FCA: Some people in mortgage arrears are being let down

Ryan Bembridge

December 6, 2018

The Financial Conduct Authority has found examples of lenders causing customers in long-term mortgage arrears more harm, in some cases making their debt increase.

The regulator said some lenders weren’t properly keeping records, causing customers to have to repeatedly state their circumstances and therefore potentially become disengaged.

There were also instances where customers’ vulnerabilities weren’t properly identified, while some firms only communicated with customers reactively. There were also examples of customers having to fill in detailed forms without any help from their provider.

Jonathan Davidson, executive director of supervision at the FCA, said: “Some [lenders] weren’t identifying vulnerability particularly well.

“Others weren’t particularly empathetic; asking customers to fill out a long form without any help, asking them to write down distressing details of their vulnerability.

“We found a few isolated cases where firms weren’t really doing a proper assessment of whether the repayment plan they’d agreed was affordable – i.e. it didn’t lead to debt being repaid.”

He went on to say customer risk is typically higher in the second charge sector, owing to the higher rates charged.

He added: “There is a higher risk in the second charge sector… the higher the rate of interest the higher the risk of the interest rate eating into people’s equity if they can’t service the interest.”

The FCA study sampled eight lenders, which included banks, building societies and second charge lenders, which the regulator said covered 40% of the market.

The regulator hasn’t yet decided whether it will launch a formal investigation into firms where some practices were found wanting.

Despite these negatives on the whole the regulator said firms were treating customers in long-term financial difficulty appropriately, although there were inconsistencies in how firms deal with arrears management.

Some firms have introduced specific call handlers or designated sub teams to provide the customers with a consistent point of contact, which the regulator said has improved the overall customer experience.

Meanwhile a small number of firms had a quality assurance approach that focused on end-to-end reviews. The FCA said this may have enabled firms to better evaluate the suitability of customer outcomes, while also assisting with robust root cause analysis.

The regulator saw examples of firms agreeing arrangements with firms on sustainable terms.

It also found that some firms did well to consider customers’ individual circumstances, resulting in customers being handled with sensitivity and purpose.

The FCA reminded firms that the primary aim of forbearance is to enable the complete recovery of the mortgage through the full repayment of arrears.

In 2008 there were 56,000 customers with serious arrears with a repossession rate of 22%; by 2016 there were 70,000 in serious arrears with a repossession rate of just 2.7%.

In light of this change the regulator launched the study after speculating that lenders were being ‘over-forbearing’ – effectively being too lenient with customers in arrears. The worst case scenario it wanted to look at was whether lenders were being forbearing to let borrowers deliberately rack up charges.

Overall however, the FCA did not identify widespread harm to customers from extended forbearance.

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