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Arrears & Default Policy & Procedures

1.  Policy Statement

He Company recognises that the Financial Conduct Authority (FCA) has provided clear rules in its handbook, under section CONC 7.2 regarding arrears. These rules state that clear, effective and appropriate arrears policies and procedures must be in place within any firm who is regulated under the Consumer Credit Act and takes payments from customers.

Such payments can include, but are not limited to: –

  • Debt collection payments
  • Rental payments
  • Hire purchase (HP) payments
  • Loan payments
  • Insurance payments
  • Mortgage payments
  • Debt Management fees

Where such contracts or agreements can result in arrears accruing due to missed payments, it is essential to provide clear and concise guidance and procedures for staff and customers. The Company endeavours to make the process of collecting arrears on any account, transparent, fair and jargon free for all those involved.

Specific consideration will also be given to customers who are considered as ‘vulnerable’ and where applicable, with our dedicated Vulnerable Customers Policy and Procedures being used and followed in such situations.

Prevention and fair processes for customers in arrears is also important to the business to help maintain a revenue stream and to meet its contractual obligations with regard to clients (where applicable).

2. Purpose

The purpose of this policy is to ensure that the Company complies with its obligations under the FCA and acts in a fair, transparent and consistent way with regard to accounts and customers that are at risk from, or who have already accumulated arrears in their payments.

The Company will put measures and controls into place to help prevent arrears from occurring in the first instance, but where this action is not possible and/or arrears are inevitable, the Company will work with the customer and any authorised third party to resolve the matter in an amicable and fair manner; providing help and guidance where needed and offering alternate solutions where possible.

The Company’s framework for dealing with accounts that are in arrears includes: –

  • Systematic, stringent but fair procedures for handling account arrears
  • A sensitive and fair approach to customers experiencing financial difficulties
  • Options for clearing arrears and maintaining a consistent payment function
  • A consistent approach to arrears accounts and customers
  • Support and training for staff handling account arrears and associated customers

3. Scope

This policy applies in full to the Company and its staff (meaning permanent, fixed term, and temporary staff, any third-party representatives or sub-contractors, agency workers, volunteers, interns and agents engaged with the Company in the UK or overseas). Any member of staff who does not follow this policy and any associated procedures will be subject to disciplinary procedures and possible termination from the company.

4. FCA Definitions & Expectations

The Company are aware of and are compliant with all regulatory standards and requirements when it comes to dealing with account defaults and customers in arrears. When developing our controls and measures, we have paid specific regard to CONC 7.2 and 7.3 of the FCA handbook, where the FCA advises that “When dealing with customers in default or in arrears difficulties a firm should pay due regard to its obligations under Principle 6 (Customers’ interests) to treat its customers fairly.”

Where a customer under a regulated credit agreement fails to make an occasional payment when it falls due, we endeavour to allow for such missed payments to be made within the original term of the agreement unless: –

  • We reasonably believe that it is appropriate to allow a longer period for repayment and have no reason to believe that doing so will increase the total amount payable to be unsustainable or otherwise cause a customer financial difficulty
  • We reasonably believe that terminating the agreement will mitigate such adverse consequences for the customer and before terminating the agreement we always provide a full explanation to the customer

It is one of our main business objectives and priorities to always treat customers in default or in arrears with forbearance and due consideration and this is reflected in our controls, measures, procedures and staff training.

5. Objectives

Where an account has entered into arrears for whatever reason, the Company’s aim is to meet the below policy objectives within the shortest timeframe, whilst being fair and considerate to the customer.

  • Early notification system and customer contact as soon as arrears develop
  • Provide consistent and regular communication with customer during arrears period
  • Reinstate payment plan and establish a regular pattern of payments as soon as possible
  • Bring the account out of arrears as soon as is feasible
  • Offer increased weekly/monthly payments or one lump sum payment to clear arrears
  • Consider all possible solutions for arrears recovery
  • When any arrears or default notice is sent to a customer and where applicable with the CCA rules, we include an information sheet notifying the customer that they are in arrears or default and telling them about their rights and responsibilities, and where they can get help
  • Offer multiple payment options: –
    • [Delete as applicable to your company]
    • Direct Debit
    • BACS
    • Standing Order
    • Cheque
    • Debit/Credit Card
    • PayPal
    • Cash

In accordance with section CONC 7 of the FCA handbook, we are required to comply with regulatory requirements regarding arrears on customer accounts. In relation to these rules, we follow and adhere to the below objectives and aims.

