The authority is bringing in the consumer duty to tackle what it sees as too many instances of firms exploiting the behavioural biases of their customers. This is by the way that they present information, exploit customer loyalty or inertia, sell products or services that are not fit for purpose or do not give value for money, or provide inadequate levels of customer support. 

The FCA’s consumer duty will form the core of financial regulation in the retail financial services sector and, during 2022 and 2023, regulated firms across the mortgage sector will need to consider how to translate FCA policy into practical action. 

With several of the recent Dear CEO letters on issues impacting the mortgage market stating “but we are not waiting for the Duty to come in before we act to improve consumer outcomes”, here are three areas in that mortgage lenders should prioritise now:   

1. Vulnerable customer treatment:  one year on from the FCA’s guidance for firms on the fair treatment of vulnerable customers, the FCA has shared its views on areas where it expects to see improvement and additional focus from firms.  These include:

• MI, monitoring and evaluation – the FCA expects MI to track and give effective comparisons of outcomes for customers in vulnerable circumstances and other customers and go beyond complaints data.
• Product and service design – the FCA expects product design process to consider the needs and experience of customers in vulnerable circumstances demonstrated through MI.
• Culture and accountability – the FCA expect clear lines of accountability for senior leaders in relation to the vulnerability strategy, so that the individual responsible for the firm’s approach can demonstrate what they have done to meet their responsibilities.   

It is clear from the FCA feedback there is a significant gap between its expectations and what it sees firms delivering as part of their vulnerable customer policies and process. I would encourage mortgage lenders to familiarise themselves with the feedback on the FCA vulnerable customer webpages and prioritise delivery of the FCA recommendations. 

 Arrears and forbearance treatment: last month the FCA issued a Dear CEO letter to 3,500 lenders titled ‘the rising cost of living – acting now to support consumers’.  In the letter the FCA highlights inconsistency in arrears and forbearance treatment by firms across the retail financial services sector and a significant gap in the FCA’s expectations and market practice.  I would encourage mortgage lenders to familiarise themselves with the guidance in this letter and prioritise focus on some of the areas for enhancement identified in the letter including: (i) sign-posting to sources of free debt advice; (ii) tailoring forbearance to ensure it is appropriate for a customer’s individual circumstances; (iii) consistency in how fees and charges are applied; (iv) quality of customer communications; and (v) quality of QA and compliance oversight. 

 Outcomes-testing and oversight arrangements: a consistent theme in feedback from thematic reviews across the retail mortgage market has been quality of QA and compliance oversight arrangements.  In particular, the FCA is keen to ensure that QA and compliance oversight is carried out on an appropriate proportion of customer files and assesses the overall customer experience, rather than a point in time review of a call or process.  Monitoring delivery of good customer outcomes is a core expectation under the forthcoming Consumer Duty.  The FCA will be expecting to see the feedback loop in action – identification of an issue, appropriate escalation of that issue to board and senior management and action to address it including in the design of future products, policies and processes. 

So, as we rapidly approach publication of the FCA’s Policy Statement in late July, here are five questions I would recommend firms in the mortgage market ask themselves now: 

• How central is carrying a fair value assessment to the firm’s product oversight and governance processes? 

• Can the firm demonstrate how customer feedback (and testing customer understanding) is translated into continuous improvements in products and services? 

• Do the compliance monitoring processes the firm operates place sufficient focus on overall customer outcomes rather than narrow compliance with individual rules? 

• What proportion of the firm’s complaints relate to switching, product cancellation and customer service levels? 

• To what extent does the firm already review existing mortgage products and services at key points during the product lifecycle? For example, when a customer remortgages? 

Robin Penfold is a partner in the financial services regulatory team at TLT LLP