The FCA has fined Barclays Bank UK plc, Barclays Bank plc and Clydesdale Financial Services Ltd (collectively Barclays) £26,056,400, after a 30% settlement discount, for failures relating to the unfair treatment of consumer credit customers in financial difficulty. The FCA found that between 1 April 2014 and 31 December 2018 some retail and small business customers who had been offered consumer credit were not shown forbearance and due consideration when they fell into arrears or experienced financial difficulties. As a result, the FCA found that Barclays failed to treat customers fairly or to act with due skill, care and diligence. These failings amounted to a breach of Principle 6 (customers' interests) and Principle 3 (management and control) of the FCA Principles for Business, as well as breaches of CONC 6.72R, 7.2.1R and 7.3.4R from its Consumer Credit sourcebook.
Barclays offered a number of consumer credit products across 6 Product Areas. These included Personal Loan Accounts where customers held unsecured loans and Retail Current Accounts which allowed customers to access short term credit by way of overdraft.
Some customers in each of the 6 Product Areas experienced poor outcomes when they fell into arrears on their lending products. The FCA found that Barclays failed to treat these customers fairly in several ways:
- Customer Contact: As a result of Barclays failing to follow its customer contact policies, many customers whose accounts entered into Barclays Collections experienced delays in being contacted and could have incurred additional charges as a result.
- Customer Circumstances: In a significant number of cases, Barclays missed indicators of financial difficulty or vulnerability and its agents failed to have appropriate conversations with customers to help understand the reason for their arrears or financial situation.
- Forbearance: Barclays failed to properly understand customers' circumstances which led to it offering unaffordable or unsuitable forbearance solutions to customers. It also made errors such as charging interest fees during a breathing space hold on payments.
The FCA found that known issues in respect of the Barclays Collection process in particular affected certain Product Areas. When considering Barclays' application to carry out consumer credit activities in 2015, the FCA raised concerns that the collection policies were focussed on commercial returns rather than customer outcomes. Despite its attempts to rectify the issues, Barclays' internal audits continued to identify serious control failings, resulting in some customers suffering financial detriment.
Barclays knew about many of the shortcomings in its systems and controls as early as 2014, but did not adequately resolve the problems until late 2018. The FCA make it clear however that measures to resolve the problems were subsequently taken and Barclays has since undertaken a substantial redress scheme, identifying at least 1.5 million customers who suffered detriment, or were at risk of detriment, as a result of the failings and has paid over £273 million to those customers in redress. The significant improvements in collections, the redress programme and Barclays' cooperation with the investigation all helped mitigate the breach and, ultimately, decreased the level of financial penalty.
The FCA rules require that consumer credit firms take adequate measures to properly understand customers' financial difficulties so that the firm can offer affordable and sustainable forbearance solutions tailored to the customer's circumstances. Examples of such forbearance include reducing or suspending interest payments or deferring payment of arrears.
The rules are in part designed to ensure that consumer credit debt does not compromise a customer's ability to pay priority expenses such as rent, council tax or food. Whilst this case pre-dates the challenges brought about by Covid-19, the impact of the pandemic on household incomes and budgets brings the FCA's message that firms must work with their customers to resolve financial difficulties into sharp focus. Indeed, the FCA has issued detailed guidance for consumer credit firms setting out how those firms can properly support customers during this exceptional and uncertain time.
The fair and appropriate treatment of customers experiencing financial difficulty remains a major focus for the FCA. Enforcement Watchers should expect to see increased activity in this area as the impact of the pandemic on personal and business finances crystallises.