FCA sends Dear CEO letter to more than 3,500 retail lending firms on supporting customers in financial difficulty

The Financial Conduct Authority (FCA) sent a Dear CEO letter to more than 3,500 retail lending firms in June 2022, setting out its expectations that firms support their customers, including those in financial difficulty¹. The letter said the FCA considered its pandemic-era Tailored Support Guidance (TSG) to be relevant for all consumers in financial difficulty, including those in difficulty because of the rising cost of living, and committed the regulator to consulting on the future of that guidance¹.

The letter followed the FCA's Borrowers in Financial Difficulty (BiFD) project, launched in Spring 2021 to assess whether firms were meeting the expectations set out in the TSG¹. That work found examples of firms delivering good outcomes but also that many firms were falling short of expectations, resulting in harm to customers, including not providing forbearance to customers at risk of payment difficulties before they missed a payment, not effectively engaging with customers about money guidance and debt advice, and not tailoring forbearance options to individual circumstances¹.

The FCA's 2022 Financial Lives Survey found the number of UK adults with low financial resilience rose from 10.7 million in 2020 to 12.9 million in 2022¹. The TSG covering mortgages, consumer credit and overdrafts was finalised in 2020 and last updated in 2021 for consumer credit and mortgages¹.

The FCA set out its follow-up proposals in Consultation Paper CP23/13, published in May 2023, which proposed incorporating aspects of the TSG into its Consumer Credit (CONC) and Mortgages and Home Finance: Conduct of Business (MCOB) sourcebooks and withdrawing the TSG¹. The consultation closed on 13 July 2023, with the FCA aiming to publish a final Policy Statement in the second half of 2023 and expecting the rules to come into force in the first half of 2024, withdrawing the TSG at the same time¹.

The paper set out estimates of the costs of some proposals, including a total additional industry cost of £2.5m per annum for one measure and £2.7m per annum for signposting 1.7m customers to debt advice¹. It also cited regulatory reporting data for mortgages in the second half of 2021 showing 207,000 customers in shortfall, and estimated that up to 5 million consumers were in arrears from Credit Reference Agency data for 2021¹.

Why it matters for households

The letter and the consultation that followed concern how lenders are expected to treat customers who are in financial difficulty or at risk of it. The FCA's proposals would broaden the scope of consumer credit and mortgage rules so that they apply to customers who indicate they are at risk of missing a payment, not only those who have already missed one¹. For consumer credit, the FCA proposed expecting firms to take a customer's individual circumstances into account when providing forbearance, something already expected of mortgage firms¹. For mortgages, it proposed allowing firms more scope to capitalise payment shortfalls where appropriate, improving disclosure for all customers in payment shortfall, and making clearer the existing requirement to record telephone calls with customers in payment shortfall, including video conferencing¹.

The FCA said its proposals aim to reduce and prevent harm to consumers in or at risk of payment difficulties beyond the pandemic by ensuring they are provided with appropriate support, and that they may have a positive impact for people with the protected characteristic of disability, due to a potentially greater likelihood of these consumers experiencing payment difficulties¹. The rules were expected to come into force in the first half of 2024, with the TSG withdrawn at the same time¹. How lenders must treat borrowers who fall behind is covered in our guide to forbearance rules, and the regulator's role is set out in our page on the Financial Conduct Authority.

What happens next

The FCA asked for comments on CP23/13 by 13 July 2023 and said it would consider the feedback and aim to publish a final Policy Statement, including its response to feedback, in the second half of 2023¹. It expected the rules to come into force in the first half of 2024 and proposed to withdraw the TSG at the same time¹.