To comply with legal and regulatory requirements, the Company will: –

  • Ensure that we have clear, robust and adequate arrears policies and procedures in place
  • Treat any customer with a mental health issue as a vulnerable customer and follow the appropriate procedures and regulations
  • Provide the customer with frequent and ongoing information about their arrears and any penalties in a written format that is jargon free, clear and fit for purpose
  • Comply with Principle 6 of the FCA regulations and adhere to the TCF principles and our own standards in this area
  • Handle each customer based on their own merits and ensure that no further undue stress or financial burden is placed on the customer
  • Allow the customer reasonable time and opportunity to repay the debt in full or by a pre-agreed payment arrangement
  • Suspend all active pursuit of an arrears account once a repayment plan is being discussed or is in place
  • Only take steps to enforce court action or repossess a customer’s home as a last and final resort

6. Arrears Procedures

[If you already have existing arrears procedures, insert them here; otherwise you can follow/use the below]

6.1 Prevention

Where possible, it is the Company’s aim to prevent an account from entering into arrears in the first instance. Where previous arrears have occurred or the customer has already notified us of a financial difficulty, the account is flagged and monitored, with close communication being kept with the customer for a specified period.

Offering options such as a payment holiday, making a double payment the next month or accepting lower instalments for a set period and then increasing the payments to make up the shortfall can often prevent an arrears situation from developing.

6.2 Notification

Where a payment is missed on an account for whatever reason, an automation is built into our system to send a missed payment letter to the customer on [‘Payment Date +3’*], asking them to contact us as soon as possible and providing them with guidance information should they be experiencing financial difficulties.

A duplicate notification is also sent to [Account Manager/Arrears Team] who then contact the customer [3+ days*] after the first missed payment to find out the reason and enter into arrears discussions, should they be applicable.

(* 3 days’ leeway is to be given for all notification due to Weekend and Bank Holidays and the possibility of the payment being delayed for genuine reasons.)   

6.3 Dealing with Arrears

Where at least one payment has been missed on an account without prior authorisation, we class the account as being in arrears and the below steps are followed: –

  1. Account status changed to ‘in arrears’.
  2. Arrears letter 1 sent to customer advising of arrears amount and how to bring the account back up to date along with possible consequences for remaining in arrears. If any charges and/or interest are to be applied to the account in line with contractual agreements, these are clearly stated and explained to the customer.
  3. [Account Manager/Arrears Team] are assigned the account for customer contact – any verbal communication with the customer is also followed up in writing, providing all agreements in a detailed and clear format.
  4. Where monies are being collected on behalf of a third party (e.g. debt collection, debt management), the client is notified in writing as soon as the account enters an arrears status.
  5. If the account is being paid by continuous payment authority (CPA), then the customer must be made aware that some or all the arrears may be collected from their credit/debit card on the next payment date if the CPA is not cancelled in the interim period.
  6. If the customer notifies the firm or provides evidence that they are experiencing financial difficulties or a payment is missed and financial hardship is suspected; the CPA is stopped and no further payments taken until contact has been made with the customer and a more suitable payment arrangement has been put into place.
  7. The Company’s Treating Customers Fairly and Vulnerable Customers policies and procedures are followed for all arrears accounts, with special consideration being given to vulnerable customers and those in financial difficulties.

Every effort is to be made to prevent further arrears accruing on the account and alternate payment methods and amounts are offered to the customer with a view to bringing the account balance up to date in the shortest time possible.

