Once again the FCA has taken action over the tricky question of how to deal with vulnerable customers, who are not managing their finances well. This policy has far-reaching consequences for insurers, brokers and MGAs, because the duty clear falls upon the lender to manage the debt, not the actual debtor. In the recent past those who racked up defaults were given higher interest rates, penalty fines and admin charges as a punishment. But the landscape has dramatically changed and all lenders need to identify vulnerable customers at the point of sale, and then act fast when any customer begins to fall behind with payments.
Will the day come when the FCA fines an insurer for cancelling cover immediately by text message when a young driver’s direct debit bounces back, without giving the policyholder the chance to talk things though with an adviser? Maybe. Meanwhile, there is the latest from the FCA;
The Financial Conduct Authority (FCA) has today imposed a fine of £2.77 million on car finance provider, Moneybarn Ltd(Moneybarn), for not treating customers fairly when they fell behind with loan repayments while in financial difficulties, between 1 April 2014 and 4 October 2017.
Moneybarn also did not communicate the likely financial consequences of failing to keep up with payments to customers in a way which was clear, fair and not misleading. More than 1,400 customers – many of whom were vulnerable – subsequently defaulted after entering into unsustainable short-term repayment plans.
Moneybarn has voluntarily provided redress of more than £30 million to all 5,933 customers potentially affected by these failings without requiring them to demonstrate that they have suffered any financial detriment.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
‘Moneybarn did not give its customers, many of whom were vulnerable, the chance to clear their arrears over a realistic and sustainable period.
‘It also did not communicate clearly to customers, in financial difficulty, their options for exiting their loans and the associated financial implications, resulting in many incurring higher termination costs. These were serious breaches.
‘After discussions with the FCA, Moneybarn voluntarily paid more than £30 million in redress to customers potentially affected by its failings. The FCA gave Moneybarn significant credit for this in assessing the size of the penalty imposed.’
Moneybarn is a subsidiary of Provident Financial plc, a FTSE 250 company. It provides motor finance for used vehicles predominantly to customers who typically cannot access finance from mainstream lenders due to their personal circumstances.
Such customers are at an increased risk of financial vulnerability as they often have a poor or no credit history or past problems with credit due to periods of unemployment, ill-health or other adverse life events. They are also at greater risk of suffering detriment if they fall into arrears.
Moneybarn did not dispute the FCA’s findings. The firm’s agreement to accept the FCA’s findings meant it qualified for a 30% discount in addition to the credit it received for the redress paid to customers. Otherwise, the FCA would have imposed a financial penalty of at least £3,963,500.