Promote and enforce the right culture

In the second of Motor Finance's two pieces on the FCA's review on early arrears management in unsecured lending, Greg Standing, partner and head of the retail and finance automotive sector group at Gowling WLG, outlines the key report's primary findings.

In December, the FCA published its Thematic Report on Early Arrears Management in Unsecured Lending, following its review on how firms engaged with customers in arrears, what forbearance options were offered, and what outcomes this led to. The key findings are:

• Consumer credit lenders have improved the way they deal with customers in arrears to achieve fair outcomes.
• Overall, most firms comply with the majority of the requirements under the Consumer Credit Sourcebook, although there were some specific breaches.
• Retail banks and credit card providers generally more effectively comply with the rules and achieve fair outcomes for customers, with retail finance and online personal loan providers having some of the worst practices.
• Repayment (forbearance) solutions offered to customers vary quite significantly in terms of short to long-term solutions, as do firms' intentions towards helping customers whether by looking at affordable repayment solutions, ending the agreement, or collecting payment as soon as possible.
• A small number of firms have a culture explicitly and strongly focused on achieving fair outcomes for customers, and offer and deliver forbearance effectively, leading to reduced complaints levels and greater staff job satisfaction.
• Just under two-thirds of firms have good intentions to achieve fair outcomes for customers and were making significant improvements, but were still implementing policies and approaches which they were failing to apply effectively and consistently, meaning it took longer for customers to get to an appropriate solution.
• About a third of firms have a less customer-centric culture and fail to give due consideration to customers' circumstances leading to poor customer outcomes, including emotional distress.
• Most firms miss early opportunities to identify and offer appropriate forbearance to customers in financial difficulty, leading to additional collections activity, and fees and charges to customers' accounts which under the firms' policies would not be added if they had identified the customers' circumstances earlier.
• There is much ongoing change prompted by the start of FCA regulation, much of it positive and reflecting a clearer awareness in firms of the interests and needs of customers in arrears, but with much change only being recently implemented and still bedding in.

The FCA has given feedback to the firms involved in its review so they can review their practices. The FCA states that it has seen a lot of good practice in the industry when dealing with customers in early arrears, but there's room for significant improvement in some areas. It expects firms to promote, embed and enforce the right culture to ensure the primary objective of doing the right thing for the market and consumers.

This article originally appeared in Motor Finance in January 2017.