We have reviewed the details of the notice and in this article we provide a summary of the FCA’s findings, highlighting the key systemic issues within the Firm’s collections and recoveries operations and the subsequent remediation efforts. Although the matters referenced are historic, they serve as an important reminder of the FCA's expectations in this area, and should be a triggers for firms to ensure they have their own houses in order.
Summary of findings
The FCA’s investigation revealed that TSB’s failings affected 232,849 customers, leading to a total redress figure of £99.9 million. The breaches were primarily related to TSB’s inadequate policies, training, systems, and oversight, which resulted in unfair treatment of customers, particularly those in vulnerable situations.
Key Issues Identified
- Policies and Processes
- Inadequate Assessment of Customer Circumstances: TSB’s policies allowed for exceptions to income and expenditure (I&E) assessments, leading to insufficient probing of customers’ financial situations. This often resulted in unaffordable repayment arrangements.
- Forbearance Failures: TSB did not consistently offer appropriate forbearance options. In some cases, customers were pressured to make payments before accessing forbearance, and in others, over-forbearance led to prolonged debt repayment periods.
- Inappropriate Fees and Charges: TSB continued to apply fees and charges to customers in arrears, exacerbating their financial difficulties. Vulnerable customers were particularly affected by these practices.
- Training and Incentivisation
- Insufficient Training: TSB’s training programs did not adequately equip staff to assess affordability, identify vulnerability, or handle complaints effectively. This led to numerous instances of unfair treatment.
- Incentivisation Schemes: Performance metrics focused on call handling times and the number of payment arrangements made, potentially encouraging staff to prioritize quantity over quality in customer interactions.
- Systems and Controls
- System Deficiencies: Automated processes failed to function correctly, leading to inappropriate charges and delays in account processing. Manual workarounds were often required, increasing the risk of errors.
- Testing and Assurance: TSB’s internal testing focused on single interactions rather than the entire customer journey, failing to identify systemic issues. Comprehensive end-to-end testing was not implemented until after the relevant period.
Remediation and redress
Following the FCA’s findings, TSB undertook a comprehensive remediation program, which included:
- Policy Revisions: Updating policies to ensure thorough assessment of customer circumstances and appropriate forbearance options.
- Enhanced Training: Implementing improved training programs to better equip staff in handling vulnerable customers and assessing affordability.
- System Improvements: Addressing system deficiencies to prevent inappropriate charges and ensure accurate account processing.
- Customer Compensation: Providing redress payments totalling £99.9 million to affected customers, covering fees, charges, and compensatory interest.
How can firms avoid similar challenges?
To prevent breaches similar to those identified in the FCA’s findings, firms should consider implementing some, or all, of the following measures:
- Are your policies and procedures adequate and sufficiently robust?
- Regular Reviews: Continuously review and update policies and procedures to ensure they align with regulatory requirements and best practices.
- Clear Guidelines: Develop clear, detailed guidelines for staff on handling customers in arrears, including specific protocols for assessing affordability and offering forbearance.
- Are your training programmes comprehensive and up-to-date?
- Ongoing Training: Provide regular, comprehensive training for all staff, focusing on key areas such as customer vulnerability, affordability assessments, and complaint handling. Review regularly to ensure it remain current for the regulatory landscape, but also for any changes to your own internal processes.
- Scenario-Based Learning: Use real-life scenarios and case studies to help staff understand and apply policies effectively. Ensure there is appropriate testing of that understanding.
- Is the manner in how you Incentivise staff appropriate and effective?
- Balanced Metrics: Design performance metrics that balance output with quality of customer interactions, ensuring staff are incentivised to provide your customers a fair and thorough service.
- Customer-Centric Goals: Include customer satisfaction and fair treatment as key performance indicators.
- How can you improve and enhance your Systems and Controls
- Automated Processes: Implement robust automated systems to manage arrears and collections, reducing the risk of manual errors.
- Regular Audits: Conduct regular audits and system checks to identify and rectify any issues promptly.
- Enhance your Monitoring and Testing
- End-to-End Testing: Perform comprehensive and regular end-to-end testing of customer journeys to identify systemic issues and ensure fair treatment throughout the process.
- Continuous Improvement: Use findings from testing and audits to continuously improve processes and systems.
- Is your Governance and Oversight sufficiently tough?
- Three Lines of Defence: Strengthen the three lines of defence model, ensuring clear roles and responsibilities for risk management and compliance.
- Senior Management Involvement: Ensure senior management is actively involved in overseeing collections and recoveries, with regular reporting and review of key metrics and outcomes.
- Are you applying a ‘Customer-Centric’ approach?
- Vulnerability Identification: Develop robust processes for identifying and supporting vulnerable customers, including tailored support and forbearance options.
- Transparent Communication: Maintain clear, transparent communication with customers, ensuring they understand their options and the implications of any agreements.
- What is your plan for how your main engagement with the Regulator?
- Proactive Engagement: Engage proactively with regulators, seeking guidance and feedback on practices and policies, or acknowledging errors where they have occurred – with a clear plan for how you will deal with it and avoid future recurrence.
- Compliance Culture: Foster a culture of compliance within the firm, emphasising the importance of everyone supporting the firm’s ability to meet its regulatory responsibilities, while also employing an ethical culture that support customers.
By implementing these measures, firms can significantly reduce the risk of regulatory breaches and aim to ensure fair treatment of customers, particularly those in financial difficulties. This proactive approach not only helps in maintaining regulatory compliance but also enhances customer trust and loyalty.
Conclusion
The FCA’s final notice against TSB underscores the importance of robust policies, effective training, and reliable systems in ensuring fair treatment of customers, particularly those in financial distress. TSB’s systemic failings highlight the need for continuous oversight and improvement in collections and recoveries operations. The substantial financial penalty and extensive remediation efforts serve as a critical reminder to all financial institutions of their obligations to treat customers fairly and responsibly.
In particular, we advise firms to consider how these findings read across to other areas outside just collections and recoveries – while some errors were specific to these functions, general the principles applied and the broader findings provide an indication of how the FCA will view treatment of customers in any function that faces off the general public.
DWF’s Regulatory Consulting team is well positioned to support firms with undertaking health checks or reviews of their existing policies and procedures, systems and controls, governance arrangements, or any of the other areas discussed here. We are also experienced in dealing with handling customer redress and remediation exercises.
Our integrated legal and regulatory consulting team can help navigate the evolving FCA requirements, offering the knowledge and resources necessary for effective compliance.
Feel free to contact our team with any questions or to discuss how we can assist you in meeting your regulatory obligations.
