Arrears and Default Test Papers and Answer Sheets | Overview and Assessment Quiz | Evaluation and Marking Sheets | Template for FCA Applications and Authorised Firms

1 Test Paper Overview

Testing, assessing and training employees in the regulatory compliance rules and standards is an essential business practice to ensure compliance, evidence competency and support your staff. We have designed a range of exclusive compliance assessment quiz and answer documents, with a view to assisting regulated firms in the compliance expectations.

1.1 Assessment Quiz & Answers

Our ready-to-use question and answer assessments come with beginner, intermediate and advanced style questions on the specific compliance areas and through detailed and expertly developed answers sheets, also aim to teach as well as test. The assessments are unique in that they do not just provide yes/no answers to the questions. Our compliance experts have provided detailed, relevant and compliant answers to each question so that gaps and understanding can be filed, and staff supported.

Assessments should be a continual part of any organisation and delivered as part of induction programmes, after training and on a rolling basis as part of a standard compliance regime. These assessments allow you to evidence your compliance to the Training and Competency requirements set by regulators and enable the identification of misunderstood areas, before they become a problem.

1.2 Using the Assessment

You are free to edit and use the document however suits your business type and needs, however we would suggest printing the quiz for hard copy use and then using the answer paper to mark the assessment and discuss the answers with the employee where gaps have been identified. You should also add a copy of the assessment and any marking/evaluation logs to the employees training file for future reference and compliance evidence.

1.3 Marking Sheet

Each of the questions come with a marking guide which can be used by the employee to know how many points/answers should be given, and for the marker to score the answer correctly. At the end of the document, you will find a marking sheet to make scoring the tests easier.

2 Arrears & Default Test Paper 1

You have 30 minutes to complete the quiz on Arrears, Default & Financial Difficulties. This quiz has been designed to test your knowledge and understanding in this compliance area. Please make sure that you read each question carefully – the marks available for each question are noted on the bottom right.

1) Ways of treating a customer who is in arrears or default, with forbearance could be: –

(Multiple answers accepted)

a. Accepting token payments on the account for a reasonable period c                              __
b. Allowing temporary deferment of payments c                                                                   __
c. Adding interest and charges to the account from the first day of missed payments c      __
d. Sending the account to a 3^rd party for recovery without notifying the customer c            __
e. Suspending, reducing or cancelling charges and interest where the customer has
proven that they are experiencing financial difficulties                                                          __
(3 marks)

2) You can refuse to negotiate with a customer who is developing a repayment plan?

a. True                                                                                      __
b. False                                                                                    __
                                                                                             (1 mark)

3) A firm must suspend the active pursuit of recovery of a debt from a customer for a reasonable period, where the customer informs the firm that they are developing a repayment plan. What does the FCA class as a ‘reasonable period’?

a. 60 days                                                                                 __
b. 30 days                                                                                 __
c. 1 week                                                                                  __
                                                                                             (1 mark)

4) Fill in the blank on the below statement, which is a regulation under CONC 7.3.14 of the FCA Handbook: –

“A firm must not take ___________ action against a customer in arrears or default”

                                                                                             (1 mark)

5) If a customer is experiencing financial difficulties (and if appropriate), you should direct the customer to free and independent sources of debt advice?

a. True                                                                                       __
b. False                                                                                     __
                                                                                             (1 mark)

6) CPA stands for: –

a. Continuous Payment Authority                                              __
b. Consistent Payment Authority                                               __
c. Continuous Payment Acceptance                                         __
                                                                                             (1 mark)

7) Regarding adding interest and charges to an arrears/default account, name 2 regulations that a firm must abide by: –

1. ___________________________________________________________________

_____________________________________________________________________

2. ___________________________________________________________________

_____________________________________________________________________
                                                                                             (2 marks)

8) When contacting a customer, who is in arrears/default, which of the below does a firm NOT have to ensure is explained?

a. Who the person contacting the customer works for              __
b. The person’s role in relationship to the firm                          __
c. How long the contacting person has worked for the firm      __
d. The purpose of the contact                                                   __
                                                                                             (1 mark)

9. Fill in the blanks on the below statement, which is a regulation for the fair treatment of consumers in arrears, under CONC 7.3 of the FCA Handbook: –

 “A firm should not make ___________, ______________ or otherwise ____________ use of statutory demands (within the meaning of section 268 of the Insolvency Act 1986) when seeking to recover a debt from a customer.”

