What a surprise, having taken 1000’s of calls already on my Fireside Chatline, and spoken to no end of people being treated appallingly by Bounce Back Loan Lenders and/or their third-party agents, the latter who seem equally as gormless/clueless in many instances as the bank staff, the FCA have just dropped a Mother of All Bombs on the already imploded BBL Scheme.

Read on, and if you are being treated disgustingly by your BBL lender do not sit there in silence.

I have been grassing up many lenders to the British Business Bank when I get sufficient complaints coming in, so they are aware, and they will probably be choking on their coffee now that everything I have been telling them has been verified by The FCA:

FCA SME Collections and Recoveries Review

Ensuring the retail banks we regulate treat small and medium-sized enterprise (SME) customers fairly is a key priority. We set out here the findings from our multi-firm review assessing how retail banks treat their SME customers who are in collections and recoveries. We also set out the key actions retail banks should take.

Why we conducted this review

SMEs are a vital part of the UK economy and have tackled significant challenges during the last few years, both with the adverse impacts of the coronavirus (Covid-19) pandemic and the current cost of living crisis. As part of our ongoing commitment to ensure SME customers are treated fairly, we undertook a multi-firm project to review the treatment of SME customers’ when they get into difficulty with their borrowing.

Who this applies to

We targeted retail banks with SME customers. All regulated firms offering lending to the SME population should consider and, if necessary, act on, the findings and recommendations.

It is important to note that not all SME lending is regulated, for this review, we considered SME customers of retail banks with business as usual (BAU) and/or Bounce Back Loan Scheme (BBLS) lending that fall within the consumer credit act definition of a ‘relevant recipient of credit’ (RRC). This means they were borrowing £25,000 or less and a sole trader, small partnership or other relevant recipient of credit (RRC) as defined in Article 60L of the Regulated Activities Order 2001/544.

What we did

The firms in our review and how we chose them

We have reviewed 11 retail banks who provide SME lending services; this included BBLS where relevant. We used a data led selection process from a variety of sources to identify retail banks of varying size and risk for our review. We reviewed each bank’s policies and procedures. For some firms we decided to hold meetings with the senior managers who held responsibility for collections and recoveries. For these firms we also carried out customer file reviews.

Our interviews covered issues identified during our policy review, alongside gaining a general understanding of how the senior manager carried out oversight of the area for which they are accountable.

The file reviews focused on outcomes testing across a broad range of SME customer types and scenarios.

The rules we considered

Our review considered firms’ systems, controls and processes for collecting and recovering SME debt using principles 2,3 and 6, SYSC 9 and 13, and CONC 7.

When considering SME customers with BBLS loans we considered the following:

• ‘Under our rules (CONC 7.3.4R), firms are required to treat customers in default or arrears difficulties with forbearance and due consideration. For the purpose of these findings, ‘customers’ refers to customers who are individuals or RRCs who are in default or arrears difficulties.’
• We considered customers in ‘financial difficulty’ as those in default or arrears difficulties.
• What we measured and sought to establish
• We reviewed the following against our rules covering borrower protections and our principles:
• How likely firms’ policies and procedures were to deliver fair outcomes for customers.
• Whether firms’ staff training ensured frontline staff have the necessary skills and capability to recognise and respond to a range of characteristics of vulnerability.
• Whether quality assurance (QA) and outcomes testing was sufficiently robust to detect policies and procedures that did not generate fair customer outcomes.
• Whether firms’ routinely used root cause analysis to improve policy and procedures to ensure fair customer outcomes.
• If customers had received fair outcomes during the time they were in collections and recoveries.
• If banks provide forbearance that is appropriate for its SME customers.
• If due consideration of customers’ financial difficulties was evident during interactions between staff and the customer.

What we found

Summary of findings

During our review we found repeated instances of poor customer outcomes and failures to treat customers fairly.

Several themes appear to drive poor customer outcomes:

• Gaps in policies and procedures.
• Staff training that did not adequately cover conduct requirements.
• Manual interventions within systems which appeared to make delivering fair customer outcomes more difficult.
• Absence of outcomes testing or QA that considered whether customers had received fair outcomes from the end-to-end treatment they received.
• In many cases record keeping was poor, such that some could not provide complete customer files and it was not possible to determine if the customer had received a fair outcome based on the records.
• We saw instances of customers providing information indicating characteristics of vulnerability that were not considered or suitably responded to.

Next steps

As well as publishing this review, we have provided individual feedback to each retail bank we looked at. We will be communicating our findings and expectations in a ‘Dear Chair’ letter to all firms with an SME customer base.

We have asked the Board of each firm we have contacted to carefully consider the contents of the letter and this review and take the necessary steps to seek assurance that their business complies with our expectations.

Where they are or become aware that the firm does not have this assurance, we expect firms to respond to our letter in a timely manner outlining the plan to fix any issues preventing them from meeting our expectations.

We continue to monitor outcomes and carefully scrutinise firms in this sector and will use our supervisory and enforcement powers to take further action as necessary.  In future engagement with firms with SME customers we are likely to ask them to demonstrate compliance with the expectations listed below.

We expect firms to treat customers fairly. Given the current pressures on SMEs due to the ongoing adverse impacts of Covid-19 and the cost-of-living crisis it is crucial that firms consider how they will ensure fair customer outcomes.

Key findings

Further detail on our findings are set out below. Where we reference good practice in this document, these are positive examples we have found from our multi firm work.

