On Thursday 1st March 2018 the FCA introduced their new set of rules relating to persistent debt for credit cards.
Although there has always been focus on pre-delinquency and early action to prevent escalating debt (CONC 6.7.2-3 are the relevant paragraphs), this has now been extended with specifics for the credit card market. These have been developed following the findings from the FCA credit card market study.
The changes are tucked away in the detail of the Consumer Credit Sourcebook (CONC), however, a quick summary of these is below.
Guidance on financial difficulties: There is now specific guidance in CONC on what constitutes appropriate action for customers in financial difficulties. (CONC 6.7.3A-D). It is also a requirement that firms have processes in place to identify these customers too.
In our experience most lenders have already been doing this and following these guidelines for a while, however this is now specifically mentioned within the regulation. It is worth checking compliance and your existing control framework.
Credit cards & persistent debt: There are now a series of rules and guidance relating to action that needs to be taken for customers in this category (CONC 6.7.27-40). These include:
- A requirement to review customer accounts who have paid less than interest and fees over the last eighteen months. This needs to be reviewed for each customer monthly (a definition of a customer in persistent debt).
- Customers need to be notified (and again at nine months) and provided options to assist repayment of the debt more quickly. This includes increased payments, or offering debt advice and other existing options for customers in financial difficulty. The duration of any repayment period should not extend beyond four years.
- However, if a customer does not respond to the notification, the customer’s account should be suspended or cancelled (although not if this should generate further hardship).
These provisions are similar and link to much of the work already started around pre-delinquency. However, this is now more prescriptive, and the requirement to suspend/cancel customers’ accounts on non-response has direct customer implications. Processes and procedures around these will now need to be factored in.
Time to get ready?
Although the new set of rules was implemented on 1st March, firms have until 1st September 2018 to be compliant. This provides a time window to review existing processes, procedures and ensure revisions are in place.
Additionally, it is recommended that the control framework is reviewed to ensure that evidence of compliance is also tracked. This is now regulation; it will be enforceable and will form part of future FCA review, so it is good to be prepared and ready.
Of course, at Arum we are also happy to help, from advice on designing processes and procedures to project management and SME support resource. With direct experience in this area and implementation of control frameworks, we are here to help you get it ALL done. Feel free to contact us.
Chris Warburton – Lead Consultant