Credit Summit hears update from FCA

In her speech, Pearson explained the importance of credit in wider society, she said: Consumers, firms, the wider economy and society all gain from a well-functioning credit market. One that focuses closely on delivering appropriate outcomes for the consumers it serves.

“Our Financial Lives survey estimates that 81% of UK adults hold some form of regulated credit product and the Bank of England statistics for February 2023 report outstanding credit balances of just under £211 billion.

“Credit matters greatly for consumers – allowing them to manage their money and helping them to cope in tough times, like those being experienced now. So I will talk about how important it is that you help those consumers struggling or likely to struggle with repayments, particularly those exhibiting characteristics of vulnerability. And how you should help consumers to consider at the earliest opportunity access to money advice and good quality debt advice where needed.”

Unsurprisingly, Pearson spoke directly about the increased pressure the cost-of-living crisis is having on the industry and consumers. Pearson said: “We want to work with you to understand these changing pressures as we must ensure that customers are served well.  Our increasingly data-led approach is enabling us to focus on the impacts of the rising cost of living. We will also work with industry through an agile and collaborative, service design approach, to build out new and improved regulatory returns. Our aim is to identify improvements to both the data and the process that will minimise the burden on firms while improving our ability to supervise the sector.”

She continued, “It is even more important with a rising cost of living that customers are lent to affordably taking account of their financial pressures, receive appropriate tailored forbearance when in financial difficulty, and receive help to avoid falling victim to scams or illegal money lending.

“We expect 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 you communicate with customers in financial difficulties, consideration should be given to whether it’s appropriate to reduce, waive or cancel fees and charges.

“It is clear from our supervisory work that many firms have responded positively across these areas. However, we also know that many others must do more, as set out in our Dear CEO letter on 16 June and in our published report on 3 November last year. The report followed our work looking at how lenders were treating borrowers in financial difficulty during and after the pandemic and highlighted that firms 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 and the fair application of fees and charges.

“These points remain important, and we expect all lenders to focus across these areas. We know from our work that people often find it hard to talk about money and take the first step in seeking help. You can play a crucial role by encouraging customers to engage earlier when facing financial difficulties and by helping people get money guidance and debt advice, in what remains challenging times.”

Many in the room were keen to hear more about the regulator’s consumer duty, coming into force on 31 July 2023. Pearson said: “The Consumer Duty sets higher expectations for the standard of care that firms give customers. The Duty will require firms to focus on delivering good consumer outcomes at every stage of their business and interaction with their customers. It is a cornerstone of our 3-year strategy and sits at the heart of the our ‘putting consumer needs first’ public commitment.

“Having considered firms’ readiness for the Duty by undertaking a deep dive into the implementation plans of around 60 of the largest firms 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. Our review of the plans highlighted 3 key areas where firms should particularly focus their attention during the second half of the implementation period. These are effective prioritisation -being clear on the basis for prioritising some implementation work ahead of others. Embedding the substantive requirements; ensure your plans meet the new standards and reflect the work, which should be well underway, needed to meet with the requirements of the Duty. Working with other firms to share information across the distribution chain. Our review found some plans which gave little focus to this area.

“As you oversee the implementation of the Duty, boards and management bodies should focus and provide challenge on these three areas. You should 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. You should focus on the areas that will have the biggest impact on outcomes for customers. Ask yourself the obvious question: is the product or service designed to deliver good outcomes for consumers? You can make sure you have clearly identified your target market and consumers understand your communications.

You can 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.”