The FCA is ramping up pressure on UK lenders to help customers repay their mortgages and loans.

Firms should offer appropriate support to all customers experiencing financial difficulty, the FCA reported in a consultation paper entitled ‘Strengthening Protections for Borrowers in Financial Difficulty: Consumer Credit and Mortgages’.

The FCA said that its paper enhanced its expectations around customer engagement. It also provides information on money guidance and debt advice. Moreover, it expects firms to consider a range of forbearance options. Lenders must take reasonable steps to ensure arrangements remain appropriate. For consumer credit, it expects firms to take into account the customer’s individual circumstances when providing forbearance. This is already expected for mortgage firms.

For mortgages, it proposes to change its guidance to allow firms more scope to capitalise payment shortfalls where appropriate. In addition, it targets improved disclosure for all customers in payment shortfall. And it reinforces its existing requirement to record telephone calls with customers in payment shortfall, including video conferencing.

FCA secures £47m from 17 lenders

The FCA said has secured up to £47m of redress from 17 lenders for over 195,000 customers. This relates to failures to support customers in difficulties.

Norton Rose Fulbright partner Matthew Gregory told RBI:  “These proposals will effectively formalise and enhance the previous Covid-19 related forbearance guidance, ensuring it is applied consistently by lenders during the cost-of-living crisis. Firms will be required to be dynamic in monitoring customers at risk of payment difficulties. They must anticipate potential customer harms through missed payments and arrears. And be more proactive in their mitigation of adverse consequences for borrowers.

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“There are also a number of new proposals in here too which develop the current Tailored Support Guidance. For example, relating to the calculation of necessary fees and costs by lenders capable of being recovered from borrowers in arrears or payment difficulties. For mortgage and consumer credit lenders, these potential new rules will provide welcome clarity and some flexibility in certain areas. But they will have significant implications for some business models, particularly in the current interest rate environment.”

Lenders acknowledge need for sector reform

Sho Sugihara, CEO and co-founder of Fuse, added: “A fifth of consumers (21%) are reliant on credit for everyday expenses. There is a clear need for a change of approach across the finance sector. Organisations must begin to adopt a more outcomes-based approach if they wish to truly support borrowers facing financial difficulty. One focused on vulnerability as well as affordability.

“Two thirds (67%) of lenders acknowledge that the lending sector will need total reform. That is if it is to truly prioritise borrowers’ financial health over profit. The new Consumer Duty regulations represent a promising first step. However, it is essential that banks and other financial institutions are well supported with the technology and the expertise needed to successfully adapt to these rules if they are to boost customer protections. Transforming finance to ensure consumer interests come first will play an important role in facilitating more personal financial products that are suited towards the needs of the consumer, reducing risks of defaults and long-term debt. And instead promote a fairer financial system for millions across the UK.”