                                                                                          (3 marks)

10) Under Mental Capacity Limitations, a firm must suspend the pursuit of recovery of a debt from a customer when: –

1. ___________________________________________________________________

_____________________________________________________________________

2. ___________________________________________________________________

_____________________________________________________________________
                                                                                             (4 marks)

You have reached the end of test paper 1

3 Arrears & Default Test Paper 2

You have 30 minutes to complete the quiz on Arrears, Default & Financial Difficulties. This quiz has been designed to test your knowledge and understanding in this compliance area. Please make sure that you read each question carefully – the marks available for each question are noted on the bottom right.

1) A customer contacts you to advise that they are experiencing financial difficulties and will not be able to make their next payment. Which of the below is an appropriate response?

(Choose one answer)

a. Advise the customer they have signed a legally binding credit agreement and as such they will be in breach of contract if they miss any payments  ___
b. Offer to put the account on hold for as long as they need and ask them to get back in touch when they can start making payments again  ___
c. Take details about the customers’ situation and complete an affordability assessment with them to assess their current disposable income. Dependant on affordability assessment, either set up a lower, more affordable repayment plan or offer to defer the next payment, ensuring that any interest/charges are frozen on the account  ___
d. Take details about the customers’ situation and complete an affordability assessment with them to assess their current disposable income. Tell the customer you will defer their payments, but at the end of the deferment period, all arrears will be collected.  ___
                                                                                             (1 mark)

2) When a customer is experience financial difficulties, which of the below can you refer them to for free or independent advice?

(Multiple answers accepted)

a. Citizens Advice Bureau                                                       __
b. A Solicitor                                                                            __
c. StepChange (formerly CCCS)                                            __
d. A Debt Management Firm                                                  __
                                                                                          (2 marks)

3) It is good practice to follow up any verbal agreements and/or information provided to a customer about arrears and defaults, in writing?

a. True                                                                                      __
b. False                                                                                    __
                                                                                             (1 mark)

4) Why should you have a 2-3-day grace period after an initial payment has been missed, before calling the customer of sending a reminder letter?

_____________________________________________________________________

_____________________________________________________________________
                                                                                          (2 marks)

5) Under CONC 1.3 of the FCA Handbook, which of the below may indicate that a customer is experiencing financial difficulties?

(Multiple answers accepted)

a. Consecutively failing to meet repayments when due
b. Missing a payment due over a Bank Holiday period
c. Loan applications on a credit file
d. Adverse accurate entries on a credit file, which are not in dispute
                                                                                     (2 marks)

6) The FCA’s Principle 6 is referred to throughout the arrears and defaults regulations. What is Principle 6?

_____________________________________________________________________

_____________________________________________________________________
                                                                                    (2 marks)

7) Forbearance with regards to arrears is when tolerance and due consideration is given to a customer and their circumstances?

a. True                                                                                      __
b. False                                                                                    __
                                                                                             (1 mark)

8) A firm must suspend recovery of a debt from a customer for a reasonable period where the customer informs that a debt counsellor or person acting on the customer’s behalf, is developing a repayment plan. What do the FCA consider ‘a reasonable period’ to be?

a. 7 days                                                                                  __
b. 15 days                                                                                __
c. 30 days                                                                                __
                                                                                             (1 mark)

9) The FCA has set standards and expectations that are required of firms when dealing with customers in arrears and defaults. List 2 such standards on ensuring customers are treated compliantly?

1. ___________________________________________________________________

_____________________________________________________________________

2. ___________________________________________________________________

_____________________________________________________________________
                                                                                             (4 marks)

10) Lenders must include a copy of the relevant information sheet when notifying a consumer that they are in arrears or default?

a. True                                                                                      __
b. False                                                                                    __
                                                                                             (1 mark)

You have reached the end of test paper 2

4 Arrears & Default Assessment Answer Sheet 1

Below are the answers to the first assessment test paper; the correct answer is provided in red underneath each assessment question. We have then provided detailed information about the question and answer which should be relayed to the assessment taker where any gaps have been identified. Use the mark guidance for scoring each answer.

