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Regulatory update: FCA ‘Dear CEO’ letter on Consumer Credit firms’ handling of complaints

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Dear CEO letter on Consumer Credit

Background

On 13th September 2017, the FCA published a ‘Dear CEO’ letter addressed to firms engaging consumer credit activities regarding its concerns about how firms are handling complaints.

The FCA has recently undertaken a review of how consumer credit firms approach and deal with customer complaints.

The review consisted of the FCA reviewing data, final response letters and website information on complaints from a wide range of consumer credit firms. It was noted that the FCA found examples of good practice to the benefit of the customer.

Resolving complaints effectively is an important way for firms to identify and correct mistakes in the treatment of customers, and an important means to identify and address common or systemic issues that give rise to complaints. Furthermore, firms’ attitudes to complaints are a strong indicator of their culture and whether they have customers at the heart of their business.

Those firms that care about their customers and want to do better recognise that complaints are an opportunity to identify and rectify failings and strengthen relationships with their customers. Conversely, those firms that consider complaints as a nuisance and do not take them sufficiently seriously are unlikely to have a culture that leads to positive customer outcomes.

Key points

In the letter, the FCA highlights some key points:

  • Resolving complaints effectively is an important way for firms to identify and correct mistakes in the treatment of customers, and an important means to identify and address common or systemic issues that give rise to complaints;
  • Firms’ attitudes to complaints are a strong indicator of their culture and whether they have customers at the heart of their business; and
  • The FCA’s Dispute Resolution (DISP) rules apply to all sizes of firms, and are not new to the consumer credit sector.

The FCA found examples of non–compliance with the requirements set out in DISP as well as general poor practice relating to the way firms handle complaints.

The main concerns the FCA identified were:

  • A failure to provide customers the required information about the Financial Ombudsman Service – this included failing to provide details of the complainant’s right to refer to the ombudsman if they remain dissatisfied;
  • A failure to provide a clear explanation, to the complainant, of the outcome of the complaint and why this outcome had been reached; and
  • A lack of management controls in place to analyse and remedy any root causes of complaints or systemic problems

Considerations for firms

The FCA has set out its expectation on firms to proactively take steps to review the following:

  • Their current procedures on how they identify a complaint and whether it is in line with the regulators expectations;
  • The current process and procedures in place relating to how firms currently record and deal with customer complaints;
  • Their current communications with customers to ensure they are fair, clear and not misleading.

The FCA wants firms to particularly take into consideration the above areas as well as their overall complaint handling process. They have also highlighted in the letter the importance of being able to evidence compliance with regulatory requirements.
At this stage, the FCA does not require firms to notify them of the internal review or the outcome. However, they have stressed that in any of the FCA’s future contact with firms they may ask for evidence of such compliance, including details of any reviews they have carried out on complaint handling arrangements following the ‘Dear CEO’ letter.

Next Steps

Firms should be considering their plan of action in relation to conducting pro-active complaint handling reviews. The FCA has stated that if serious failings are found they will be referring firms to Enforcement for formal action to be taken. It is worth noting that while this letter applies to all consumer credit firms, those in the Debt Management, High Cost Credit, High Cost Short-Term Credit and the Catalogue Credit sectors may expect additional scrutiny given the recent announcement of the FCA’s priorities for consumer credit and the expected additional supervisory oversight for such firms.

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