As part of its work on consumer credit, the FCA has reviewed the ways in which unsecured consumer credit debts are collected. This report (TR16/10) looks at the way lenders treat customers in the early stages of arrears.

This is important for those going through the authorisation process as well as those with authorisations. Consumer credit is smack in the middle of the Financial Conduct Authority’s statutory objectives, such as consumer protection, and continued scrutiny of this market by the FCA is to be expected.

While not all customers who pay late are facing repayment difficulties, the FCA states that it considers that the majority of firms did not identify those with difficulties and offer appropriate forbearance at an early enough stage in line with the FCA rules in the Principles of Business and the FCA’s Handbook (e.g. CONC 6.7.2 R and 7.3.4R and the overall obligation to treat customers fairly).

TR 16/10 contains a list of good practice in Annex 1 and examples of good practice are littered throughout this report. Certain firms have been provided with specific feedback. All firms should consider their approach and take the opportunity to improve policies and procedures, as the FCA expects.

Examples of areas of potential change include:

  • Differentiate treatment of those “in difficulties” from those in arrears;
  • Signpost free and independent sources of debt advice at different stages of customer interaction;
  • Follow clearly defined policies and procedures for those in difficulties; and
  • Use analytics from a range of data sources – minimum payment amounts can mask concerning trends.

The FCA looked at this area as it considers that a firm’s early arrears approach is indicative of the tone of relationships with customers, which can be decisive to the ultimate outcomes for those customers. This work expanded previous FCA reviews e.g. arrears and forbearance in high-cost short-term credit, to examine arrears in a range of unsecured lending products, including personal loans, credit cards and retail finance, such as store cards and point of sale finance. The work considered different practices including identifying customer difficulties (pre-arrears) to formal default and/or charges off the debt.