1) Ways of treating a customer who is in arrears or default, with forbearance could be: –
(Multiple answers accepted)

a. Accepting token payments on the account for a reasonable period
b. Allowing temporary deferment of payments
e. Suspending, reducing or cancelling charges and interest where the customer has proven that they are experiencing financial difficulties

Under CONC 7.3.5 of the FCA handbook, the regulator advises that examples of treating a customer with forbearance would include the firm doing one or more of the following, as may be relevant in the circumstances:

1. Considering suspending, reducing, waiving or cancelling any further interest or charges (for example, when a customer provides evidence of financial difficulties and is unable to meet repayments as they fall due or is only able to make token repayments, where in either case the level of debt would continue to rise if interest and charges continue to be applied.)
2. Allowing deferment of payment of arrears:a. where immediate payment of arrears may increase the customer’s repayments to an unsustainable level
   b. if doing so does not make the term for the repayments unreasonably excessive;
3. Accepting token payments for a reasonable period, to allow a customer to recover from an unexpected income shock, from a customer who demonstrates that meeting the customer’s existing debts would mean not being able to meet the customer’s priority debts or other essential living expenses (such as in relation to a mortgage, rent, council tax, food bills and utility bills).

Customers should be allowed reasonable time and opportunities to repay their debt and during nay period of arrears or default, a firm should try to help the customer (as appropriate), but freezing interest/charges on an account (or at a minimum, only adding charges that are a direct cost to the firm.)

2) You can refuse to negotiate with a customer who is developing a repayment plan?

b. False

As per CONC 7.3.9 of the FCA handbook, “A firm must not operate a policy of refusing to negotiate with a customer who is developing a repayment plan.” A firm is expected to assist a customer, wherever possible, to continue repayments at a reduced or deferred rate, until their financial situation improves. It is better for the customer and firm is a repayment plan can be created that suits the customer affordability.

3) A firm must suspend the active pursuit of recovery of a debt from a customer for a reasonable period, where the customer informs the firm that they are developing a repayment plan. What does the FCA class as a ‘reasonable period’?

b. 30 days

A “reasonable period” should generally be for thirty days where there is evidence of a genuine intention to develop a plan and the firm should consider extending the period for a further thirty days where there is reasonable evidence demonstrating progress to agreeing a plan.

4) Fill in the blank on the below statement which is a regulation under CONC 7.3.14 of the FCA Handbook:

“A firm must not take disproportionate action against a customer in arrears or default”

Whilst firms must have a structured Arrears Procedure in place which is to meet the regulatory requirements and provide consistency to staff when dealing with financial default cases. It is also important to consider each arrears/default case on its own merits and to take action that is consistent with the status of each account.

For example, a customer with a £5000 balance on a loan who has missed 7 repayments and is refusing to communicate with the firm would not be dealt with in the same way as a customer with a £500 balance who has only missed 1 repayment and who is in constant contact with the firm.

In instance or arrears/default, the FCA expects firms to have a two-tiered approach which consists of organised and compliant procedures, which are followed alongside individual assessments and proportionate action.

5) If a customer is experiencing financial difficulties (and if appropriate), you should direct the customer to free and independent sources of debt advice?

a. True

Refer to the answer to question 12 for more information on the sources of free and independent advice.

6) CPA stands for: –

a. Continuous Payment Authority

A Continuous Payment Authority (CPA) is a regular, automated payment that is set up from a customer’s debit or credit card which is linked through to their bank or credit card account. CONC 7.6 of the FCA handbook provides the regulations and expectations of firms regarding CPA on arrears accounts.

As soon as a payment has been missed on an account where a CPA is set-up, the customer should be contacted both verbally and in writing so that the consequences of defaults can be reiterated. It is important to notify the customer at this stage that all missed payments may be collected in one go as soon as funds become available in their bank account.

