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The FCA has high expectations of retail finance when it comes to supporting customers hit by the cost-of-living crisis. Revisiting the Tailored Support Guidance – or TSG – published during the pandemic, and embedding it into your day-to-day approach to customers is a good way to make sure you understand and are meeting the regulator’s standards.
The UK has been suffering under a cost-of-living crisis since mid-2021, driven by a range of issues from depleted gas supplies in Europe to semiconductor shortages in Asia. Impacts from the pandemic alongside disruptions to global supply chains also increased prices. The Truss/Kwarteng ‘mini-budget’ in September 2022 triggered economic unrest which has resulted in the Bank of England steadily raising interest rates from 1.75% in September 2022 to the current level of 5.0%.
Consumers are seeing the cost of living consistently rising and the cost of their mortgage payments increasing significantly as they come off fixed rate deals, with latest headlines stating up to a million mortgage borrowers expecting increases of £500 per month or more as they come off their current fixed rate deals.
This combination is causing financial distress for consumers. It is important that firms act now to make sure borrowers struggling with payments and customers in vulnerable circumstances can access the help they need.
In 2022 the FCA has looked at how borrowers in financial difficulty were treated by lenders, and found examples of lenders providing the right support to their customers. However, they also stated that most firms need to have better conversations to fully understand their customers’ individual circumstances, so they can provide appropriate tailored support and ensure that arrangements to pay back debt are sustainable.
Vulnerable customers are of particular concern to the FCA. They are concerned some vulnerable customers are not getting the support they need, and some lenders are not discussing the potential benefits of money guidance, free debt advice or helping and supporting borrowers to access these.
What should lenders be doing?
During the pandemic the FCA issued Tailored Support Guidance for mortgages, consumer credit and overdrafts. Lenders should be extending the use of TSG and formalising this guidance into their policies and procedures to ensure they are aligned to the FCA’s expectations and have an appropriate range of approaches to forbearance and customer support.
They should provide support to struggling borrowers which is tailored to their specific circumstances and only charge them fees which are fair and that cover the firm’s costs.
The FCA expects lenders to:
- make sure their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure.
- consider and, if necessary, improve how they treat consumers in vulnerable circumstances.
- effectively direct customers who need it to money guidance or free debt advice.
People who are struggling to manage their finances should be encouraged to speak to their lenders for support as early as they can. Early action is important for those struggling with debt.
Lenders need to get the basics right and provide good quality support. A key element will be for lenders to ensure any temporary measures, such a payment holidays, to not impact the borrower’s credit score.
How can Bovill Newgate help?
We work closely with lenders, integrating the TSG into their ‘business as usual’ policies and procedures and reviewing the processes for identifying and delivering good outcomes to vulnerable customers.
Get in touch