6.4 Further Action (Pursuing & Recovering Repayments)

  • Where an account remains in arrears with no action being taken by the customer to remedy the situation and in the absence of an adequate explanation or communication; a ‘warning letter’ is sent to the customer advising of the possible legal and contractual consequences of defaulting on the account and the potential negative effect on their credit score.
  • Where the account is being collected on behalf of a third party, they are to be involved in all stages of further action and must submit in writing should they wish to proceed with legal action to recover the account balance.
  • Where any account is referred to a third party for the recovery of repayments, the Company always ensures that: –
    • The customer is given notice where a regulated credit agreement has been assigned to a third party
    • We will not pursue an individual who we know or believe might not be the borrower or hirer under a credit agreement or a consumer hire agreement
    • We will not ignore or disregard a customer’s claim that a debt has been settled or is disputed and will not continue to make demands for payment without providing clear justification and/or evidence as to why the customer’s claim is not valid
    • Where we act on behalf of a lender or owner, we will always refer any reasonable offer made by the customer to pay by instalments, to the lender or owner
    • Where we act on behalf of a lender or owner, we will always pass on payments received from a customer and/or details of a customer’s outstanding balance to the lender or owner in a timely manner or in accordance with an agreement timeframe (providing there is no adverse effect or impact on the customer)

6.5 Continuous Payment Authority

The Company has a dedicated Continuous Payment Authority (CPA) Policy which documents our procedures for using, setting up and meeting the required regulations of CPA use. This also covers the arrears requirements for CPA use, which include: –

  • The Company never exercising its rights under a continuous payment authority:
    • unless we have explained to the customer that the continuous payment authority would be used in the way in question
    • other than in accordance with the terms specified in the credit agreement or the P2P agreement
  • Contacting customers if we wish to change the terms of a continuous payment authority
  • Providing the customer with an adequate explanation of the reason for and effect of the proposed change
  • Obtaining valid consent from the customer to change the CPA

6.6 Writing off Arrears

It is the Company’s aim to pursue arrears in all instances, however there are certain times when an account or its arrears can be written off. Such instances can include (but not limited to): –

  • Where the customer or a third party acting on their behalf have met the requirements for exception circumstances (e.g. death, terminal illness, extreme financial hardship, vulnerable customer). In such cases, the customer should always be notified in writing that their account or the arrears have been written off and will no longer be pursued by the Company.
  • Where the cost of recovering the arrears exceeds the arrears amount.
  • Where the customer can no longer be contacted or their whereabouts is unknown and all efforts to trace them have been unsuccessful.
  • At the request of the client (in cases where the account is being collected on behalf of a third party).

6.7 Interest & Charges

Where an account has entered a default stage and is either being pursued by the Company or by a third party for recovery, we always ensure that: –

  • When levying charges for debt recovery on customers in default or arrears, we always consider what is in the customer’s best interests and work with the individual to ensure that a satisfactory outcome is achieved without causing further personal or financial distress
  • We (or any third party acting on our behalf), never claim the costs of recovering a debt from a customer where we have no contractual right to do so
  • We (or any third party acting on our behalf), never cause a customer to believe that they are legally liable to pay the costs of recovery where no such obligation exists
  • Where we have any contractual right to levy default charges, we always ensure that a regulated credit agreement has previously stated any such charges and the conditions for making the charge under, as the case may be, the Consumer Credit (Agreements) Regulations 2010 (SI 2010/1014) or the Consumer Credit (Agreements) Regulations 1983 (SI 1983/1553).
  • We (or any third party acting on our behalf), never impose charges on customers in default or arrears unless the charges are no higher than necessary to cover any reasonable costs afforded to us

7. Advice for Customers

Arrears on an account is often the sign that the customer is experiencing financial hardship and as such, all arrears customers are treated with courtesy and respect. Where a customer has notified us that they are experiencing financial difficulties, we provide them with information and links of where they can gain advice and assistance. These include, but are not limited to: –

8. Staff Training

The Company has a thorough, continuous training program for new starters and existing staff which incorporates handling arrears accounts and dealing with vulnerable customers. Customers with accounts in default are treated in accordance with our TCF and Vulnerable Customer policies and all staff receive [weekly/monthly/quarterly/annual] training sessions on arrears, vulnerabilities and financial difficulties.

We are committed to ensuring that the regulatory requirements are always met with regard to the service that our staff provide and support our staff to ensure competency and ongoing professional development.

9. Responsibilities

The Company ensures that all staff are provided with the time, resources and support to learn, understand and implement this and associated policies. The [Compliance Officer/Nominated Person] is responsible for competing audits in this area and following up with MI where applicable.