Alternate payment options should be given to customers on a CPA where payments have been missed and the opportunity to cancel the CPA should be provided and an alternate repayment method set-up.

NOTE TO MARKER: The CPA regulations for arrears accounts set out by the FCA in section CONC 7.6 of the FCA handbook are extensive and complex. It would take several pages to reiterate those regulations in this answers sheet – so we would suggest directing staff who need a detailed understanding in this area to https://www.handbook.fca.org.uk/handbook/CONC/7/6.html

7) Regarding adding interest and charges to an arrears/default account, name 2 regulations that a firm must abide by: –

When levying charges for debt recovery on customers in default or arrears difficulties firms should consider their obligation under Principle 6 to pay due regard to the interests of customers and treat them fairly.

NOTE TO MARKER: The below are the regulations and conditions set out by the FCA in CONC 7.7.1 of the handbook regarding interest and charges on an arrears account. Consider the below regulations when marking the employee’s answers to questions 7

• A firm must not claim the costs of recovering a debt from a customer if it has no contractual right to claim such costs.
• A firm must not cause a customer to believe that the customer is legally liable to pay the costs of recovery where no such obligation exists.
• Where a firm has a contractual right to levy default charges, a regulated credit agreement must state the 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).
• A firm must not impose charges on customers in default or arrears difficulties unless the charges are no higher than necessary to cover the reasonable costs of the firm

8) When contacting a customer, who is in arrears/default, which of the below does a firm NOT have to ensure is explained?

c. How long the contacting person has worked for the firm

CONC 7.9 of the FCA handbook focuses on contacting customers who have arrears/defaults on their accounts. The FCA has strict regulations for contacting customers and what a firm can/cannot say and do.

1. A firm must ensure that a person contacting a customer on its behalf explains to the customer the following matters:

a. Who the person contacting the customer works for;
b. The person’s role in or relationship with the firm; and
c. The purpose of the contact.

2. A firm must not in a communication with the customer make a statement which may induce the customer to contact the firm misunderstanding the reason for making contact.

3. A firm must not contact customers at unreasonable times and must pay due regard to the reasonable requests of customers (for example, customers who work in a shift pattern) in respect of when, where and how they may be contacted.

4. A firm must not require a customer to make contact on a premium rate or other special rate telephone number the charge for which is higher than to a standard geographic telephone number.

9) Fill in the blanks on the below statement, which is a regulation for the fair treatment of consumers in arrears, under CONC 7.3 of the FCA Handbook: –

CONC 7.3.15 advises that “A firm should not make undue, excessive or otherwise unfair use of statutory demands (within the meaning of section 268 of the Insolvency Act 1986) when seeking to recover a debt from a customer.”

10) Under Mental Capacity Limitations, a firm must suspend the pursuit of recovery of a debt from a customer when: –

NOTE TO MARKER: The employee’s answer to question 10 does not have to be a replication of the below FCA handbook statement – however to be marked correctly, you must assess if the employee knows and understands when a firm should suspend recovery of a debt.

1. The firm has been notified that the customer might not have the mental capacity to make relevant financial decisions about the management of the customer’s debt and/or to engage in the debt recovery process at the time; or
2. The firm understands or ought reasonably to be aware that the customer lacks mental capacity to make relevant financial decisions about the management of the customer’s debt and/or to engage in the debt recovery process at the time.

This is the end of the test 1 answer paper. Where you have identified any gaps or misunderstandings in an assessment, you should use the additional answers provided to teach and support the respondent. You should also scan/save a copy of the completed quiz and marking sheet and complete any assessment/evaluations forms that you use for training and development and record these in the employees training file.

5 Arrears & Default Assessment Answer Sheet 2

Below are the answers to the first assessment test paper; the correct answer is provided in red underneath each assessment question. We have then provided detailed information about the question and answer which should be relayed to the assessment taker where any gaps have been identified. Use the mark guidance for scoring each answer.

