New guidance published for FSA banking rules

[Legal Beagles]

The rules which now govern high street banking became clearer today with the publication of new guidance to financial firms to replace the former Banking Code.

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Re: New guidance published for FSA banking rules

You ain't seen this, right

[Amethyst]

Re: New guidance published for FSA banking rules

5.10
Financial Difficulties
FSA’s Principle 6 requires that firms pay due regard to the interests of their customers and treat them fairly. Firms should therefore ensure that in providing a prompt, efficient and fair service they consider any apparent cases of customer financial difficulty sympathetically and positively.
Please ensure you have the latest version of this guidance. This can be found by checking the BBA, BSA or Payments Council websites.
19
If during the course of a customer’s account operation a firm becomes aware that the customer may be heading towards financial difficulties, the firm should contact the customer to outline their approach to financial difficulties and to encourage the customer to contact the firm if the customer is worried about their position. Firms should also provide signposts to sources of free, independent money advice. Firms should determine the level of intervention required dependent on the individual customer’s position.
Additional information about how to treat customers in debt with financial difficulties can be found within the Lending Code (which has not been confirmed by the FSA). Lending Standards Board



READ SECTION 9 of the LENDING CODE

[natweststaffmember]

Re: New guidance published for FSA banking rules

You ain't see this either

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Re: New guidance published for FSA banking rules

Section 9: Financial difficulties
137. Subscribers should be sympathetic and positive when considering a customer’s financial difficulties. Although there is
an onus on customers to try to help themselves, the first step, when a subscriber becomes aware of a customer’s
financial difficulties, should be to try to contact the customer to discuss the matter. This applies to both personal and
micro-enterprise customers.
138. Personal customers should be considered to be in financial difficulty when income is insufficient to cover reasonable
living expenses and meet financial commitments as they become due. This may result from a change in lifestyle,
often accompanied by a fall in disposable income and/or increased expenditure, such as:
• loss of employment;
• disability;
• serious illness;
• relationship breakdown;
• death of a partner;
• starting a lower paid job;
• parental/carer leave;
• starting full-time education; and
• imprisonment
139. Financial difficulties may become evident to a subscriber from one or more of the following events:
• Items repeatedly being returned unpaid due to lack of available funds;
• Failing to meet loan repayments or other commitments;
• Discontinuation of regular credits;
• Notification of some form of insolvency or court proceedings;
• Regular requests for increased borrowing or repeated rescheduling of debts;
• Making frequent cash withdrawals on a credit card at a non-promotional rate of interest; and
• Repeatedly exceeding a credit card or overdraft limit without agreement.
140. Additionally, for micro-enterprise customers, financial difficulties may also become evident to subscribers because:
• the customer goes overdrawn without agreement;
• the customer goes over their agreed overdraft limit, especially more than once;
• there are large increases or decreases in the business’s turnover;
• the business is trading at a loss;
• the business suddenly loses a key customer or employee;
• a large part of the business is sold;
• a facility is used for purposes other than those agreed with the subscriber;
• the customer does not keep to conditions set out in the loan agreement;
• the customer does not supply agreed monitoring information on time; and
• another creditor brings a winding-up petition or other legal action against the business

