£12 million compensation to be paid to thousands of struggling borrowers

The FCA expects lenders to learn the lessons from good and poor practice during the coronavirus (Covid-19) pandemic to help borrowers during the cost-of-living squeeze.

The FCA acted quickly during the pandemic to put in place guidance that led to more than five million payment deferrals for mortgage and credit customers. This was followed by guidance on tailored support. 

In a report published today, the FCA found examples of firms delivering good outcomes for customers – but others must do a lot better to support borrowers in financial difficulty.

Just 30% of firms (15 out of 50) it reviewed sufficiently explored customer’s specific circumstances, which meant repayment agreements were often unaffordable and unsustainable.

The FCA has already told 32 firms to make changes to improve the way they treat customers and so far, seven of these firms have voluntarily agreed to pay £12 million in compensation to nearly 60,000 customers.  

The FCA will also be closely reviewing a further 40 firms in the coming months to make sure they are meeting its expectations and to protect customers from harm.  

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:

'While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers. 

'Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers. 

'We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.'

Firms should be: 

  • encouraging consumers to engage earlier when facing financial difficulties.  
  • offering tailored support, particularly for those with vulnerable characteristics. 
  • letting those in difficulties know about the availability of free, independent debt advice when appropriate.  
  • making sure their fees and charges are fair and only reflect the reasonable costs that firms incur.  
  • considering, when engaging with consumers, whether it would be appropriate to reduce, waive or cancel fees and charges. 

As pressure on household finances continues, the FCA expects more customers will need support from their lenders. The FCA’s recent Financial Lives survey of 19,000 people shows that more expect to struggle in the months ahead. Nearly eight million people are finding paying for the basics a heavy burden which is two and a half million more than in 2020.  

The FCA encourages consumers to get in touch with their lenders if they are struggling with payments. Consumers can also contact the government backed MoneyHelper service for tips on living on a squeezed income and to access free, expert debt advice.

The new report supports the FCA’s strategic commitments to setting and testing higher standards, putting consumers’ needs first and making sure that consumer credit markets work well.

Notes to editors

1. Link to Borrowers in Financial Difficulty (BiFD) report.  

2. In June, the FCA told more than 3,500 lenders how it expects them to support borrowers who get into financial difficulty.

3. Today the FCA has published its final report on lessons learnt and ways firms can improve, including their customer service and decisions about fees.  

4. This work has included four surveys of over 400 lending firms, consumer research and analysis of a sample of 69 assessments across 65 firms, covering a range of firm sizes and lending portfolios. So far, out of the sample, 32 lenders are being asked to make improvements.  

5. Although the FCA does not yet regulate Buy Now Pay Later (BNPL) products, the FCA also wrote to, and met unauthorised BNPL providers to encourage these firms to provide their customers with an appropriate level of care and support.  

6. To support struggling consumers and businesses, the FCA has also:   

  • told banks to improve the way they treat struggling small business owners when collecting and recovering debts 
  • urged insurers to support struggling customers and to make sure customers are protected from unnecessary products and unfair penalties 
  • warned firms about unsuitable credit promotions. As a result of the FCA’s work nearly 4,000 adverts have been amended or withdrawn, helping to protect consumers from being misled.

7. See more on the FCA’s work to help consumers struggling with the rising cost of living.