Obligations stepped up in consumer credit and mortgages

Customer obligations stepped up in consumer credit and mortgages

As the financial services industry prepares for the launch of Consumer Duty on 31 July, the FCA is proposing additional measures to protect customers of consumer credit and mortgage firms. Martin Kisby, Director of Risk and Compliance at Lenvi explores the consultation paper’s key proposals.

The sustained push from the Financial Conduct Authority (FCA) for financial services firms to “put consumers’ needs first” is to be reinforced for consumer credit and mortgage firms. Despite the phasing out of the Tailored Support Guidance (TSG) paper, introduced by the FCA during the pandemic crisis to provide additional support to consumers, several TSG elements are now set to be retained and adapted. In addition, a handful of further protections are planned.

The FCA has launched a consultation paper explaining how it intends to incorporate these measures into the Consumer Credit (CONC) and Mortgages and Homes Finance: Conduct of Business (MCOB) sourcebooks, and requires any feedback to be submitted by 13 July. However, whatever industry responses are received, the outcome looks certain to further ramp up firms’ responsibilities around customer support and intervention at a time when the industry is preparing for the launch of Consumer Duty on 31 July. This focus was also evident throughout the FCA’s recently published Business Plan for 2023/24, with its emphasis on supporting all financial services consumers struggling to make repayments.

Key measures

The main areas of TSG that the FCA intends to incorporate into the handbooks are as follows: 

• Broadening the scope of relevant consumer credit and mortgage chapters to make it clear to firms that appropriate support should be provided to customers in, or at risk of, payment difficulty.
• Enhancing the expectations around customer engagement and providing information regarding money guidance and debt advice. 
• Expecting firms to consider a range of forbearance options and take reasonable steps to ensure arrangements remain appropriate.
• In addition, consumer credit firms will be expected to take into account the customer’s individual circumstances when providing forbearance (as already expected of mortgage firms). 

The new additional changes for mortgage firms, not previously covered by TSG, include allowing firms more scope to capitalise payment shortfalls where appropriate. However, companies will also be required to improve disclosure for all customers in payment shortfall, and make clearer the existing requirement to record telephone calls (and video conferencing) with customers in payment shortfall.

Meanwhile, guidance is set to be introduced to help consumer credit firms determine their necessary and reasonable costs in setting fees and charges. 

Much of the consultation is designed by the FCA to further encourage early interaction between firms and customers who may be struggling. The current rules in CONC 7 and MCOB 13 primarily apply to customers who have already missed a payment but the TSG set out that firms should also support customers before they miss a payment if they indicate that they are experiencing, or reasonably expect to experience, payment difficulties. In the spirit of Consumer Duty, The FCA wants to ensure that customers feel encouraged to engage early with lenders and get the support they need to help manage their way through financial challenges.

Following the close of the consultation period next month, the FCA plans to publish a policy statement with rule changes expected to come into force in the first half of 2024.