Proactive contact
141. If, during the course of a customer’s account operation, a subscriber becomes aware via their existing systems that
the customer may be heading towards financial difficulties, the subscriber should contact the customer to outline their
approach to financial difficulties and to encourage the customer to contact the subscriber if the customer is worried
about their position. Subscribers should also provide signposts to sources of free, independent money advice.
142. Subscribers should determine the level of intervention required dependent on the individual customer’s position.
143. Subscribers should make available to customers straightforward information in plain English on their procedures and
systems for dealing with customers in financial difficulty. This might explain, for example, the main rights and
responsibilities of customers and subscribers, and what is involved in legal demands or a referral to a debt recovery
unit. The BBA publishes a leaflet, Dealing with Debt, which is available on the BBA and UK Cards Association
websites.
144. Where a customer requests that the subscriber deals with them in writing or e-mail (providing that facility is available)
rather than by telephone, they should do so as long as the customer remains co-operative and in regular dialogue.
Specialist assistance
145. If it becomes clear to the subscriber that the customer needs specialist assistance, the customer should be referred
promptly to a specialist team that deals with customers in financial difficulties, if one exists. In some cases, referral to
a debt recovery unit may also be necessary.
Repayment plans
146. The subscriber should explore a range of options with the customer. Usually this will require the customer to disclose
to the subscriber details of their income, expenditure, assets and liabilities, including amounts (if any) owed to other
creditors. This information will be used to develop a plan for dealing with the liabilities. In cases where there are
liabilities to multiple creditors, subscribers should recommend a free money advice service.
147. The initial arrangements for repaying the debt should be in writing or other durable medium. This will not always be
treated as a formal debt management plan, and there may be departures from this plan, if it is in the interests of
subscribers and customers. There is no need for every small departure from the basic plan to be in writing (for
example an agreement to accept a lower repayment for one week), but any amendments that change the fundamental
nature of the plan should be in writing. If, at the subscriber’s discretion, the plan includes an agreement to accept
smaller repayments, the subscriber should tell the customer whether this is regarded as ‘falling behind with
repayments’ and whether information will be passed to Credit Reference Agencies.
148. Repayment plans between subscribers and customers may be subject to regular review. Any review period will be
agreed with the customer or their adviser, and subscribers should seek to revise contributions only at the end of the
review period or if a customer’s personal circumstances change. (Customers and/or their advisers should inform the
subscriber if the customer’s personal situation changes.)
Debt Collection Agencies
149. Subscribers should follow a due diligence process when selecting third parties for debt management, which should
include third party compliance with data protection legislation, consumer credit legislation, Office of Fair Trading
guidance on debt collection and debt management, and the code of the Credit Services Association.
150. Subscribers should use all reasonable endeavours to ensure that the Code standards for handling financial difficulties
are applied by such agents. Code compliance standards should form part of all third party contracts.
151. Subscribers should pass on relevant information to enable the third party debt manager to recover the debt.
152. Subscribers should follow a due diligence process when selecting any third party for debt sale. Any new contract
should ensure that the third party will comply with data protection legislation, consumer credit legislation, Office of Fair
Trading guidance on debt collection and debt management, the code of the Credit Services Association and the
Lending Code’s standards for handling financial difficulties even if the debt purchaser is not a subscriber. The
subscriber will inform the third party of any relevant arrangements currently being complied with by the customer.
153. It is common practice for third parties taking on a debt to request a new statement of income, expenditure and assets
to understand the customer’s most up-to-date position.
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The Statement of Principles for Micro-enterprise customers
154. In addition to the general requirements above for dealing with financial difficulties, subscribers should ensure that for
micro-enterprise customers in financial difficulty they follow the BBA Statement of Principles7. The Statement is
included as Annex B.
Additional provisions for personal customers in financial difficulty
Paragraphs 155 – 172 outline further requirements that subscribers should follow when relevant in dealing with personal
customers in financial difficulty.
Consolidation loans
155. Where a consolidation loan is being provided to a personal customer and the subscriber considers the customer to be
in financial difficulties, the subscriber should reduce or pay off the existing in-house borrowing that it is aware is being
consolidated. This applies only where the existence of such in-house borrowing is apparent to subscribers via their
existing in-house systems.
156. Exceptionally there may be circumstances in which it is appropriate not to reduce or pay off existing borrowing.
Breathing space for personal credit card customers
157. Where a not-for-profit debt advice agency has formally notified a subscriber that the customer is in serious discussion
with them on a draft debt repayment plan, the credit card provider should suspend collections activity while these
discussions continue, provided that they are concluded within 30 days.
158. In exceptional circumstances where discussions are progressing but have not been concluded within the initial 30
days, the debt advice agency can ask the subscriber for an additional 30-day breathing space.
Communicating with personal customers and advisers
159. Communications with customers and/or their advisers should, wherever possible, acknowledge and reflect any
previous discussions that have taken place. Subscribers should be willing to communicate with customers and/or their
advisers by phone, post, secure email or fax. Normally, the subscriber will communicate through the adviser, if an
authority has been received. This does not preclude subscribers from copying correspondence to customers if they
choose. In certain circumstances it may be beneficial for discussions (either face-to-face or over the telephone)
between the adviser and subscriber to take place with the customer present.
160. On occasions the subscriber may need to contact the customer directly, even when an authority is in place. These
occasions may be the result of the adviser not being available, failing to provide requested information within a
reasonable period of time, or other similar circumstances.
161. Subscribers should give a phone number on all communications that will put the customer in contact with a named
person or a team dedicated to dealing with cases of financial difficulty.
7 Subscribers have a six month transitional period to replace the Statement of Principles which references the Banking Code, with the updated version
at Annex B, which references the Lending Code

