Dealing with customers in arrears
Mark Davies (pictured) is managing director of Asset Services
The Financial Conduct Authority (FCA) recently published findings on how mortgage lenders treat customers who have long-term mortgage arrears and provide forbearance to affected customers. While overall, the FCA did not identify widespread harm to customers from extended forbearance, it did see some inconsistencies in firms’ arrears management practices.
Among some of the practices it uncovered were isolated examples of harm where customers were unable to recover from their arrears position and their mortgage debt continued to increase. This was observed where customers were on high interest rates.
There is a temptation to assume all is well until it is found to be not the case but as we move through the credit cycle, certain operational behaviours become critical to dealing with any consumer’s difficult circumstances sensitively and compliantly.
This time of year can keep people awake at night and personal borrowing is back to pre-credit crunch levels. Research by financial charity The Money Charity showed that people in the UK owed a combined total of £1.6 trillion at the end of September, up from £1.56 tillion a year ago – an extra £870.80 per UK adult.
Some best practices can at least make the management of borrowers in difficulty a lot more manageable. Complete record keeping can remove the constant aggravation of having to repeat themselves in a stressful conversation and underpin a more consistent management of vulnerable customers across organizations. Equally good data can underpin a better, more appropriate solution and better communication. Auditing these practices from the customer experience point of view is important too. Dropping in to review individual calls can give a incomplete picture of how well a case has been managed.
Examples of harm are fairly obvious if the customer’s data and circumstances are not really known or understood. It could include forbearance arrangements which are unaffordable, with severe consequences for the overall financial situation of customers, or where the debt continues to grow. It could also ultimately result in a repossession with considerably reduced equity in their homes.
The FCA’s review is against a backdrop of low interest rates where the interest on arrears balances is still relatively low.
It’s important that customers who are already in long-term arrears, and mortgage customers who might go into arrears with an increase in interest rates, or a change to their personal circumstances are correctly sign-posted to the best possible outcomes by people who are experienced and aware of what actions both they and their borrowers should be taking.