Enforcement watch: FCA fine TSB £10.9M over treatment of customers in financial difficulty

The Financial Conduct Authority ("FCA)" has fined TSB Bank plc ("TSB") £10,910,500 in relation to the treatment of customers in financial difficulty or in arrears, including vulnerable customers, over a six-year period. In the FCA's view, TSB customers, who were placed into its collections and recoveries processes, were at risk of being treated unfairly as a consequence of a number of factors including flaws in TSB’s policies and procedures, training, system defects and ongoing monitoring of advice. The bank has paid £99.9m in redress to 232,849 affected customers.

Background

Between 25 June 2014 and 1 March 2020 (the "Relevant Period"), TSB offered secured retail mortgages under the TSB and Whistletree brands in addition to unsecured loans, overdrafts and loans.

As part of TSB's divestment from Lloyds Banking Group plc ("Lloyds"), Lloyds notified TSB in December 2016 of potential poor customer outcomes including concerns that forbearance may have been either under or over extended and customers' personal and financial circumstances might not have been fully explored (the "Notice").

Steps were taken by TSB to understand the scope of the issues, including a number of Credit Risk and Conduct Risk reviews, but limited progress was made until 2020 when, following discussion with the FCA, a Skilled Person was appointed. The Skilled Person's findings included that 219 (55%) of the 400 outcomes reviewed were "unfair". 

Findings

Principle 3 breaches

TSB breached Principle 3, which requires that a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems ("Principle 3"). The FCA noted that the root causes of the breaches included:

Policies and procedures

  • Certain policies relating to TSB secured lending contained requirements which increased the risk of unfair customer outcomes; for example, in the case of secured customers, the requirement for customers to make a payment before a forbearance arrangement was offered. In addition, certain exceptions to the requirement to carry out an income and expenditure assessment meant that TSB did not sufficiently probe the customer's situation to determine affordability and understand whether the customer was in financial difficulty.
  • Prior to November 2019 (when the policy changed) TSB’s policies contained rigorous requirements around the provision of medical evidence in order for referral into a separate case review process and to enable certain forbearance options to be considered (such as freezing/suspension of interest or writing off the loan).
  • TSB did not actively check the extent to which customers incurred repeat fees as an indicator of financial difficulty during the Relevant Period.
  • Gaps and inconsistencies between policies and processes lead to a lack of clarity (such as in relation to forbearance options for unsecured lending), or clear and accessible guidance for staff on engaging with customers, in addition to inconsistent application of policies by staff, including complex, difficult to follow process maps which lead to a tendency to prefer call flow tools (which lacked key information and guidance to assist the call handler including in relation to indicators of vulnerability and forbearance options, according to the FCA). 

Training and incentivisation

  • TSB’s training programme did not adequately equip its staff with the necessary skills to identify vulnerable customers, probe customer circumstances (such as asking the right questions about a customer's financial position) or establish affordability or determine which forbearance options may be appropriate (such as whether a short or longer-term arrangement may be suitable).
  • TSB’s staff may have been encouraged by incentive schemes to conduct shorter calls and prioritise the number of payment arrangements made, rather than taking enough time to fully assess individual customer circumstances and affordability. Consequently, TSB risked agreeing to unaffordable or unsustainable payment arrangements with customers in financial difficulty.

Systems

  • There were faults in TSB’s automated systems which led to unfair charges and fees being levied on customer accounts; for example, multiple charges in the same billing cycle, and the failure of holds applied to customer accounts to suppress fees and charges.
  • System defects impacted TSB's ability to execute its contact strategy due to problems with addressing correspondence and utilising the correct contact details.

Testing and assurance

  • TSB's internal testing did not adequately identify unfair customer outcomes in its collections and recoveries operations. The testing focused on testing single points of interaction between TSB and a customer rather than reviewing the entirety of communications between TSB and that customer. This lack of end-to-end testing meant that there was limited visibility in relation to problems which may arise in accounts with complicated or lengthy arrears histories.

Principle 6 breaches

The FCA found that TSB's breaches of Principle 3 created a risk of unfair treatment of customers in breach of Principle 6 which requires that a firm pay due regard to the interests of its customers and treat them fairly ("Principle 6"). For example:

  • TSB failed to adequately explore customers’ circumstances and assess the affordability of arrangements. In 5% of cases tested, inappropriate pressure was applied by staff during assessment in order to obtain payment.
  • Vulnerable customers were not consistently identified by TSB and treated accordingly, despite customers disclosing indicators of vulnerability and despite the introduction of a Tailored Support Tool in 2017. The Tailored Support Tool was launched to assist staff members with the identification and support of vulnerable customers, and further training was provided on the use of their systems.
  • TSB failed to fully explore forbearance options for customers. The lack of exploration led in some cases to a failure to offer alternative forbearance options, over-forbearance and/or pressure being applied to make monthly or partial payment before forbearance options were offered. 
  • Customers were subjected to inappropriate, disproportionate or otherwise unfair fees and charges given their financial circumstances.
  • Bank errors or poor communication led some customers to experience an increase in arrears, higher interest charges or inaccurate notifications.

The FCA noted that an aggravating factor in determining the fine was that TSB could have taken action sooner following the Notice in December 2016, but it was not until the Skilled Person review in 2020 that TSB took “effective action to fully address them”. TSB would have been fined £15,586,529 had it not agreed to an early settlement, resulting in a 30% reduction of the fine to £10,910,500.

For further details, the FCA's notice can be found here.

This decision follows a number of arrears-handling fines, including earlier this year in respect of HSBC in May 2024 (Enforcement watch: HSBC fined for failures in treatment of retail customers in arrears or experiencing financial difficulty) and the FCA's announcement earlier this year that it is undertaking a review of firms' treatment of vulnerable customers. The outcome of this review is expected at the end of 2024 as part of the ongoing regulatory scrutiny in this area.

For further discussion on this subject, including why this is an area in which senior managers should take an active interest, listen to our recording.

Key contacts

Related