The Financial Conduct Authority has forged a collaborative effort with regulatory counterparts, including Ofgem, Ofwat, and Ofcom, in response to escalating concerns over debt collection practices amid the mounting cost of living pressures. Together, the regulators have articulated a set of expectations for firms operating across diverse markets, with a primary focus on enhancing consumer protection measures.
Enhancing Support for Consumers: Updated Debt Collection Strategies
The collective initiative aims to address the heightened risk of consumers falling into arrears as they grapple with the financial strain induced by rising living expenses. Central to this effort is the call for firms to refine their debt collection strategies to better support individuals facing financial difficulties.
Outlined expectations include ensuring that customers in debt are not subjected to excessive communication, employing supportive language in engagements, clearly signposting free debt advice services, and facilitating streamlined access for debt advisers to communicate with firms on behalf of their clients. These expectations are grounded in existing rules and guidance within the financial services sector, with the introduction of the Consumer Duty setting a higher benchmark for consumer protection.
The regulators have emphasized their commitment to taking action against firms that fail to meet these elevated standards. Notably, in 2020, fines totaling £90 million were imposed on firms for deficiencies in their treatment of customers in arrears, with over £570 million paid in compensation to affected customers.
Additional Measures to Shield Consumers amid Economic Challenges
Furthermore, collaborative efforts between regulators and lenders have yielded significant improvements in customer treatment, with almost £60 million in compensation secured for approximately 270,000 customers. To shield consumers from the financial strain of the current economic climate, additional measures have been implemented.
Lenders have been reminded of their obligation to provide tailored support to borrowers facing financial difficulties, while regulatory rules have been updated to align with commitments outlined in the Government's mortgage charter, aimed at assisting customers worried about meeting payment obligations . Overdraft charges have been overhauled, resulting in substantial savings for consumers totaling nearly £1 billion.
Moreover, referral fees from debt solution providers to debt advice firms have been banned, ensuring consumers receive higher quality advice without unnecessary financial burdens. Banks have been cautioned to improve their treatment of small business owners during debt collection processes, while insurers have been warned against offering unnecessary products or add-ons, along with unfair penalties, to safeguard consumer interests.
