Context
Roma Pearson, FCA Director of Consumer Finance, delivered a speech at the Credit Summit 2023, which covers the rising cost of living, offering appropriate support to customers and also discusses the Consumer Duty.
Key points to note
The FCA expects lenders to work constructively with those who fall behind on payments, or are at risk of doing so, ensuring tailored support can be put in place. When firms communicate with customers in financial difficulties, consideration should be given to whether it’s appropriate to reduce, waive or cancel fees and charges.
Pearson reminds consumer credit firms that they need to focus on improving key outcomes for borrowers, specifically:
- Encouraging customers to engage, particularly when payment issues start to arise
- The effectiveness of conversations with customers
- Helping customers to consider and access money advice and not-for-profit debt advice
- The fair application of fees and charges
Pearson notes that the FCA has considered firms’ readiness for the Duty by undertaking a deep dive into the implementation plans of some of the largest firms and it is evident that some firms are further forward than others. Some have extensive programmes of work underway to implement the Duty, while many others are further behind in their planning and applying the necessary changes.
The FCA’s review highlighted 3 key areas where firms should particularly focus their attention during the second half of the implementation period. As firms oversee the implementation of the Duty, boards and management bodies should focus and provide challenge on these areas:
- Effective prioritisation: Being clear on the basis for prioritising some implementation work ahead of others.
- Embedding the substantive requirements: Ensure plans meet the new standards and reflect the work needed to meet with the requirements of the Duty.
- Working with other firms to share information across the distribution chain. The FCA’s review found some plans which gave little focus to this area.
In terms of specific priorities for action:
- Share the relevant information necessary to comply with the Duty with commercial partners and make sure they are on board. This will likely include distribution networks and wholesalers as well as retailers and relevant third parties.
- Focus on the areas that will have the biggest impact on outcomes for customers. Ask the obvious question: Is the product or service designed to deliver good outcomes for consumers?
- Make sure your target market has been clearly identified and consumers understand your communications.
- Ensure that any lingering sludge practices are addressed – practices that deter customers from taking action in their interests, such as making a complaint or switching to another product or provider; or any unreasonable additional costs such as punitive exit fees are removed.
Next actions
None – for information and awareness.