Enforcement watch: HSBC fined for failures in treatment of retail customers in arrears or experiencing financial difficulty

The FCA has fined HSBC UK Bank plc, HSBC Bank plc and Marks and Spencer Financial Services plc (together "HSBC") £6,280,100 in relation to failures to gather adequate information on client circumstances (including why payments had been missed or ascertain either the root cause of payment difficulties and expected income and expenditure) which meant that payment arrangements were not always appropriate, affordable or sustainable. In addition, actions in relation to default notices, final demands, litigation and repossession were not always proportionate.

Background

Between 1 June 2017 and 31 October 2018 (the "Relevant Period"), HSBC offered secured retail mortgages, unsecured loans, credit cards and overdrafts under the HSBC, First Direct, Marks and Spencer bank and John Lewis Financial Services brands.

Following five internal reviews in 2018, HSBC promptly notified the FCA in relation to issues it had identified concerning the treatment of customers in arrears or financial difficulty across the range of lending products listed above. 

In January 2019, a Skilled Person was appointed to conduct a review of the adequacy of HSBC's arrears handling, collections and recoveries operation during the Relevant Period.   The Skilled Person reviewed 198 customer files from a sample of 200 across all HSBC brands and the range of products above.  Findings of the Skilled Person included unfair outcomes in 89 cases (44%) of the sample. 

Findings

Failures included:

• Payments arrangements were entered into or payments were taken without conducting appropriate affordability assessments which, in certain cases, could have put customers in a worse financial position.
• This lack of information on customer circumstances, together with training shortcomings, impacted on HSBC's ability to identify and consider whether various forbearance options were appropriate. For example, in the FCA's view customers suffering longer-term financial difficulty were predominantly offered short-term solutions such as a temporary freeze on interest and token payments, which did not prevent customers from subsequently entering into default instead of exploring all options available. 
• The process for payment default was automated and/or system-driven (with no evidence of manual review or intervention), triggered by low arrears balances (the issuance of default notices was restricted below a threshold of £50) and led to adverse information on some customers' credit records.  In the FCA's view, certain default, litigation and repossession steps were disproportionate.  

In the FCA's view, causes included:

• Gaps and weaknesses in HSBC's collections policies and procedures (which were not consistently applied across all brands).
• Gaps and weaknesses in front-line staff training including in relation to identifying cues, wording or behaviours of potential financial difficulty or more complex circumstances, such as potentially vulnerable customers.
• Inadequate discussion of management information relating to customer outcomes across a range of governance committees.

The FCA acknowledged that mitigating factors in arriving at the penalty included:

• The fact that HSBC self-identified many of the issues, noting that HSBC did this quickly, effectively and completely.
• HSBC fully cooperated with the investigation.
• A significant remediation exercise was undertaken whereby approximately £233,186,073 redress was offered to 1,535,136 customers (in an unusual step, the FCA acknowledged the redress design is likely to have over-remediated customers).
• Significant steps were taken to remedy the governance, oversight and procedural failings.