Rules that forced banks to help struggling customers during Covid could become permanent
Rules forcing banks to help struggling customers during Covid could become permanent as FCA unveils £47m reparations
- The city regulator’s temporary rules forced lenders to treat customers fairly
- FCA has claimed £47 million for clients of companies that have broken the rules
The Financial Conduct Authority has proposed permanently requiring lenders to support borrowers in financial difficulties.
Temporary guidance for lenders on how to treat borrowers fairly was released during the Covid-19 pandemic, but the regulator has now announced plans to make it permanent.
The regulator also said it had forced 17 companies to pay out £47 million to customers as redress when they broke the rules.
The rules and guidelines require lenders, including providers of mortgages, consumer credit and overdrafts, to take steps to support customers in difficulty.
The FCA has charged companies £47m in redress for failing to provide adequate support
For example, they must offer the right support to customers who have difficulty repaying. This could include the option of temporarily paying less or not at all or changing the term of the mortgage or loan, taking into account individual circumstances.
Delinquent fees should not exceed what is necessary to cover the reasonable costs incurred by businesses for consumer credit customers.
In addition, they must familiarize customers with free, impartial money counseling and debt counseling.
Sheldon Mills, executive director of consumer and competition at the FCA, said: “Many companies have followed our temporary guidelines, developed during the pandemic, to support borrowers during difficult times. Our proposals today will ensure that it stays that way.
“If we see that companies are not providing the right support, we will act quickly to rectify this. If you are concerned about payment tracking, we recommend that you talk to your lender as soon as possible.”
In addition to its recommendations, the FCA announced it had obtained up to £47 million in redress from 17 companies for their unfair treatment of 195,000 customers under these rules.
The regulator said it had worked with nearly 100 lenders to address how they treated borrowers in financial difficulties, and sought “significant improvements” from many of them.
Issues identified included not adequately tailoring support to individual circumstances, not responding adequately to vulnerable clients, and not communicating effectively with clients about money counseling and debt advice.
Balancing the books: Households are under pressure from all sides as higher interest rates and inflation continue to erode finances
Richard Lane, director of external affairs at Stepchange, says: ‘Our own research has shown that people showing signs of financial distress need help as early as possible to avoid being caught in a spiral of harmful, unaffordable money-making loans. . the ends come together.
Communications from lenders requesting payment can be frightening for those with problematic debts, causing them to withdraw, a problem we’ve found to be more prominent among borrowers with additional vulnerabilities.
Lane-added lenders must prioritize providing their clients with appropriate support tailored to individual needs, and make effective referrals to free debt and money advisory services.
More than 1.4 million people will experience a mortgage shock this year, as they will have to take out a new mortgage when fixed deals with low interest rates come to an end.
According to statistics from ONS, nearly six in 10 deals (57 percent) due to renew in 2023 currently have a rate of less than 2 percent.
As a result, those who want to repair again will face cost increases that can run into the hundreds of dollars per month.
Rate hikes: Mortgage rates have fallen from their peak, but those looking to take out a new mortgage are still facing significant increases
The current average for a two-year fixed-rate mortgage is 5.34 percent, according to Moneyfacts. The five-year average with a fixed interest rate is 5.01.
In 2018, if you had secured 2 per cent on a £200,000 mortgage for five years for 25 years, your payments would have been £848 per month. Locking now at the current average for the same term would increase the cost to £1,170 – an additional £3,864 per year.
At the same time, households are increasingly dependent on credit to make ends meet. Loans offered by not-for-profit “community” lenders rose by a third last year, even as 93 percent of applicants had to be turned down because they couldn’t make repayments. This is despite the lower rates offered by community lenders.
Community development financial institutions such as community banks and credit unions will have lent £46 million to 90,630 people by 2022 according to Responsible Finance’s impact report.