Knowledge Hub
for Growth


How should lenders support consumers struggling with the cost of living crisis?

On 16 June 2022, the FCA wrote to lenders to ask them to support consumers suffering from the rising cost of living. It noted that, with a headline average inflation rate of 9%, the poorest households may face average inflation rates as high as 14%. Faced with a high cost of living, the FCA is concerned that more people will begin to struggle with the cost of borrowing.

The FCA’s letter sets out how the FCA expects lenders to support consumers struggling with the cost of living. The FCA expressed concern that some customers in vulnerable circumstances were not getting the support they need. It also noted that some lenders are not discussing the potential benefits of money guidance or free debt advice.

Treating borrowers fairly

Under the FCA’s rules, lenders are required to treat borrowers (both existing and new) fairly. It also indicated that earlier guidance brought in to address exceptional circumstances arising out of the coronavirus pandemic would apply equally to circumstances arising out of the cost of living crisis.

What are the rules on treating borrowers fairly? 

The FCA’s Principles for Businesses (‘PRIN’) principles set out the standards the FCA generally expects of firms. Rules in MCOB 13, CONC 6, 7 and COCN 5D set out the FCA’s requirements and expectations of firms dealing with borrowers in financial difficulty.

The FCA considers that its Tailored Support Guidance (TSG) for mortgages, consumer credit and overdrafts - issued to address issues arising out of the coronavirus is also relevant to borrowers in financial difficulties due to the rising cost of living.

The FCA’s expectations of firms

The FCA expects firms to:

  • Provide customers with an appropriate level of care and support.
  • Give borrowers in financial difficulty tailored forbearance that is in their interest.
  • Support borrowers showing signs of financial difficulty or struggling with debt.
  • Ensure fees and charges levied against struggling borrowers are fair and do no more than cover a lender’s costs.
  • Make sure a lender’s approach to taking on new borrower’s accounts for the financial pressure they may be facing and the impact on their expenditure.
  • Consider what more can be done to encourage mortgage borrowers to think about switching to less costly options where available.
  • Help consumers avoid falling victim to scams or illegal money lending.

Lender Failings

The FCA has noted examples of behaviours that result in poor outcomes for borrowers. It identified that firms did not consistently:

  • Explore customers’ circumstances fully to provide help and support tailored to their needs.
  • Identify the specific needs and circumstances of a customers with vulnerable characteristics.
  • Help customers in financial difficult access money guidance or free debt advice.

Relevance to Small Business Customers

The FCA is also concerned about the treatment of small business customers by lenders. The FCA stated that it will apply the same expectations to small businesses as to consumers. On 12 July 2022, the FCA published a review of banks’ treatment of struggling small businesses.

The FCA’s review of 11 bank’s collection practices identified several issues, including:

  • Lenders not treating small businesses fairly in their payment plans. For example, by arranging payment plans that are clearly unaffordable.
  • Staff not having the right training to support customers to make fair decisions.
  • Lenders not having clear policies to identify and support vulnerable customers.
  • Lenders lacking quality assurance processes to ensure they deliver fair results for consumers.
  • Manual interventions within systems which appeared to make fair outcomes more difficult.

The FCA urged the whole sector to take action and wrote to the chairs of all retail banks. It stressed that it had found repeated instances of customers not being treated fairly by banks when they are struggling with repayments.

The FCA expects the board to ensure the issues identified are considered and, where necessary, addressed promptly. This should include suitable root cause analysis and redress.

Customers in Payment Difficulties

Where a customer is in payment difficulties, a lender must:

  • Try to reach an agreement with the customer over the method of paying off the shortfall.
  • Liaise with third party sources of advice to the customer.
  • Allow a reasonable amount of time over which the shortfall will be repaid.
  • Grant a change to the date or method of payment, if requested by a customer.
  • If no reasonable payment arrangement can be made, then to allow the customer to remain in possession for a reasonable period

Check your agreements and policies and procedures

Lenders should ensure they make it clear to customers when and how they should get in touch if they have any concerns about their ability to repay money they have borrowed. This should be supported by information and guidance made available by lenders, e.g. on their website and in information packs.

Lenders must ensure their policies and procedures are fit for purpose and meet the FCA’s requirements and provide appropriate support to consumers and other customers to whom the requirements apply. Lenders should also ensure their staff are aware of their policies and procedures and kept up to date with any developments.

About our expert

John Pauley

John Pauley

Senior Financial Services Solicitor
John Pauley is a Senior Financial Services Solicitor with specialist knowledge in financial services regulation, payment services, electronic money, consumer credit, data protection, anti-money laundering legislation, and gambling regulations.


What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no obligation to instruct us. We aim to respond to all messages received within 24 hours.

  • This field is for validation purposes and should be left unchanged.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.


Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
2-5 Velocity Tower, 1 St Mary’s Square, Sheffield, S1 4LP
A national law firm

Like what you’re reading?

Get new articles delivered to your inbox

Join 8,153 entrepreneurs reading our latest news, guides and insights.

Subscribe


To access legal support from just £125 per hour arrange your free no-obligation initial consultation to discuss your business requirements.

Make an enquiry