FCA Report on the review of borrowers in financial difficulty following COVID-19

At a time when there is an increased focus on the UK's economic outlook, the FCA has published a report highlighting how firms are treating customers in financial difficulties.  The FCA review has already led to significant remediation with around 60,000 customers already receiving compensation.  All financial services firms need to consider their treatment of customers in financial difficulties with the spotlight, especially placed on lenders who need to ensure that their treatment of these customers results in good outcomes.


The Chancellor's Autumn Statement is another reminder of the challenges facing many consumers. With inflation running at a 40-year high and the prospects of a long recession firms need to be sure that they have the right procedures and processes in place to respond to consumers in financial difficulty. The challenges faced by firms in this area have recently been highlighted by the FCA in their report on firms' treatment of borrowers in financial difficulty following the COVID-19 pandemic.

In the review, the FCA sets out examples of good and bad practices and several case studies.

Key findings include:​

  • Firms could do more to encourage customers to engage once they miss a payment. Firms should engage through different channels and ensure minimal friction or barriers for customers. ​
  • Ineffective communications result in unsuitable and unsustainable forbearance arrangements. The FCA mainly saw firms using arrangements to pay, with few other options available (such as term extensions or interest-only periods). Staff need adequate training if they are to offer more alternative options. ​
  • Inadequate signposting and communication of other support. Although firms generally mention sources of debt advice in written communications, many do not mention these in telephone conversations. It is often dependent on an individual agent's experience and training. ​
  • Fees and charges may be applied to customer accounts inappropriately and this, along with unpaid interest accruing, may result in escalating balances. There is a wide variance across different firms in the amount charged for the same type of fee and the number of times a fee is charged. Firms typically charge borrowers in financial difficulty higher fees for mortgages than for unsecured credit. ​

As a result of the poor practices identified, the FCA has told 32 firms to make changes to improve the treatment of customers. 7 of those firms have agreed to pay an aggregate of £12m in compensation to almost 60,000 customers. ​

The FCA will continue to monitor the situation. It will do this through the ongoing collection of data to find out the outcomes for consumers. Firms identified as having a higher concentration of customers who may be at risk of financial difficulty will be subject to close scrutiny and the FCA indicates that it will take "robust" action where it identifies firms delivering poor customer outcomes. There will also be a consultation on the Tailored Support Guidance with the possibility that certain provisions will be included in the FCA Handbook.

Next steps

The FCA has stressed that firms need to consider their report and take action where necessary to improve customer outcomes. As well as ensuring compliance with the FCA's Handbook requirements and related guidance it is important that firms prepare for an economic environment where the number of customers in financial difficulties is likely to increase significantly. Having enough staff who are adequately trained will be key as well as providing a range of appropriately tailored forbearance measures.

As part of any Consumer Duty implementation plan firms will be considering their approach to recoveries and collections. The FCA's report and the cost of living crisis only further increase the need to ensure that any review in this area is thorough and ensures good outcomes for consumers.

If you would like to discuss any aspect of the FCA's report please contact us. We would be happy to speak to you about how we can help with this important area.



Authored by Julie Patient.

Jonathan Chertkow
James Black
Roger Tym
Julie Patient


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