1) A customer contacts you to advise that they are experiencing financial difficulties and will not be able to make their next payment. Which of the below is an appropriate response?

c. Take details about the customers’ situation and complete an affordability assessment with them to assess their current disposable income. Dependant on affordability assessment, either set up a lower, more affordable repayment plan or offer to defer the next payment, ensuring that any interest/charges are frozen on the account

Assessing the customer’s affordability to continue making repayments (either at the same or a reduced amount) is not only an FCA expectation – it is also in the customers’ best interests in accordance with Principle 6 of the FCA’s Principles for Business “Principle 6: Customers’ Interests – A firm must pay due regard to the interests of its customers and treat them fairly.”

The aim is to accommodate the customers’ financial status without causing them any undue stress or further financial distress, but also acting within the terms of the contract the customer has signed. Often, when a customer is in arrears on an account, it is down to the firm to assess each case based on its own merits and to action the account accordingly.

2) When a customer is experience financial difficulties, which of the below can you refer them to for free and independent advice?

a. Citizens Advice Bureau
c. StepChange (formerly CCCS)

CONC 7.3.7 of the FCA handbook advises “Where appropriate, a firm should direct a customer in default or in arrears difficulties to sources of free and independent debt advice.” A solicitor or debt management firm will most likely charge for advice and their service and as such could put the customer in further financial distress.

It is seen by the FCA as fair treatment of the customer to offer them information about obtaining free and impartial advice. This can be done over the phone, but it is good practice to offer such information in a customer leaflet for those experiencing financial difficulties, via the company website and in any communication emails/letters to the customer that relate to arrears, missed payments or defaults.

Customers can be referred to: –

• Citizens Advice Bureau – adviceguide.co.uk
• National Debtline – 0808 808 4000 or nationaldebtline.co.uk
• StepChange (formerly CCCS) – 0800 138 1111 or cccs.co.uk
• Advice UK – 0300 500 5000 or moneyadviceservice.co.uk

3) It is good practice to follow up any verbal agreements and/or information provided to a customer about arrears and defaults, in writing?

a. True

It is always good practice to follow up telephone or face to face conversations in writing, so that both you and the customer are aware of what was discussed and can agree on the points. However, where arrears and defaults are concerned, customers are considered vulnerable owing to their circumstances and/or financial situation and so putting agreements, information and repayment plans in a follow up letter is also a regulatory requirement.

This prevents misunderstandings and enables the customer time to digest and get help with any information provided and enables the firm to demonstrate due diligence and their commitment to customer responsibilities.

4) Why should you have a 2-3-day grace period after an initial payment has been missed, before calling the customer of sending a reminder letter?

MARKER NOTE: Give the marks based on the answer being similar in content to the below description – the answer does not have to mirror the below, however, it should show a good understanding of the question area.

Offering a 2-3-day leeway or grace period prior to contacting a customer who has missed their first payments is considered good practice as it could be a genuine mistake, bank error or due to Bank Holiday dates. For any automated letter systems, 3 days should always be added to any payment date to allow for the missed payment to be made and/or for the customer to contact you and explain their circumstances.

5) Under CONC 1.3 of the FCA Handbook, which of the below may indicate that a customer is experiencing financial difficulties?

a. Consecutively failing to meet repayments when due
d. Adverse accurate entries on a credit file, which are not in dispute

The other indicators outlined under CONC 1.3 are: –

• Consecutively failing to meet minimum repayments in relation to a credit card or store card
• Adverse accurate entries on a credit file, which are not in dispute
• Outstanding county court judgments for non-payment of debt
• Inability to meet repayments out of disposable income or at all, for example, where there is evidence of non-payment of essential bills (such as, utility bills), the customer having to borrow further to repay existing debts, or the customer only being able to meet repayments of debts by the disposal of assets or security
• Consecutively failing to meet repayments when due
• Agreement to a debt management plan or other debt solution
• Evidence of discussions with a firm (including a not-for-profit debt advice body) with a view to entering into a debt management plan or other debt solution or to seeking debt counselling

6) The FCA’s Principle 6 is referred to throughout the arrears and defaults regulations. What is Principle 6?

Basic Answer: Customers’ Interests
Full Answer: Customers’ Interests – A firm must pay due regard to the interests of its customers and treat them fairly.

