In recent years, the FCA has focused on reducing the risk of harm that flows from customers being in debt that they cannot afford to repay. Some key areas of work have included:
- Targeted supervisory work to mitigate the risks from poor culture and practice in firms and to ensure that firms only lend to customers who can afford it.
- Implementation of rules and guidance for credit card firms to ensure that they address the situation of customers that have been trapped in persistent credit card debt they cannot afford to repay.
The FCA has also looked at fees and charges across a number of consumer credit sectors. The data and analysis from this piece of work raised concerns about the application of credit card fees to customers whose management of their account indicated that they might be in financial difficulty.
The review considered whether firms were appropriately identifying indicators of potential financial difficulty. For example, whether multiple missed or late payments were a sign that a customer was struggling, and where multiple fees were applied, was this being recognised by firms. The FCA found that in many cases firms were continuing to apply fees in such instances potentially making the customer’s position worse.
The FCA also found that in some cases, firms were charging such customers multiple fees in a single billing cycle. For example, customers who had insufficient funds to cover a direct debit payment would trigger a returned payment fee. If they then missed their minimum payment they could incur a late payment fee, which could result in a customer going over their credit limit and being charged an over limit fee. The FCA identified that for customers with lower credit limits, the fees and charges represented a higher proportion of the outstanding debt.
The FCA has written to all credit card firms to highlight the findings of its multi-firm review of fees and charges in prime and sub-prime credit card products and firms. It shared the findings of its review with participant firms and a number of changes have been made to how customers are charged fees. This includes the removing and capping of fees and renewed communication to prevent some fees from being triggered in the first place.
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:
'It is unacceptable for firms to ignore signs of customers struggling financially and continue to charge them fees for missed payments which they likely can’t afford.
'Our research showed that a large number customers were often missing payments but continuing to be charged fees. In some cases, customers ended up being charged multiple fees as a result of each missed payment. This may suggest that firms are not adequately identifying and dealing appropriately with signs of actual or possible financial difficulties.
'We have fed back our findings to the firms in our sample. As a result, a number of changes have been made to the charging strategies of firms and this has led to consumer savings of over £80 million.'
The FCA is encouraging firms to consider the impact their policies and procedures in relation to fees and charges have on fair customer outcomes. For example, asking:
- What firms regard as signs of actual or possible financial difficulties? Are (multiple) fees and charges considered as one of those signs?
- Whether firms use system flags for customers who are repeatedly incurring fees on their account?
- What range of actions firms take upon identifying a sign of actual or potential financial difficulty?
Notes to editors
- Letter to firms
- The fees looked at were returned payment fees, over-limit fees, and late fees.
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- About the FCA.