The Final Notice issued this week by the FCA, imposing fines on Barclays for failings in showing forbearance and due consideration to business and retail customers when they fell into arrears or experienced financial difficulties, appears to suggest some new thinking on key collections points from the FCA, with some important unanswered questions. The references in brackets refer to the FCA’s Final Notice.
1. Firms shouldn’t accept payment plans unless the customer is willing to discuss their situation
The FCA said:
A firm cannot show appropriate forbearance without having an adequate understanding of a customer’s circumstances, including whether they are in financial difficulties or are vulnerable (4.67).
It is therefore essential to ensure that firms properly explore and record the reasons why a customer’s account has fallen into arrears, and assess the customer’s other current and future financial obligations before accepting or proposing any particular forbearance solutions or alternative payment plans (4.68).
Does the word ‘essential’ imply that even if a customer wishes to make a regular payment and confirms that it is affordable, but refuses to provide more information - a common scenario - then the creditor should reject this? The rules today would point in the opposite direction, that it would be wrong for the creditor to refuse to cooperate with the customer’s wish to reduce their debt.
2. Creditors must assume customers want to pay
The FCA suggests that where payment plans fail without the creditor having a full picture of affordability when the plans were set up, this is likely to be the fault of the creditor, not the customer. The FCA said:
Agents agreed multiple incorrect solutions which were neither sustainable nor affordable as a result of its failure to properly assess the customer’s circumstances (Case Study B, Annex A, 1.11)
It was not until late March 2017 that Barclays attempted to complete an income and expenditure assessment with Customer C. He cleared his arrears in April 2017. The account fell back into arrears 2 months later, suggesting that the regular payments were not sustainable for Customer C (Case Study C, Annex A, 1.19)
This suggests that the assumption has to be that customers are honest and wish to pay off their debts, at least unless it can be proven otherwise. That may seem reasonable if the lender has been remiss in attempting to understand the customer's situation. But is it reading too much into the FCA's language here to conclude that the regulator believes that if a customer doesn't pay then creditors should assume it's because they cannot do so, rather than they choose not to?
3. Absolute buffers for emergencies are needed
The FCA describes the situation of Customer A, who was left with a £2 disposable income per month, and notes that this was not a “reasonable buffer for emergencies” (Annex A, 1.4 and 1.6).
This appears to confirm that firms must allow an absolute buffer (a minimum amount in Pounds) for all customers. It may seem perfectly reasonable, but as far as I'm aware, the FCA hasn't come out and set this as a firm requirement before.
4. Compliance with internal policies is needed, not only compliance with FCA rules
Throughout the Report, the FCA refers to lapses in Barclays following its own collections procedures. For example, Barclays Collections Policy required Collections to attempt to contact all customers within 28 days, but ‘on numerous occasions’ this did not happen (4.65).
This confirms that policies must not only be documented, but having been documented they must be followed. Policies set out how firms have chosen to implement FCA rules, so it is probably correct for the FCA to first review the policy, and then test whether the policy has been followed. It’s a real warning for the many firms who adopt boilerplate policies that may be far removed from their operations, even though their activities may actually be fully compliant with the FCA CONC rules.
Where does all of this take us? To me, it’s pointing more and more towards the use of technology to ensure that all collections activities are compliant. This is the only way of having a full audit trail with live monitoring data, allowing oversight of every case to ensure basic affordability and vulnerability information has been captured. The Barclays Final Notice confirms the downsides of relying on agent judgement in internal collections, and the benefits of selling non-performing loans to specialist debt collectors.