ARTICLE...
Extra care for customers post-TCF
The FSA is playing tough with its Treating Customers Fairly rules and the industry is being told to take extra care when dealing with customers.
After two years of financial turmoil, the FSA is taking a firmer line than ever before. In June last year, the regulator isolated four specialist lenders to its enforcement division for further investigation. It identified ongoing issues surrounding how these lenders dealt with consumers and it was concerned with how arrears and repossessions were handled.
After four months, the FSA investigation reached a conclusion. Under the TCF rules the FSA imposed heavy sanctions on lenders levying unfair charges on borrowers in arrears between October 04 and November 08. And, in doing so, it gave out the first fine to a mortgage lender for not complying with the TCF regulations.
In the opening salvo of sanctions, £2.8m of fines were handed out – the biggest penalty ever imposed by the FSA. Lenders were also ordered to reimburse more than 46,000 consumers up to £7.7m. This was a huge blow to these companies.
'Serious failings' were identified in the way lenders were dealing with customers and charges being made were inflated when compared to the actual administrative costs involved. They also found that repayment plans often didn't consider the individual circumstances of their customers.
Mortgage-servicing staff were also found to be inadequately trained in the handling of repossessions and arrears and repossession proceedings were issued too swiftly, before alternatives had even been considered.
All these problems were a result of a breakdown in the quality of primary servicing and a lack of regard for the TCF regulations and how they apply to and affect the relationship with borrowers.
Primary servicing used to be king, but when lenders were enjoying record profits standards slipped and it was all but forgotten by many lenders and servicers.
But the FSA has drawn a line in the sand and will no longer tolerate this disregard for the TCF. The regulator's thorough investigation highlighted how primary servicing in today's market requires technology built to cope with modern demands, designed specifically to meet the challenges of the current economic climate. The best, up-to-date arrears handling processes are now vital to show how customers are being treated fairly and that no one is rushing to drag them to court.
Each borrower needs to be treated according to their individual needs. Technology is at the heart of this, giving lenders the chance to use predictive credit analysis from the outset. It can help tailor strategies too, with up-to-date technology making the development of bespoke, sustainable collection processes.
In light of the pre-budget report and inevitable cuts after the 2010 election, borrowers may find it even harder to make their repayments. It's therefore imperative that lenders are able to monitor credit performance of their existing customers, watching out for any changes in behaviour, no matter how small or seemingly insignificant. By understanding their circumstances, lenders can give appropriate help if borrowers enter financial distress. This also keeps the FSA happy with regard to TCF regulations.
But even the most advanced technology is no substitute for good quality servicing staff. When the recession bit, many lenders reduced their teams to cut costs. However, it was the expensive, experienced staff who were shown the door first, which left many teams without the skills to cope.
Every team must be able to handle the situations before them and training must be provided. It's essential if customers are to be treated fairly... and if lenders are to avoid sanctions!
Intelligent data analysis is now the future of the industry. The basics of servicing must be dealt with to appease the FSA and to make sure consumers receive fair treatment. Three more companies are currently under investigation from the FSA over issues surrounding the TCF regulations, with more sure to be under scrutiny as the year progresses.
Businesses that have weathered the last few years of financial upheaval must not rest on their laurels. The need to improve primary servicing is vital to their future survival.
Original article, by Alan Cleary, Managing Director of Exact Mortgage Experts, courtesy of CCR.
