Barclays has been hit with a £26m fine for poor treatment of more than 1.5 million struggling borrowers, prompting the City regulator to warn lenders over mistreating customers facing financial hardship during the Covid crisis.
It is the largest fine ever issued by the Financial Conduct Authority (FCA) for a breach of consumer credit rules.
Barclays was found to have mistreated business and personal customers who were in financial difficulties and fell behind on credit card and loan payments between 2014 and 2018. The FCA said the bank had failed to properly contact customers who fell into arrears and had not had appropriate conversations about their individual circumstances.
It meant the bank had ended up offering struggling borrowers unaffordable or unsustainable payment plans that could put them under pressure to prioritise their Barclays debt over other key financial responsibilities such as their mortgage, council tax, child support or utility bills.
The regulator said Barclays had ultimately “failed to treat customers fairly or to act with due skill, care and diligence”.
The FCA director of enforcement and market oversight, Mark Steward, said customers should be able to trust that their lender would help resolve any financial difficulties, rather than make them worse.
“We will take action against unfair treatment, or where firm systems expose customers to the risk of unfairness. While this case predates the pandemic, this message is especially important as the impact of coronavirus continues to affect household incomes and budgets,” Steward said.
There are growing concerns about whether households and businesses will be able to keep up with growing debts as a result of the Covid crisis, as well as how banks will handle collection and recoveries when customers default.
Last month, research by the debt charity StepChange showed that borrowing and arrears linked to the pandemic has surged 66% since May to £10.3bn. The number of people who are in severe debt also jumped to 1.2 million – nearly doubling since March. A further 3 million people are at risk of falling into arrears after taking on extra short-term loans.
Lenders are working with the Treasury to craft a standard set of rules for how to handle collection and recoveries of government-backed bounce back loans for small businesses, but those standards are unlikely to be extended to other forms of debt taken on during the Covid crisis.
The FCA said on Tuesday that Barclays identified some of its own problems as early as 2014 but did not fully address the problem until years later. Barclays has now launched, and nearly completed, its own compensation programme for those failings, having paid more than £273m to at least 1,530,000 customer accounts since 2017. All affected borrowers should have already been contacted by the bank.
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The FCA reduced the total fine by nearly a third after Barclays agreed to settle the case. It was also reduced in light of the compensation programme. The watchdog would have otherwise forced Barclays to pay at least £37.2m for the breach.
Barclays issued an apology for its failings. It said in a statement: “Barclays is a responsible lender and we strive to achieve good outcomes for our customers. Since the issue was first identified, we have implemented a number of changes to our customer journeys, systems processes and colleague training to correct it, and the vast majority of customers who were impacted have already been contacted.
“We would like to apologise to those customers for not providing the level of service we should have.”