The Financial Conduct Authority says seven lenders have agreed to pay £12m in compensation to nearly 60,000 customers to correct repayment agreements that were “unaffordable and unsustainable”, in the wake of the pandemic and the cost-of-living squeeze.    

The watchdog has also told a total of 32 mortgage and consumer credit firms to make changes to improve the way they treat customers, it reveals in its Borrowers in Financial Difficulty following the Coronavirus pandemic – Key Findings report, published today.  

It found examples of firms “delivering good outcomes for customers – but others must do a lot better to support borrowers in financial difficulty”.  

The body adds that 30% of firms, or 15 out of 50 it reviewed, “sufficiently explored customer’s specific circumstances”.  

It says that since the pandemic, the economic outlook has been dominated by cost-of-living rises, stoked by rising inflation and supply-side disruptions, driven predominantly by Russia’s restriction on its supply of gas to Europe and the risk of further curbs.  

In total the seven firms who have so far acted after the watchdog’s review will pay £12.4m in remediation to 59,491 borrowers.  

The FCA adds it will closely review a further 40 firms in the coming months “to make sure they are meeting its expectations and to protect customers from harm”.  

The regulator says firms should be:  

• encouraging consumers to engage earlier when facing financial difficulties  
• offering tailored support, particularly for those with vulnerable characteristics  
• letting those in difficulties know about the availability of free, independent debt advice when appropriate   
• making sure their fees and charges are fair and only reflect the reasonable costs that firms incur   
• considering, when engaging with consumers, whether it would be appropriate to reduce, waive or cancel fees and charges  

FCA executive director of consumers and competition Sheldon Mills says: “While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers.   

“Given the current cost of living challenges, it’s vital that the sector continues to learn lessons to make sure they support struggling customers.   

“We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.”  

The regulator says its report includes four surveys of over 400 lending firms, with consumer research and analysis of a sample of 69 assessments across 65 firms, covering a range of firm sizes and lending portfolios. So far, 32 lenders are being asked to make improvements and one firm has left the market.