Extending regulated credit agreement protections to all SME customers

Good practice

Many firms have taken a customer-focused approach and extend regulated credit agreement protections to all SME customers or a significant portion with ‘unregulated’ SME customer borrowing.

Areas for improvement

In addition to regulated customers, some firms said that they had extended SME customer protections to unregulated customers but could not demonstrate that these protections were actually being delivered to either.

Providing forbearance

Good practice

Many firms placed an emphasis on the best outcome being the survival of the SME business and only took recovery action when it was clear all other suitable avenues had been exhausted.

Areas for improvement

Some firms could not demonstrate that a suitable suite of forbearance options was on offer to customers to ensure that each customer was provided with an appropriate forbearance arrangement.

A number of firms were not able to demonstrate they were offering forbearance to customers when the information provided suggested the customer’s circumstances required it.

In many cases we saw only simple short term ‘arrangement to pay’ forbearance even when the customer’s circumstances suggested this was not an appropriate form of forbearance.

We saw examples of firms rejecting offers of settlement and arrangements to pay without a clear rationale, instead choosing to pursue the collections and recoveries process.

Provision of due consideration

Good practice

Some firms had collections staff that engaged with and sought to understand customers’ circumstances through effective questioning and created an appropriate arrangement that reflected the information provided.

Most firms have swiftly increased headcount in collections and recoveries to address the increased demand from customers for support in this area as a result of the Covid-19 and cost of living crisis.

Areas for improvement

Frontline staff were often not given training to deal with customers in financial difficulty but were required to assess whether a referral to specialist team was required. We found examples of staff lacking sufficient experience or training to correctly judge when a referral was needed.

We found evidence of staff not considering or acting on information provided to them by customers.

Supporting customers with characteristics of vulnerability

Good practice

We witnessed staff demonstrating empathy when customers contacted their bank to discuss characteristics of vulnerability.

Some firms had specialist teams providing tailored support for customers with characteristics of vulnerability.

Areas for improvement

Across all firms there were instances where customers with characteristics of vulnerability were not identified or acted on appropriately.

Some firms required customers with characteristics of vulnerability to be referred to a specialist team through manual referral mechanisms, but this did not always work effectively. There were instances where the referral failed to take place resulting in customers not receiving the necessary specialist support or had lengthy waits before support was provided.

Outcomes testing and quality assurance

Good practice

We found some firms had used effective management information (MI) and customer focused metrics to determine changes were required to existing policies and procedures in order to improve customer outcomes.

A number of firms could also demonstrate changes to policy and procedures in light of internal QA feedback with a view to improving fair customer outcomes.

Areas for further improvement

Some firms had no means to test whether SME customers were receiving fair outcomes.

We found some firms used inappropriate and ineffective metrics to measure customer outcomes or used an absence of information as rationale that no improvements were needed.

Staff guidance and training

Good practice

A number of firms could demonstrate that staff had received conduct focused training, covering, amongst other topics, fair outcomes and identifying characteristics of vulnerability.

Areas for improvement

Staff process guidance was sometimes not sufficiently detailed to support staff in having effective conversations with customers in a variety of scenarios to determine the root cause of financial difficulties.

Some firms staff training packages did not include conduct training.

A number of firms conduct training lacked critical information, such as how to support a customer in a monthly budget deficit.

Several firms had incomplete training guides that remained unfinished despite staff being asked to undertake the duties the training was intended to cover.

Management information and senior oversight

Good practice

Some firms used MI packs that provided a broad overview of SME collections and recoveries operations allowing senior management to provide effective oversight.

Areas for improvement

Reports to senior management often had little or no content covering SME customer outcomes or metrics measuring fair treatment.

A number of firms did not routinely collect or use MI to inform decision making for SME collections and recoveries. Where MI was used, it was not clear how it supported decision-making in firms.

Some firms could not provide evidence to demonstrate what informed decisions on SME collections and recoveries.

Governance and oversight

Good practice

Some firms routinely reviewed collections and recoveries policies and procedures to seek assurance they were working as intended.

Areas for improvement

We found instances of senior managers not regularly attending relevant committee meetings where important SME issues necessary for effective oversight of the collections and recoveries area were under discussion.

We found some firms did not have control documentation or it was materially incomplete.

Systems and controls

Good practice

A number of firms had implemented systems and controls that were designed effectively to help in the delivery of fair customer outcomes.

We found some firms made changes to systems where they found that current arrangements impacted customer outcomes negatively.

Areas for improvement

Some firms had manual processes (which are more open to error) that required staff to intervene to ensure customers were treated fairly and that the firm was adhering to regulatory obligations.

Outsourcing

Good practice

Some firms engaged third parties to help provide services to customers to ensure their needs could continue to be met during increased demand.

A number of firms took steps to ensure that third parties acting on their behalf adhered to our rules as well as the banks’ ethos and customer treatment expectations.

Areas for improvement

We found examples of senior managers that could not demonstrate a clear level of oversight of third party outsourcing arrangements.

Several firms could not provide a rationale for the selection of third parties beyond cost.

Record keeping

Good practice

We observed some firms reviewing records to ensure customers files had been correctly actioned.

Areas for improvement

Firms who submitted case files for review were unable to provide accurate ‘customer files’ in a timely manner to the FCA and for some files it was not possible to determine if fair outcomes had been delivered to the SME customer based on these records.

Many of the call notes from customer calls were extremely brief and, on some occasions, failed to capture all the relevant detail the customer had provided, including where there were customer vulnerabilities discussed.