Ensuring Fair Treatment for Customers in Debt
A Joint Effort by UK Regulators
In a joint letter published on 18th March 2024, the Financial Conduct Authority (FCA), Ofgem, Ofwat, and Ofcom have outlined their shared expectations for firms in the financial services, water, electricity and gas, and telecoms sectors regarding debt collection practices. The regulators emphasize the importance of supporting customers in financial difficulty and ensuring that debt collection processes do not cause harm to consumers. This article will delve into the key points highlighted in the letter and discuss the measures being taken to protect vulnerable customers.
Understanding Vulnerability in Debt Collection: The regulators acknowledge that customers subject to collections activity are highly likely to be in vulnerable circumstances due to financial difficulty. Firms need to be aware that these customers may find it challenging to engage with creditors, and their vulnerabilities may be exacerbated if creditors adopt an inappropriate approach to collections. This recognition of vulnerability is a crucial step towards ensuring fair treatment for customers in debt.
Identified Consumer Harms: Through their regulatory work and stakeholder engagement, the regulators have identified several areas that can cause consumer harm in debt collection practices. These include:
- Inundation of Collections Communications: Customers in financial difficulty may feel overwhelmed by frequent collections communications from multiple creditors across different regulated sectors. This can adversely affect their mental and physical health, decision-making, and engagement with the collections process.
- Intimidating or Threatening Tone: Using an intimidating or threatening tone in collections communications can lead to disengagement, reduced chances of repayment, and negative impacts on customers’ mental and physical well-being.
- Barriers to Debt Advice Organizations: Debt advisers often face difficulties in contacting creditors on behalf of their clients, hindering the provision of timely and effective debt advice. This can undermine customer engagement with free debt advice and support services.
Expected Outcomes for Regulated Firms: The regulators have set clear expectations for firms to deliver positive customer outcomes and minimize harm in debt collection practices. These expectations include:
- Appropriate Frequency of Collections Communications: Firms should engage with customers promptly, offering support to those in or at risk of financial difficulty. The frequency and channel of collection communications should be carefully considered to avoid harm and ensure positive customer engagement.
- Supportive Tone in Communications: Firms must use supportive language that avoids intimidation or threats in collections communications. Tailoring communications to facilitate positive engagement with customers is crucial.
- Clear Information about Free Debt Advice: Collections communications should prominently provide information about free debt advice and how to access it. “Warm” referrals, where a firm directly refers the customer to another organization, should be used to facilitate easy access to debt advice.
- Easy Contact for Debt Advisers: Firms should make it as easy for debt advisers from free debt advice organizations to contact creditors. Clear signposting of contact channels and sufficient resources are essential to ensure effective communication and resolution of issues.
Regulatory Powers and Commitment to Monitoring: The regulators emphasize their commitment to ensuring that these expectations are met and embedded in firms’ processes. They highlight the possibility of using their respective powers to take robust action against firms falling short and causing consumer harm. Furthermore, the regulators will continue to monitor how firms in their sectors support customers in financial difficulty throughout 2024.
Conclusion: The joint letter from the FCA, Ofgem, Ofwat, and Ofcom underscores the importance of fair treatment for customers in debt and the need to protect vulnerable consumers. By setting clear expectations and highlighting areas of consumer harm, the regulators aim to improve debt collection practices across various sectors. Firms are urged to prioritize positive customer outcomes, use supportive language, provide clear information about free debt advice, and facilitate effective communication with debt advisers. Through ongoing monitoring and potential enforcement actions, the regulators are committed to ensuring that firms deliver on these expectations and minimize harm to customers in financial difficulty.