Lenders told to act now to help struggling borrowers
The Financial Conduct Authority (FCA) has written to more than 3,500 lenders, including retail banks, consumer credit firms and unregulated buy now, pay later providers asking them to support borrowers who are affected by the rising cost of living.
It said that with expenses set to increase further in the autumn, it was “important firms act now to make sure borrowers struggling with payments and customers in vulnerable circumstances can access the help they need”.
The FCA said it has found examples of lenders providing the right support to their customers, but added “most firms need to have better conversations to fully understand their customers’ individual circumstance to provide appropriate tailored support and ensure arrangement to pay back debt are sustainable”.
It also raised concerns around the support that vulnerable customers were getting, as it warned not enough was being done. Further, the FCA found that some lenders do not discuss the potential benefits of money guidance or free debt advice, nor do they signpost borrowers to this support.
These concerns were seen broadly across the sector, with more serious failings found at more than 30 firms, largely in the consumer credit sector. The FCA expects these firms to make improvements in how customers are treated.
It has asked lenders to consider and improve how they treat customers in vulnerable circumstances, direct people to free support and advice, and make sure new borrowers consider the financial pressure they may face. Further, they should only charge fees which are fair and cover the firm’s costs.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many consumers are feeling the impact of the rising cost of living in their personal finances, and we expect this to increase over the next few months. Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.
“The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.”
‘Banks need to get their act together’
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Life isn’t going to get any easier this year – and for many people it could get even harder. Anyone who is already struggling to make ends meet, and cover the cost of their borrowing, risks hitting a brick wall as the year goes on. The FCA says banks need to get their act together and offer better support to borrowers who are struggling.
“When people can’t cope with their debts, they often bury their head in the sand, so it’s up to the banks to make the effort to contact them and offer help. Banks need to up their game, but if you’re having trouble managing your debts, it shouldn’t put you off getting in touch and talking to them. They should help you find a solution, which will do far less damage to your credit rating than if you just miss payments.
“If you can’t face speaking to them, get in touch with a debt charity, like StepChange, as soon as possible. They’ll talk you through all the options, and will often deal with the banks for you. It’s not easy to face up to debt problems, but while it may feel easier to hide from it in the short term, it just piles the pressure on you even more as time goes on. Get in touch with the experts and get some help, and you can sort the problem together.”