The Consumer Credit Sourcebook
The Financial Conduct Authority produces the Consumer Credit Sourcebook (CONC), the specialist sourcebook for credit-related regulated activities. Chapter 7 applies to creditors or external debt collectors and the steps they can take to obtain payment of a debt due under a credit agreement.
It covers:
•clear, effective and appropriate arrears policies and procedures for dealing with clients who fall into arrears, including for the fair and appropriate treatment of clients who are particularly vulnerable (CONC 7.2);
•the treatment of clients in default or arrears, particularly the requirement to treat clients fairly (CONC 7.3);
•the requirement to provide clients with information about the amount of any arrears and the outstanding balance (CONC 7.4);
•pursuing and recovering repayments (CONC 7.5);
•exercising a continuous payment authority – ie, a mandate given by the client to, for instance, a lender, allowing it to take a series of payments from a debit or credit card without seeking express authorisation for every payment (CONC 7.6);
•applying interest or charges (CONC 7.7);
•jurisdictional requirements (CONC 7.8);
•contact with clients (CONC 7.9);
•the treatment of clients with mental capacity limitations (CONC 7.10);
•misrepresenting the authority or the legal position with regards to the debt or the debt recovery process (CONC 7.11);
•creditors’ responsibilities in relation to debt (CONC 7.12);
•data accuracy (CONC 7.13);
•settlements and disputed debts (CONC 7.14);
•statute-barred debts – ie, those that are too old to be recovered (CONC 7.15).
Specifically, the guidance states the following.
•If a creditor informs a client that it has decided not to pursue the debt, it must make them aware that the debt may still be sold by the creditor and the debt purchaser might decide to pursue the debt. Note: if the creditor has accepted a payment in full and final settlement of a debt, the creditor must formally and clearly confirm this (CONC 7.4.2R and 7.14.14R).
•A creditor must investigate if a debt is disputed on valid grounds or what may be valid grounds (eg, if the client is not the debtor, the debt does not exist or the amount being pursued is incorrect) and must provide information on the result of such investigations (CONC 7.14.3R and 7.14.5R).
•Creditors must not require someone to supply information to prove they are not the debtor in question (CONC 7.14.4R).
•Creditors must suspend debt collection activity if a client disputes the debt on valid grounds, or what may be valid grounds (CONC 7.14.1R).
•A creditor should not make undue, excessive or otherwise inappropriate use of statutory demands when seeking to recover a debt from a client (CONC 7.3.15G).
•Creditors must treat clients in default or in arrears difficulties with forbearance and due consideration (CONC 7.3.4R).
•If a client is in default or in arrears difficulties, a creditor must inform them that free and impartial debt advice is available from the free-to-client debt advice sector and refer the client to an agency. It appears that it is sufficient for a creditor to signpost a client to a debt advice agency or to the Money Advice Service by providing its name and contact details to the client (CONC 7.3.7AG).
•Creditors must not pressurise clients to pay a debt in a single lump sum or more than they can reasonably afford and must allow alternative, affordable repayment amounts if a reasonable offer is made (CONC 7.3.8G and 7.310R). For example, putting clients under pressure to draw a lump sum from a pension in order to pay a debt is likely to breach these requirements (CONC 7.3.10AG).
•Creditors must suspend recovery of a debt from a client for a reasonable period (ie, 30 days) if a debt adviser is assisting them to agree a repayment plan and should consider extending this for a further 30 days if there is evidence of reasonable progress (CONC 7.3.11R and 7.3.12G).
•Creditors must suspend recovery of a debt from a client if notification has been given and it is reasonably believed that they lack the mental capacity to make decisions about their debt problems, unless or until a reasonable period has been allowed for relevant evidence to be provided (CONC 7.10.1R and 7.10.2G).
•Creditors must take reasonable steps to ensure that customer data is accurate and that accurate and adequate data is passed on to third parties, such as debt collectors, debt purchasers and credit reference agencies, to avoid cases of ‘mistaken identity’ (where the wrong person is pursued for payment of a debt) and to ensure that clients are pursued for the correct amount of any debt (CONC 7.13).
In relation to statute-barred debts, see The Prescription and Limitation (Scotland) Act 1973. The CONC 7.15 states that a statute barred debt ceases to exist and is no longer recoverable if:
•a relevant claim on behalf of the or has not been made during the relevant limitation period; and
•the debt has not been acknowledged by, or on behalf of, the during the relevant limitation period.
The detailed rules and guidance set out above are underpinned by a set of principles known as the Principles of Business (PRIN), which are set out in the FCA Handbook. Principle 6, which requires creditors to ‘pay due regard to its customers’ interests and ensure they are treated fairly’ and Principle 7, which requires creditors to ’pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading, are of particular significance when creditors are dealing with clients in financial difficulties and arrears.
Principle 6 requires a proper investigation of the client’s personal circumstances, including what they can truly afford to repay and whether the client is a vulnerable person so that any payment arrangements agreed are appropriate. In January 2021, the FCA reminded debt purchasers and debt collectors that the requirement to treat customers fairly applied equally to them as to the original creditor.
The FCA has introduced a new Principle 12, known as the ‘Consumer Duty’ (a firm must act to deliver good outcomes for retail customers). Firms are required to apply the duty to new and existing products and services (including debt advice) from 31 July 2023.
Where the Consumer Duty applies, Principle 12 replaces Principles 6 and 7 as it sets a higher and more exacting standard of conduct than that which the existing principles would otherwise have required. The rules can be viewed at and the guidance at . The new duty is underpinned by three rules setting out the key behaviours required by the duty (described by the FCA as the ‘cross-cutting rules’) which require creditors to:
•act in good faith towards retail customers; and
•avoid causing foreseeable harm to retail customers; and
•enable and support retail customers to pursue their financial objectives.
The duty does not have a retrospective effect and so actions or omissions occurring before the duty cames into effect are assessed in line with the rules in force at the relevant time. While no right of action through the courts for any breach of the consumer duty has been incorporated in the final rules, creditors will still be accountable through the Financial Ombudsman Service.
In February 2021, the FCA published its finalised guidance on the fair treatment of vulnerable customers with the stated aim of ensuring that vulnerable customers are treated fairly and that they experience the same outcomes as those of other customers. The FCA defines ‘vulnerable customers’ as: ‘customers who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.
The guidance sets out six areas the FCA believes creditors should focus on.
•Understanding the nature and scale of their customers’ potential vulnerabilities and the impact of vulnerability on their needs.
•Training staff to identify phrases and behaviours that suggest customer vulnerability and then direct them to appropriate sources of assistance.
•Considering vulnerable customers at all stages of product and service design.
•Providing customer service processes that enable vulnerable customers to disclose their needs and responding flexibly.
•Ensuring communications are understandable by all consumers, taking into account the needs of vulnerable customers – eg, choice of communication channels.
•Monitoring and evaluating whether the needs of vulnerable customers have been met.
The guidance also points out the relevance of the Equality Act 2010 and that a breach of the Act is likely to be a breach of FCA rules and principles – eg, the requirement to make reasonable adjustments for a client with a disability.
The FCA says it intends to review the impact of this guidance within two to three years. The guidance can be found at . To help creditors understand their role in treating vulnerable customers fairly, the FCA published a set of frequently asked questions, which can be found at
Breaches of the FCA Handbook should first be raised with the creditor and/or debt collector concerned. If the matter is not resolved, the client should use the complaints procedure to escalate the matter to the Financial Ombudsman Service. Also raise the issue with the appropriate trade body – eg, the Finance and Leasing Association or the regulator (eg, the FCA).