UK Borrowers Due Millions as Lenders Fail to Meet FCA Expectations

When the COVID-19 pandemic struck in 2020, the U.K.’s Financial Conduct Authority (FCA) asked the country’s lenders to offer payment deferrals as a means of supporting customers struggling to meet their repayment obligations because of the crisis.

In a report published last week, the FCA noted that the initiative resulted in 1.8 million mortgages and up to 4 million consumer credit agreements of deferred payments.

Now, in a retrospective review of the repayment deferral scheme, the FCA has found that some firms failed to meet its expectations and has taken action to ensure they compensate customers.

Of the 65 lenders the FCA assessed, 32 were asked to make “material and significant changes to their processes.” Of these, so far seven have estimated that they need to provide 12.38 million pounds ($14.18 million) in remediation to about 60,000 customers.

The report identified four areas where financial institutions underperformed: customer engagement, the effectiveness of conversations with customers, helping customers consider and access money guidance and debt advice, and the imposition of fees and charges.

In order to improve in these areas, the FCA report asked firms to ensure they are committing enough resources to their awareness campaigns and staff training initiatives, provide tailored forbearance solutions to customers, which take account of their individual circumstances, and ensure that that fees and charges for those in arrears are applied “fairly and only reflect reasonable costs incurred.”

The COVID-19 Bounce Back Loan Scheme

Away from consumer credit, lenders were also instrumental in supporting small- to medium-sized businesses (SMBs) throughout the exceptional events of 2020-2021.

Then, the Bounce Back Loan Scheme (BBLS) provided government-guaranteed loans to SMBs that were negatively impacted by the U.K.’s nationwide lockdowns and restricted business environment.

The first evaluation of the government’s COVID-19 loan guarantee schemes, published in June, found that up to half a million businesses could have permanently shut down in 2020 without the BBLS. When considered together, the BBLS and other COVID-19 loan guarantee schemes aimed at larger businesses saved up to 2.9 million jobs, according to the report.

Unfortunately, however, the unprecedented nature of the program made it susceptible to fraud. The government reported that of the 46.5 billion pounds ($53.26 billion) lent under the BBLS, 1.1 billion pounds ($1.26 billion) has been flagged as suspected fraud.

Read on: Report: UK Already Suspects $1.3B ‘Bounce-Back’ Loans Fraudulent

In a letter to lenders last year, the FCA wrote that “BBLS was launched with limited counter fraud measures compared to [business as usual] lending as a result of the objective to provide funding rapidly to businesses.”

As such, the regulator has been working with firms as they collect loan repayments so as to uncover cases of fraud while ensuring that legitimate borrowers are treated fairly. It has previously issued guidance on the specific obligations of lenders that took part in the BBLS.

Unlike the directions for consumer lending, however, the FCA has found no evidence that lenders failed to meet the requirements of fair treatment outlined under the BBLS payment collection rulebook.

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