The need to treat customers fairly is rightly at the forefront of the regulators’ minds in the current crisis. The rules haven’t changed, but having the processes – and culture – to support vulnerable customers has never been more important for lenders. And once the crisis has blown over it’s likely the FCA will be scrutinising how you reacted.
In the face of Covid-19, the FCA has said that it expects all firms to take reasonable steps to protect their customers and maintain market integrity and we can expect further communications from them over the coming days and weeks.
It is becoming increasing clear that there will be far reaching impacts for customers who may lose their jobs, become ill themselves or to have to care for somebody else. It is easy to see how those who are already in a vulnerable position financially would be significantly impacted in the event they would be unable to work because of Covid-19. But of course the nature of the current crisis will mean that many more customers will also become vulnerable.
The Government has launched a range of measures designed to support those in financial difficulties which includes additional state benefits and a three month holiday for those struggling with their mortgage payments. The FCA has said that it expects firms to provide strong support and service to customers during this period.
The regulatory expectations for the fair treatment of customers for all types of lenders are clear – customers must be treated fairly. But how does this work in practice, especially when there is an event which has national impact such as Covid-19?
Review your polices and procedures for vulnerable customers
The regulatory requirements won’t change simply because we are going through a period of extreme stress. At a high level you must ensure you treat customers who experience payment difficulties fairly and any repayment plans which are put in place are reasonable and sustainable for the customer. You should also make sure you have appropriate policies and procedures in place to assist vulnerable customers especially where they are experiencing payment difficulties. You will need to act quickly to assess the risk of default in light of the potential for more customers to receive an income shock and adapt your policies and procedures as required.
Be prepared to take a flexible approach to forbearance
Key to a successful collections process is the ability to be flexible and tailor solutions to fit with the customer’s circumstances. You should clearly identify the range of forbearance tools you have available, such as payment holidays, reduced payments, suspending interest, refunding charges, write offs and so on. Staff should be trained to match the right solution to the customer’s personal circumstances. A flexible approach where you have taken account of the customer’s actual situation is key to delivering a successful collections process; ‘one size fits all’ won’t work.
Keep staff focused on customer outcomes
Delivering this strategy obviously depends on having skilled and competent staff in place who are appropriately trained to deal with customers who may be in a distressed situation. The focus must be on ensuring good outcomes for customers and staff should not be motivated to deliver an outcome for the firm which is disproportionately at the expense of the customer, for example by pushing cases through to the default process too quickly.
At the moment, it’s also important that staff are kept up to date with the latest information on the types of government support available.
Keep communications channels open
Another key aspect to consider is the way in which you communicate with your customers. It’s important that customers understand the implications of missing payments and are encouraged to get in contact to discuss their situation as quickly as possible. You should also be proactive in your monitoring of customers to identify cases of potential or actual financial difficulties and seek to intervene at the earliest opportunity.
Coronavirus: putting the customer first
In the current crisis, we should all be broadening our thinking. Contingency plans must include consideration of the risks your customers may face and how you will tailor policies and procedures to deal with an increase in those who may be in financial distress. Culturally it is essential to adapt the right approach which ensures you continue to treat customers fairly and deliver the right outcomes.
Fast forward a couple of years, and we can see this being a prime example of thematic work for the regulator which will no doubt result in enforcement for some firms who have failed to get this right.