Warning for Consumer Credit providers as HSBC fined for failures in treatment of customers in financial difficulty

The Financial Conduct Authority (FCA) last week confirmed it has fined HSBC UK Bank plc, HSBC Bank plc and Marks and Spencer Financial Services plc (HSBC) £6,280,100 for failures in its treatment of customers who were in arrears or experiencing financial difficulty (see: FCA fines HSBC £6.2 million over treatment of customers in financial difficulty). 

This intensifies the spotlight on consumer credit providers and the importance of taking the right approach in relation to identifying and responding when consumers fall into financial difficulties. The amount of the fine is miniscule compared to the £94m HSBC spent in identifying the issues and £185m in redress payments to their customers.  

The warning notice issued by the FCA provides insight into the FCA's expectations of consumer credit providers in terms of handling customers who are experiencing financial difficulties. In particular: 

• Firms that provide consumer credit are required under the Consumer Credit Sourcebook (CONC) to treat customers in default or arrears with forbearance and due consideration.  
• Where a customer is in default or in arrears difficulties, a firm should allow the customer reasonable time and opportunity to repay the debt. CONC provides specific examples of how a firm can show forbearance depending on the customer’s circumstances and financial position. For example: (1) Considering suspending, reducing, waiving or cancelling further interest or charges when a customer is in financial difficulty (‘breathing space hold’); (2) Allowing deferment of payment arrears, where immediate payment is unsustainable, and as long as it does not make the repayment term unreasonably excessive; and (3) Accepting token payments for a reasonable period of time to allow a customer to recover from unforeseen circumstances affecting their ability to pay priority debts or other essential living expenses (for example, mortgage, rent, council tax, utility bills and food bills). 
• “The [HSBC] policies in place provided little information on the treatment of customers in financial difficulty, for example those who were impacted through a change in their employment circumstances, or who were struggling to manage their debt. Though HSBC UK had policies in place addressing the treatment of vulnerable customers generally, it did not address specifically how it should treat customers in financial difficulties.
• A substantial cause of HSBC’s failings was inadequate staff training on handling financial difficulties, the options, when they are available and the features of each that might make them appropriate for a customer’s individual circumstances.  This resulted in an inability to understand the customer’s circumstances and poor explanations to customers of the possible outcomes.    

From 4 November, consumer credit providers will be required to adhere to the enhanced requirements that will be be introduced pursuant to the FCA policy statement published on 10 April “Strengthening protections for borrowers in financial difficulty: Consumer credit and mortgages”.  The HSBC ruling reinforces the enhanced requirements on appropriate policies, procedures, advice and support for customers in financial difficulties and the need to have regard to their individual situations (once issues are identified).