The recent fine handed down to car finance provider Moneybarn, should act as a stark reminder to all financial services firms – they must ensure fair treatment of all customers and in particular, those who could be seen as ‘vulnerable’. This month, Moneybarn, which is owned by Provident Financial, was fined £2.77 million by the FCA after a two-year investigation, because it did not do enough to help those who had fallen behind with their payments.
What went wrong?
The FCA stated that between 1 April 2014 and 31 December 2017, Moneybarn provided 71,254 regulated loans. Of these, more than 1,400 customers defaulted after signing up to the company’s “unsustainable” short-term repayment conditions.
The regulator said that Moneybarn had not explained the consequences of missing payments in a way that was “clear, fair and not misleading”. It added that many of these borrowers needed guidance on how to “clear their arrears over a realistic and sustainable period”. However, Moneybarn failed to do this, which had resulted in “serious breaches”.
Moneybarn has since voluntarily paid more than £30 million in compensation to nearly 6,000 customers, without asking them to prove they had suffered financial hardship and each has received an average of £5,056.
Out of step
Arguably, Moneybarn should have been particularly in tune with the fact that its customers were more likely to run into difficulties, as the lender typically deals with those likely to be turned down by mainstream lenders due to having a poor credit history.
Mark Steward, the FCA’s director of enforcement and market oversight, said because Moneybarn did not communicate clearly to customers in financial difficulty, “their options for exiting their loans and the associated financial implications, resulting in many incurring higher termination costs.”
However, it was acknowledged that the fine could have been even higher if the lender had not paid back the £30 million, following discussions with the regulator. It is understood the FCA had originally planned to fine Moneybarn almost £4 million, but reduced this because of co-operation.
Meanwhile, Provident Financial was also fined £2 million by the FCA in February 2018 for wrongdoing by another of its brands, credit card provider Vanquis. This was due to the company failing to disclose that the full price of an add-on product called 'Repayment Option Plan' included an interest component, where there was an end of month unpaid balance on their credit card. The product was marketed as helping customers manage their debts and had various features including allowing them to freeze their accounts and take a one month payment holiday each year. The FCA said that most customers chose to use the product without realising it which “might lead to their indebtedness increasing”. Vanquis voluntarily agreed to pay back the interest customers were charged on the product from June 2003 to 31 March 2014, because before this time the FCA was not responsible for regulating the consumer credit market.
Lessons for other firms
Even if they do not target customers with impaired credit histories, many financial services providers should have strategies for helping vulnerable customers if the need arises. The FCA defines a vulnerable client as “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”.
It may not always be possible to identify who is experiencing problems, so someone who is elderly may be more straightforward to spot, than someone with mental health issues, for example. But, firms are expected to make efforts in this area. They should ensure they are up to date with the FCA’s guidance and provide ongoing training for employees. This is a topic high on the regulatory radar and as the cases with Provident Financial have shown, failure to do this could result in serious consequences.
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