firm; or when the customer confirms that one or more of the proposed options are affordable but that they will not make increased payments.

As there is no regulatory justification for suspension when the above circumstances don’t apply, firms should not inform a customer that the suspension of their card was due to a regulatory obligation.

Section 98A of the Consumer Credit Act 1974 forbids firms from suspending or cancelling a customer’s access to credit without informing them of the reasons for this. The reasons cited by the firm for suspending or cancelling must be objectively justified.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article