23 May 2024
Data released this week from Step Change shows one in four (24%) UK adults have relied on credit to pay for essentials such as food and household bills in the cost of living crisis. RSM UK is reminding banks and other credit agencies of their responsibilities as lenders, in line with Consumer Duty rules.
FCA guidance for credit providers says firms should undertake adequate affordability checks to ensure consumers can afford the product they are taking out, and they fully understand the terms and conditions of repayment, including the interest rates. Firms found guilty of non-compliance could face regulatory fines, costly customer redress and even potential closure.
The FCA is already cracking down on firms’ debt collection practices, as it recently announced it has joined forces with Ofgem, Ofwat and Ofcom to ensure debt collection practices are fair, customers do not receive excessive contact, and firms signpost free sources of advice for those who may be struggling to keep up with repayments. This follows the regulator’s recent crackdown on the treatment of vulnerable customers, which urged firms to ensure they have an appropriate framework in place to protect financially vulnerable customers, including those who are struggling with debt.
Figures from The Money Charity show UK personal debt was at £1,841.2 billion at the end of February, up £9.5 million compared to February 2023. Recent data from Which? demonstrates the average APR on credit cards rose to 34.7% in February, up from 30.6% a year ago. As the Bank of England base rate remains at 5.25% corresponding interest rates on consumer borrowing including credit cards and loans remains high, potentially compounding problems for those already in debt.
Zoe Morton, associate director at RSM UK, said: 'It’s clear that in the current cost of living crisis, with high levels of consumer borrowing, the regulator is already paying close attention to firms’ treatment of customers who may be struggling. Under the Consumer Duty, the FCA has set higher expectations of banks and other creditors, making it clear the onus is on them to ensure consumers fully understand their products and services, including the interest rate, and implications of falling behind on repayments. As the FCA continues to focus on this area, we’re anticipating an increase in routine visits to organisations, requests for evidence of robust practices and potential enforcement - including financial redress to customers for creditors who fail to meet the requirements of the Consumer Duty.'
Steps firms should take to ensure they are supporting customers who may be struggling with debt include:
- Understand and familiarise themselves with the FCA’s requirements for compliance with the fair treatment of vulnerable customers, which includes those struggling to keep up repayments on credit
- Keep documentation up to date on how to approach those struggling financially, and demonstrate an understanding/awareness of the volume of these customers, for example, through Management
- Information, including outcome-based metrics, in line with the Consumer Duty
- Undertake staff surveys and seek consumer feedback on how effective their framework is to support those who default on payments
- Enforce 'good practice' throughout the organisation, for example, by ensuring that staff are adequately trained in dealing with vulnerable customers
- Provide additional support to customers where needed, including signposting sources of support for those struggling with debt.