The Financial Conduct Authority (FCA) has told 32 firms to make changes to improve the way they support customers in financial difficulty.
The move has so far prompted seven of the lenders to voluntarily agree to pay £12 million in compensation to nearly 60,000 customers.
The UK regulator says that it expects lenders to “learn the lessons from good and poor practice during the coronavirus pandemic” to help borrowers during the cost-of-living crisis.
The FCA said it will also be closely reviewing a further 40 firms in the coming months to make sure they are meeting its expectations and to protect customers from harm.
The news follows the release of new research by the FCA, which found that only 30 per cent of firms it reviewed sufficiently explored customer’s specific circumstances, which meant repayment agreements were often unaffordable and unsustainable.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “While many firms did well in supporting customers in difficulties during the pandemic, with our support and guidance, others sadly failed their customers.”
He added: “We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that consumers in financial difficulties should be treated fairly.”
The authority has urged firms to encourage consumers to engage earlier when facing financial difficulties, offer tailored support, and let those struggling know about the availability of free and independent debt advice.
It also called on financial services providers to make sure their fees and charges are “fair” and only reflect “reasonable costs”.
The move comes weeks after the FCA wrote to insurance company chief executives asking them to make sure their customers are protected from unfair penalties and “unnecessary” products or add-ons during the cost of living crisis.
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