Debt recovery procedures
162. If the customer does not co-operate with the subscriber, a plan cannot be developed and the subscriber may proceed
with normal debt recovery procedures. Lack of co-operation would include not responding to the subscriber’s
attempts at contact and unreasonable demands by the customer (for example, a request that the debt be written off or
repaid over a very long period, even though the customer could afford to make reasonable repayments).
163. The subscriber should take into consideration any other accounts that the customer may have with the subscriber if
these have a credit balance. In addition, if a customer has assets which could reasonably be expected to be sold to
reduce outstanding debts, the subscriber may request that the customer, and if appropriate, their adviser, considers
this option. Thereafter, the subscriber should acknowledge that income should only be used to repay ‘non-priority’
debts once provision has been made for any ‘priority’ debts. The subscriber should leave the customer with sufficient
money for reasonable day-to-day expenses, taking into account individual circumstances. Subscribers will not subject
customers to harassment or undue pressure when discussing their problems.
164. A debt is considered ‘priority’ where the customer’s failure to pay could lead directly to the loss of one or more of the
following:
• The customer’s home (e.g., rent, mortgage, secured loans);
• The customer’s liberty (e.g., council tax, child support maintenance, income tax, court fines);
• The customer’s utility supplies (e.g., water, gas, electricity); or
• The customer’s essential goods or services (e.g., a cooker, a fridge, or the means to travel to work).
Token offers and write offs
165. Token offers may be accepted where the customer has demonstrated they have no surplus income available for their
‘non-priority’ creditors and there is a realistic prospect of the customer's circumstances improving. A token offer will
not necessarily be sufficient to prevent the subscriber from selling the debt to a third party debt recovery agent and to
prevent the debt from being registered as a default with the credit reference agencies.
166. Where the subscriber considers the customer’s personal and financial circumstances to be exceptional and unlikely to
improve, the subscriber may, among other options, consider writing off or not pursuing part or all of the customer’s
debt(s). Where write-off is requested by a customer or adviser but is not considered appropriate by the subscriber, the
subscriber must give their reasons in writing. If the subscriber agrees to a write-off, then the debt may be registered
as a default with the credit reference agencies.
Common Financial Statement
167. If a customer works with a debt-counselling organisation to complete a Common Financial Statement (CFS), the
subscriber should accept the CFS as the basis for negotiations with the customer to draw up a debt- management
plan.
168. This provision is designed to help people in financial difficulties, and some subscribers may only apply it when
accounts have gone into default. Other subscribers may choose to use the provision at an earlier stage if it benefits
both them and the customer.
169. Money advisers will use the BBA/MAT/FLA Common Financial Statement format and principles when submitting
information to subscribers8.
170. Subscribers should accept the CFS (and other similar statements such as that used by the Consumer Credit
Counselling Service (CCCS). The CFS - or equivalent details of the customer’s income, expenditure and assets - is
necessary to enable the subscriber to gather information to assess if an ‘offer to pay’ will enable the customer to be
accepted onto a formal debt management plan (DMP), or enable the subscriber to reduce or suppress interest and
fees.
171. The third party money adviser should ensure that their authority to act on behalf of the customer is promptly sent to all
creditors identified by the customer. It is also the responsibility of the adviser to ensure that a CFS or equivalent is
sent to the creditors shortly after the authority. In these circumstances, where a money adviser has been appointed
8 More information on the BBA/MAT/FLA statement is available from the British Bankers’ Association or money Advice Trust as well as the agencies
supported by MAT, e.g., the National Associations of Citizens Advice Bureaux Service, Advice UK, Money Advice Association, Money Advice Scotland,
and National Debtline.
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and there are debts with many creditors subscribers will not normally be able to work with the customer until a CFS or
equivalent has been received.
172. In general, subscribers should then be prepared to accept an offer of repayment which is based on the principle of
equitable distribution of available income (after priority payments), in line with the amount outstanding to each creditor.
Alternative means of calculating the distribution of available income by the customer or their adviser may be agreed
on a case-by-case basis. A subscriber may accept an offer of payment, even though the offer is not sufficient to
enable the customer to be accepted onto a formal DMP.
Debt and mental health
This section of guidance is relevant to both personal and micro-enterprise customers.
173. The impacts of financial difficulty can be especially acute for customers with mental health problems. Subscribers
should consider their processes and systems to ensure that they can be responsive to a customer in financial
difficulties, from the point at which they are made aware of a mental health problem.
174. The appropriate response will differ in each case and could involve a range of approaches, including:
• working positively with an advice agency
• promptly carrying out agreed actions
• being flexible in responding to offers or schedules of repayment
• sensitively managing communications with the customer (for example preventing unnecessary and
unwelcome mailings).
175. Where it is appropriate and with a customer’s consent, subscribers should work with advice agencies and health and
social care professionals in a joined-up way to exchange information and ensure an effective dialogue.
176. With a customer’s explicit consent and in line with requirements of the Data Protection Act, where it is possible and
appropriate subscribers should record relevant information about the customer on their account so that staff can deal
appropriately with the customer.
177. If a subscriber has specialist staff to deal with cases of debt and mental health problems, they should ensure that
appropriate mechanisms exist to refer the customer to the appropriate support.
178. If a customer informs a subscriber that they have a mental health problem that is impacting on their ability to manage
their financial difficulties, the subscriber should allow the customer a reasonable period (e.g. 28 days) of time to collect
and submit relevant evidence to the subscriber. This evidence will help the subscriber to work with the customer,
advice agencies and health/social professionals where appropriate to determine the most appropriate action to deal
with the customer’s financial difficulties.
179. The Money Advice Liaison Group (MALG) has produced a Debt and Mental Health Evidence Form (DMHEF) which
provides a standardised methodology for advisors and creditors to share relevant information about the customer’s
condition from health and social care professionals9.
180. Subscribers are encouraged to consider the DMHEF if it is presented by the customer or their adviser (with the
customer’s consent).
181. If a subscriber has received appropriate and relevant evidence of a customer’s mental health problems they should
consider whether it is appropriate to pass or sell the customer’s debt to a third party debt collection agency.
182. The subscriber should also only initiate court action to pursue the debt as a last resort and when it is appropriate and
fair to do so.
183. Further and more detailed good practice guidelines have been produced by MALG and are available at:
Money Advice Trust - MALG Good Practice Guidelines . The MALG guidelines will not be monitored and enforced by the
Lending Standards Board.
9 The DMHEF and relevant guidance can be found at Money Advice Trust - Debt and Mental Health Resources