FCA Management of long-term mortgage arrears and forbearance [TR18/5] requires a re-focus on Treating Customer Fairly.
The FCA recently issued its findings following the thematic review into the management of long-term mortgage arrears and forbearance. As we move to an environment where family finances might come under pressure the FCA findings are timely. Although, the FCA arrears and forbearance thematic review was originally announced in the FCA’s 2017/2018 business plan, the timing of the output focuses minds when read in conjunction with the Bank of England’s ‘disorderly Brexit’ stress episodes. These anticipate a reduction in GDP, an increase in unemployment, an increase in inflation, a 30% reduction in residential property values and an interest rate peak nearly as high as those seen during the global financial crisis. Such stress tests should not be labelled as part of ‘project fear’; they should be considered as part of the prudent management of our economy with the recommendations from the FCA dovetail into firms planning.
It would be easy for many regulated entities and individuals, who are not directly involved with arrears management, to have missed the conclusions on the assumption that they did not apply to them. However, the opposite is true. Many of the issues identified by the FCA translate into other areas of a regulated business and, therefore, TR18/5 should be considered by all approved persons. If there was any doubt that treating customers fairly remains firmly on the agenda TR18/5 should dispel that myth.
If there was any doubt that treating customers fairly remains firmly on the agenda TR18/5 should dispel that myth.
Which findings translate into other areas of business? In my view, there are the main highlighted areas that should flow into all areas of regulated business.
- Incomplete record keeping: The FCA found examples of customer case file notes that held insufficient information. Surely, the old mantra, “if you can’t prove you said what you say you said, you didn’t say it”, has not been forgotten. The same mantra also should apply to record keeping, if files don’t show relevant information that was asked for or obtained – then it wasn’t asked for or obtained! A further ‘downside’ of incomplete records is customers often receive the same request for information or documents on multiple occasions, which usually leads to disengaged customers,
- Inconsistent handling of vulnerable customers: Firms need to produce and follow clear guidelines. Where guidelines are not clear or where guidelines are not followed there is a risk that customers suffer inappropriate outcomes.
- Narrow quality assurance processes: Quality assurance [QA] programmes are often limited to a narrow range of criteria and the review process too often only monitors a limited percentage of files. In assessing whether QA processes are fit for purpose firms should a) consider the size of any QA sample to ensure the review is reflective of actual performance and b) consider a broader ‘end to end’ analysis of the customer interaction.
- Barriers to effective engagement: The FCA noted that too often customers are required to complete complicated forms with little assistance from the firm. Firms should carry out a ‘root and branch’ review of the forms they require customers to complete and the level of support they provide to customers.
More than a decade may have passed since the FSA launched the “Treating customers fairly – towards fair outcomes for consumers” and we may be regulated by a different regulator now, but the focus on fair outcomes has not diminished – nor is it likely to in the future.