Lenders should act now to make sure that borrowers struggling with payments and vulnerable customers can access help as living costs rise, the City regulator has said.
The Financial Conduct Authority (FCA) wants lenders to do more to help people in financial difficulty and said it is concerned that some customers in vulnerable circumstances are not getting the support they need.
The regulator is reminding lenders that they should provide support to struggling borrowers that is tailored to their specific circumstances and only charge them fees that are fair and cover the firm’s costs.
With household bills expected to continue to rise into the autumn, the FCA is writing to more than 3,500 lenders to remind them of the standards they should meet.
Most firms need to have better conversations to fully understand their customers’ individual circumstances, so they can provide appropriate tailored support and ensure that arrangements to pay back debt are sustainable, the regulator said.
Some lenders are not discussing the potential benefits of money guidance or free debt advice or helping and supporting borrowers to access these, it added.
In its letter, the FCA tells lenders to make sure their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their outgoings.
They should consider and, if necessary, improve how they treat consumers in vulnerable circumstances as well as effectively directing customers who need it to money guidance or free debt advice.
People who are struggling to manage their finances should speak to their lenders for support as early as they can, the FCA said.
They can also get free support and advice, for example, through the MoneyHelper service, it added.
We need all firms to get the basics right and provide good quality supportSheldon Mills, FCA
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months.
“Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.
“The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.”
The FCA said some more serious failings were found at more than 30 firms, largely in the consumer credit sector, and that it expects these companies to make improvements in how customers are treated.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The fact that prices are expected to rise even further as we go through the rest of the year means the number of people falling behind could rise significantly.
“When people can’t cope with their debts, they often bury their head in the sand, so it’s up to the banks to make the effort to contact them and offer help.”
Get in touch with the experts and get some help, and you can sort the problem togetherSarah Coles, Hargreaves Lansdown
She added: “Banks need to up their game, but if you’re having trouble managing your debts it shouldn’t put you off getting in touch and talking to them. They should help you find a solution, which will do far less damage to your credit rating than if you just miss payments.
“If you can’t face speaking to them, get in touch with a debt charity, like StepChange, as soon as possible. They’ll talk you through all the options, and will often deal with the banks for you.
“It’s not easy to face up to debt problems, but, while it may feel easier to hide from it in the short term, it just piles the pressure on you even more as time goes on.
“Get in touch with the experts and get some help, and you can sort the problem together.”
It is normal to experience worries about money, but it’s better to face them rather than ignore themCaroline Siarkiewicz, Money and Pensions Service
Caroline Siarkiewicz, chief executive officer at the Money and Pensions Service, said: “It is normal to experience worries about money, but it’s better to face them rather than ignore them and there are options available to help ease any immediate concerns.”
She added: “The MoneyHelper website has information about how to approach these conversations with your lender as well as practical guidance and tools such as the bill prioritiser to help you work out which bills to pay first. If you are already struggling with debt, you can use our debt advice locator to help you find free debt advice in a way that works for you.
“If you’re struggling with debts, you might be able to get support through the debt respite scheme, also known as Breathing Space.
“This is a debt option that gives you temporary protection from the creditors you owe money to. It can be applied for through debt advice, and lasts for up to 60 days, with a review between days 25 and 35. This could give you valuable time to find an effective and long-term solution for dealing with your debts and help you move forward.”