Less than a month ago we wrote about the ‘cost of non-compliance’ exceeding £1bn for poor arrears handling, through FCA fines and redress. Since then, we have seen yet another one. It is clear to us that the FCA is fining firms to drive home the need for a behavioural change in the way lenders treat their customers and arrears strategies.
This time it was Volkswagen Financial Services that was hit with a charge of £26.9 million, again highlighting the cost of non-compliance even without considering the management time needed to sort out the problem. That is £5.4 million for failing to treat customers in financial difficulty fairly and £21.5 million in redress to around 110,000 customers who may have suffered harm because of the firm’s failings.
It looks like there is a wilful blindness at grass roots level to do the right thing by customers, across all types of lending. In our last commentary we highlighted fines for firms engaged in mortgages, credit cards, overdrafts and personal loans – now we have to add motor finance to that list. Why do we say the failings are at grass root level? Well, we have seen it before; back in the early noughties, before the global financial crisis (GFC), lots of ‘creator and trader’ lenders had wonderfully comprehensive and robust lending policy documents and procedures. The problem was their underwriters took no notice of them. The incentives to ‘lend, lend, lend’ were greater than the downside of non-compliance. Senior managers knew what was going on, but they looked the other way. Déjà vu! The post GFC regulatory changes sorted out behaviours before, but this time we believe FCA fines will make firms change behaviours – and not before time.
Whilst we do not think this is the last fine we are going to hear about, the cost of non-compliance is now so great firms have no choice but to comply.
Rockstead has experience in digging into these issues and our work in this area has evolved over the last 16 years. We helped firms fix their relationships with their customers in the past – we can do it again.
Our people are all experienced subject matter experts, and we continue to provide independent support and oversight on these and other risk matters. Whether a lender, holder of loan assets, servicer or asset manager, call us to see how we can improve collections and arrears activities.