How to handle consumer credit complaints the right way

27 September 2017

Consumer credit firms could be forgiven for expecting a break in regulatory activity after a busy summer. In July alone the Financial Conduct Authority (FCA) published consultations on consumer credit affordability guidance, staff remuneration and extending the Senior Managers and Certification Regime to all regulated firms.

But the FCA continues to press ahead with a raft of activity in the consumer credit sector, including issuing a Dear CEO letter on complaint handling earlier this month. The letter follows an FCA review of how consumer credit firms approach and deal with customer complaints. It found a number of areas of concern, including unclear explanations of complaint outcomes, poor management controls and a failure to provide customers with the required information including their right to refer complaints to the Financial Ombudsman Service (FOS).

It’s helpful to think about these issues as falling into four broad categories: processes, quality, policy and controls. In principle, the first category is perhaps the easiest to fix: firms should ensure they publish the required information about their complaints handling procedures and the FOS on their website, as well as in complaint letters. In addition, firms should review their processes for recording and reporting accurate complaints data, as the FCA found evidence suggesting that some of the data it receives from firms is inaccurate.

In terms of the quality of complaint handling, the FCA expects firms to clearly explain the outcome of a complaint and the reasons why it was rejected. It found examples not only of unclear explanations, but where it was not even clear whether the complaint was upheld or not. To get this right, firms need to carefully consider how to ensure communications are fair, clear and not misleading – this includes both the wording of communications and the way the text is presented.

Some of the most worrying instances of non-compliance are those that suggest fundamental errors in a firm’s complaints policy. For example, the FCA found that close to a fifth of firms were operating ‘two-stage’ processes, where complaints are escalated if customers are dissatisfied with the initial outcome. These procedures are no longer permitted under the FCA’s rules. Furthermore, the FCA says it found ‘surprisingly high levels’ of ex gratia payments. While it notes that firms are free to make these types of payments, the FCA says they should not be used as a substitute for investigating complaints properly. Firms should review their policy on ex gratia payments and ensure staff clearly understand when these types of payments should be made and why.

Finally, the FCA requires firms to put in place appropriate management controls to identify and remedy any recurring problems. It found a significant proportion of firms had failed to carry out a root cause analysis of their complaints, or had failed to act on the results if they had completed the analysis. It’s important firms get this right, not only to ensure they’re meeting regulatory expectations, but to make improvements to their business. By identifying and correcting any recurring problems, firms have an opportunity to improve customer outcomes and to reduce compensation costs from future complaints.

While this Dear CEO letter comes at a busy time for consumer credit firms, it’s certainly not something they can put at the bottom of their to do list. Getting complaints handling right is not a nice to have – the FCA expects firms to review their processes in light of this letter and make improvements if they need to. Poor complaints handling is an issue the FCA has flagged a number of times now, so firms can be sure the regulator will take a dim view of any firm which fails to act.

John Coley | Director
Profile | Email | +44 (0)20 7213 8075

Tessa Norman | Senior Associate
Profile | Email | +44 (0)20 7213 2508
Follow @TessaNormanPwC

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