Forbearance – Taking an Individual Customer Approach

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Now more than ever, best practice collections activity requires active and personalised customer engagement. The challenges that firms are facing due to coronavirus (COVID-19) are not insignificant, which only heightens the importance of fair and appropriate treatment for customers in financial difficulty.

The FCA’s Payment Deferral Guidance (PDG) was a rapid response to this issue by the regulator. It provides exceptional and immediate support to consumer credit customers facing temporary payment difficulties due to coronavirus-related circumstances. It allows eligible customers to defer up to six monthly payments unless any one or more of the payment deferrals are not in their interests. For those customers not receiving payment deferrals under the PDG, the Tailored Support Guidance (TSG) applies.

The fair and appropriate treatment of customers experiencing financial difficulty remains a key focus and high priority for the FCA; we expect this to be a major theme in the FCA’s forthcoming Business Plan.

What is the standard?

Both the PDG and TSG provide frameworks to ensure positive treatment and good customer outcomes. This is fundamentally to ensure customers are treated with forbearance and due consideration, and that sustainable arrangements are put in place which give them reasonable time and opportunity to repay their debt.

Whilst the primary focus is regulatory compliance, firms cannot ignore the benefits associated with reduced operational losses, improved customer experience and the future value associated with the relationship.

What do we see in the market?

In our experience, firms still have work to do to meet the regulator’s expectations. Many understand the opportunity that exists to live their customer experience agenda and differentiate themselves from their peers. While fighting fires has largely been the order of the day, firms must now unite Operations, Compliance, Credit and other core teams to plan further ahead to ensure they have optimal strategies with first-class execution. Only last year, Lloyds Banking Group was fined £64m for breaching Principles 3 and 6 of the FCA’s Principles for Business in relation to their handling of mortgage customers in payment difficulties or arrears. The message from the regulator is clear: complacency is not an option.

What should firms be doing instead?

The challenge for firms is ensuring the right approach. The PDG was a standard approach delivered at speed to address an immediate challenge. However, firms must now start thinking about how they transition from ‘off the peg’ to ‘custom tailored’ solutions relevant to each customer’s personal and financial circumstances.

The solution is a risk-based customer contact strategy that starts and ends with the customer. Active engagement with customers is necessary to fully understand their personal and financial circumstances, including any vulnerabilities. If a firm does not understand individual customer circumstances, it may enter into inappropriate or unsustainable arrangements. This could result in worsening the customer’s financial position and, ultimately, creating a deteriorating position that would otherwise have been avoidable.

This is a delicate tightrope that firms will need to walk as we come out of the pandemic.

To do so effectively, firms should ensure there is appropriate investment in their staff who work in collections and recoveries and effective management information. This will allow staff to monitor customer outcomes and take appropriate action where needed. Firms should actively consider:

  • Evaluating the relevance and appropriateness of their ‘contact strategies’

  • Training relevant staff on best practice approaches, including vulnerability, product training, and soft skills such as negotiating and customer experience

  • Using automation and digital tools, particularly to ensure the right blend of automation and individualisation

  • The adequacy of their oversight arrangements in relation to fair outcomes

  • The adequacy of their MI and reporting, including regulatory reporting

  • The quality of their record-keeping

Steps should also be taken now to ensure that strategy and implementation plans are aligned with good customer outcomes and regulatory expectations.

Have you got a customer contact strategy in place? Is your business set up to maximise the opportunity created through your customer contact programme? Are you delivering an unrivalled customer experience and good regulatory outcomes?

The Solution – About Square 4

Square 4 was founded with the vision to support people and businesses to grow and thrive.

​Across the team, we have extensive experience incorporating the ‘big four’ professional service firms, industry regulators, leadership roles within Global Systemically Important Financial Institutions (G-SIFIs) and other outsourced learning, resourcing and consultancy providers. We combine this expertise with best-in-class technology across an evolving spectrum of conduct, financial crime and operational risk.



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