MARKER NOTE: Give 1 mark for the basic answer or 2 marks for the full Principle.

7) Forbearance with regards to arrears is when tolerance and due consideration is given to a customer and their circumstances?

a. True

CONC 7.3.3 of the FCA Handbook discusses using forbearance and due consideration for customers in arrears and defaults of those experiencing financial difficulties. It advises: –

“Where a customer under a regulated credit agreement fails to make an occasional payment when it becomes due, a firm should, in accordance with Principle 6, allow for such unmade payments to be made within the original term. A firm must treat customers in default or in arrears difficulties with forbearance and due consideration.

Examples of treating a customer with forbearance would include the firm doing one or more of the following, as may be relevant in the circumstances: –

• Considering suspending, reducing, waiving or cancelling any further interest or charges
• Allowing deferment of payment of arrears
  • where immediate payment of arrears may increase the customer’s repayments to an unsustainable level
  • provided that doing so does not make the term for the repayments unreasonably excessive
• Accepting token payments for a reasonable period of time in order to allow a customer to recover from an unexpected income shock, from a customer who demonstrates that meeting the customer’s existing debts would mean not being able to meet the customer’s priority debts or other essential living expenses
• Where a customer is in default or in arrears difficulties, a firm should allow the customer reasonable time and opportunity to repay the debt.”

8) A firm must suspend recovery of a debt from a customer for a reasonable period where the customer informs that a debt counsellor or person acting on the customer’s behalf, is developing a repayment plan. What do the FCA consider ‘a reasonable period’ to be?

c. 30 days

CONC 7.3.11 advises that firms must allow a customer who is developing a repayment plan or working with a Debt Counsellor, Debt Management Agency or 3^rd Party, a reasonable period where the account is suspended, and all actions put on hold.

The regulator considers a “reasonable period” to be approximately for thirty days, where there is evidence of a genuine intention to develop a plan. Where there is reasonable evidence demonstrating progress to agreeing a plan, the firm should consider extending the period for a further thirty days.

9) The FCA has set standards and expectations that are required of firms when dealing with customers in arrears and defaults. List 2 such standards on ensuring customers are treated compliantly?

MARKER NOTE: The below are taken directly from the FCA handbook, however you should mark the answers based on the understanding of treating customers in arrears and in compliance with the FCA requirements.

• Develop & implement clear & effective policies and procedures.
• Provide clear, transparent and suitable advice & treatment to customers.
• Pay due regard to their obligations under Principle 6 (Customers’ Interests) to treat customers fairly.
• Treat customers in default or in arrears difficulties with forbearance and due consideration.
• Allow the customer reasonable time and opportunity to repay the debt.
• Inform the customer that free & impartial debt advice is available from not-for-profit debt advice bodies; and provide details of such bodies.
• A firm must not operate a policy of refusing to negotiate with a customer who is developing a repayment plan.
• A firm must not take disproportionate action against a customer in arrears or default.
• A firm must not pressurise a customer: –

• • to pay a debt in one single or very few repayments or in unreasonably large amounts, when to do so would have an adverse impact on the customer’s financial circumstances.
  • to pay a debt within an unreasonably short period of time; or
  • to raise funds to repay the debt by selling their property, borrowing money or increasing existing borrowing.

10) Lenders must include a copy of the relevant information sheet when notifying a consumer that they are in arrears or default?

a. True

All lenders are obligated to provide the relevant information sheet alongside any notification of arrears or default to a customer – this is required by the Consumer Credit Act 1974. The information sheets are intended to help consumers by telling them about their rights and responsibilities, and where they can get help. There are two separate sheets, one for arrears and one for defaults and both are available in English and Welsh.

You can download these sheets or provide more information for this question here.

This is the end of the assessment answer paper. Where you have identified any gaps or misunderstandings in an assessment, you should use the additional answers provided to teach and support the respondent. You should also scan/save a copy of the completed quiz and marking sheet and complete any assessment/evaluations forms that you use for training and development and record these in the employees training file.

6 Test Marking Sheets