Mon 15 Aug 2022

Creditor behaviours and responsible practices

With inflation spiralling and the cost of living crisis biting, lenders should expect the Financial Conduct Authority (FCA) to be looking closely at their lending practices. 

As recently as 16 June 2022, the FCA wrote to more than 3,500 lenders to remind them of the standards they should meet. With household bills increasing, and the energy price cap set to rise significantly in October 2022 and January 2023, it is essential that lenders act now to make sure borrowers struggling with payments, and customers in vulnerable circumstances, can access the help they need.  

FCA review

At the height of the pandemic, the FCA's work led to 4.5 million mortgage and consumer credit payment holidays.  Now their focus has shifted from the impact of coronavirus to the cost-of-living crisis. 

Their 'Borrowers in Financial Difficulty' review is a significant piece of work and included four surveys of over 400 lending firms, consumer research and deep dives with a sample of 63 firms, covering a range of firm sizes and lending portfolios.  The review has looked at how borrowers in financial difficulty are treated by lenders. Whilst it has found examples of lenders providing the right support to their customers, the FCA has also concluded that most firms need to have better conversations to fully understand their customers' individual circumstances. This is important as firms should provide the appropriate tailored support and ensure that arrangements to pay back debt are sustainable and only charge them fees which are fair and cover the firm's costs. Further, the FCA findings suggest that some lenders are not discussing the potential benefits of money guidance or free debt advice or helping and supporting borrowers to access these. So far, out of the sample, 34 lenders are being asked to make improvements.

FCA letter to lenders

All of this led to the FCA sending their letter to more than 3,500 lenders on 16 June.  In its letter the FCA told lenders to:

1. make sure that their approach to taking on new borrowers takes account of the financial pressure they face and the impact on their expenditure.

2. consider and, if necessary, improve how they treat consumers in vulnerable circumstances; and

3. effectively direct customers who need to money guidance or free debt advice.

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

'Many consumers are facing the impact of rising cost of living in their personal finances and we expect this to increase over the next few months. Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.

The financial services industry has a significant role in helping consumers manage their finances and it should expect us to pay close attention to how they do that over the next few months.

Vulnerable debtors

Defining vulnerability on paper may be straightforward. However, in real life situations, vulnerability is not a 'pen and paper' exercise and helping front line staff identify vulnerability can be challenging.

The FCA defines a vulnerable customer as 'someone who due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with an appropriate level of care '

Lenders need to consider individual factors, wider circumstances and creditor or adviser action when assessing a debtor's circumstances. Given the bleak economic outlook, and households being under greater degrees of pressure, this will become more and more significant and lenders must make sure that they are on top of this.


It's clear that the FCA will be incredibly focused on lending practices over the coming months and years.  Between the new consumer duty the Borrowers in Financial Difficulty review and their recent letter reminding of minimum standards, the FCA has made it clear that lending practices and creditor behaviours will be firmly under the microscope.   Lenders need to make sure they're doing all that they can to comply with the FCA's expectations.

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