7:00 am, November 6, 2022
Motor finance firms need to focus on key areas to help people who are struggling because of the cost-of-living crisis.
That’s according to the Financial Conduct Authority (FCA), which has taken a look at the post-pandemic performance of motor finance lenders plus others in the finance industry, including credit card providers, mortgage lenders, pawnbrokers and those dealing with asset finance.
In a newly published report, the FCA said it had found examples of firms in the finance sector delivering good outcomes for customers – but others must do a lot better to support borrowers who are in financial difficulty.
Just 30 per cent of finance firms (15 out of 50) that it reviewed explored customers’ specific circumstances sufficiently, which meant repayment agreements were often unaffordable and unsustainable.
No firms were named, but the FCA said it had already told 32 of them across the entire finance industry to make changes to improve how they treat customers and so far seven of them have agreed to pay £12m in compensation to almost 60,000 struggling customers.
The regulatory body added that it will also be closely reviewing 40 other companies over the coming months to ensure they meet its expectations and protect customers from harm.
It said it expected lenders to learn the lessons from good and poor practice during the coronavirus pandemic to help borrowers during the cost-of-living squeeze.
In its study of 509 companies across the board, the FCA found that 26 per cent of motor finance firms were monitoring customers’ susceptibility to financial difficulty.
It also discovered some motor finance firms charging more than £40 as a late payment fee and nearly £40 for unpaid direct debits and arrears.
Sheldon Mills, executive director of consumers and competition at the FCA, said: ‘While many firms did well in supporting customers in difficulties during the pandemic with our support and guidance, others sadly failed their customers.
‘Given the current cost-of-living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.
‘We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.’
The FCA said that to improve matters for borrowers in financial difficulty, lenders must focus on:
- Engaging with customers
- The effectiveness of conversations with customers
- Helping customers to consider and access money advice and not-for-profit debt advice
- Fees and charges
Examples of poor practice that the FCA found in the finance sector included:
- A company not clearly explaining the impact of missed payments
- Lack of flexibility
- A customer being transferred eight times during a one-and-a-half-hour call, with their question still unanswered – even being transferred back to the original customer service agent at one point
On the plus side, some companies displayed good practice, such as:
- Redirecting a customer to a not-for-profit debt advice firm that led to them securing a fee-free debt plan
- Exploring a customer’s circumstances to ensure they could afford making up for missed payments
- Helping vulnerable customers by ensuring there were specially trained staff to deal with them
With inflation now at 10.1 per cent and interest rates having been hiked to three per cent, the FCA said finance firms should encourage consumers to get in touch sooner earlier when facing financial problems.
It added that they should offer tailored support, especially for vulnerable people, make sure their fees and charges are fair and only reflect the reasonable costs incurred, and consider if it would be appropriate to reduce, waive or cancel fees and charges.
The organisation’s Financial Lives survey of 19,000 people published last month showed that more expect to struggle in the months ahead. Nearly eight million people are finding paying for the basics a heavy burden, it found – two and a half million more than in 2020.
Finance firms have been urged to take immediate action where necessary to ensure they’re well placed to support customers now and as things become more challenging in the months ahead.
And the FCA warned that if necessary, it’ll use its supervisory and enforcement powers to protect customers from poorly performing firms. In some cases, it’ll also consider asking companies to stop lending where it sees that they’re delivering poor customer outcomes.
