Consumer Credit Firms: Have you spotted these Dear CEO letters you should be acting on?
The FCA has published three Dear CEO letters sent to firms including retail mortgage lenders, non-bank lenders, and building societies. Although not directly addressed to consumer credit firms, the read across is clear.
In the letters, the FCA clearly sets out the key risks and issues across the sector, and because some of these are shared across lending activity this makes them a must read.
Despite this, many consumer credit firms will be unaware that these letters even exist.
Where can I find them?
We’ve noticed that these letters are quite difficult to locate on the FCA’s website, so we have included a helpful link to each letter below:
Retail Mortgage Lenders (RMLs)
Non-Bank (Mortgage) Lenders (NBLs)
We recommend Senior Managers of all lending firms reflect on the risks and issues highlighted and consider how they apply to their business.
Whilst there are three separate letters, the key identified risks remain consistent across each one.
What are the key takeaways?
In summary, four common risks of harm have been identified:
Supporting Customers in Financial Difficulty – The FCA suggests that its Tailored Support Guidance for mortgages, consumer credit and overdrafts should provide Firms with a good framework for providing tailored forbearance when supporting customers in financial difficulty. Firms need to ensure that any arrears handling policies have been updated in line with this. Consideration should also be given to whether any changes are required in light of the end of support schemes such as furlough and the continued strains from the increased cost of living.
Responsible Lending – This continues to be an area of focus for the regulator, and the letters caution Firms to ensure that any commercial pressures to increase business volumes does not impact the quality and rigour of the affordability assessments being conducted. As we come out of the pandemic, Firms should instead take this opportunity to implement any learnings from the arrears data throughout this period which can be used to update practices going forward. Extra rigour and care should also be taken when conducting later life lending.
Fair Treatment of Vulnerable Customers – Firms are reminded of their obligation to embed the fair treatment of vulnerable customers guidance across their business models, culture, policy framework and processes. Firms should adopt an outcomes focussed approach with appropriate monitoring systems in place and a feedback loop to implement learnings.
Governance and Communication Strategies – Although the letters refer to communication strategies in terms of the rising rates on interest only mortgages, the idea that customers should be provided with sufficient timeframes to act when informing lenders of any doubts or concerns around their ability to repay can be more widely adopted. In light of this, Firms should consider their own communication strategies and ensure they are supported by a strong governance framework including a written documented strategy outlining the options available. As always, there should be appropriate MI in place to monitor the effectiveness of this.
The letters also highlight wider issues around the LIBOR transition, in terms of transferring customers to a fair replaceable rate. Additionally, there is focus on Diversity and Inclusion, encouraging Firms to promote a diverse workforce to better understand the needs of customers across more demographics within the target audience. The FCA confirm the need for diversity extends beyond the front line all the way up to senior positions on the Board.
What this means for you?
Dear CEO letters provide helpful insight into the regulator’s expectations and areas of key focus or concerns. As such, Senior Managers should take steps now to act on this and demonstrate how the themes have been considered. In the event of a supervisory visit, the regulator will be looking for evidence of what has been done.
Senior Managers can do this by undertaking the following actions:
Ask yourself:
Are these risks getting appropriate coverage at senior management committees?
Am I clear who owns these risks and has accountability for their management?
Is the management information I am receiving fit for purpose – is it telling me what I need?
Undertake a gap analysis of the content of the letter against your compliance monitoring plans to make sure they have been given appropriate ratings.
Ensure any discussions and resulting actions are evidenced, prioritised accordingly, and tracked to completion.
Implement any required changes and continue to monitor areas of risk with appropriate MI.
Avyse Partners can work with you to undertake this analysis or provide independent QA on the comprehensiveness of the work you have done. We have many years’ experience working with the FCA and Consumer Credit Firms and so we understand the issues raised and can help you determine the relevant factors to your business. Get in touch to discuss how.
Shaneca
