The FCA said it had seen “serious failings” at more than 30 firms, largely in the consumer credit sector, when it came to supporting customers hit by the cost of living crisis. 

It said it now expects these firms to make improvements in how customers are treated.

It has written a ‘Dear CEO’ letter to more than 3,500 lenders to remind them take into account pressures on customers.

It is particularly concerned about vulnerable customers.

The FCA says that with household bills expected to continue to increase this year firms should act now to make sure that “borrowers struggling with payments and customers in vulnerable circumstances can access the help they need.” 

The watchdog says many lenders support customers with financial difficulties well but most firms also need to have “better conversations” to understand their customers’ circumstances. This is to ensure they can provide “appropriate" and tailored support and ensure that arrangements to pay back debt are sustainable.

The FCA is also concerned that some vulnerable customers are not receiving the right support. 

Some lenders are also not discussing the potential benefits of money guidance or free debt advice.

These concerns were seen broadly across the sector, the FCA said. 

The FCA is reminding lenders that they should provide support to struggling borrowers tailored to their specific circumstances and only charge them fees which are fair and that cover the firm’s costs.

In its letter, the FCA also tells lenders to:

• make sure that their approach to taking on new borrowers takes account of the financial pressure they may face and the impact on their expenditure.
• consider and, if necessary, improve how they treat consumers in vulnerable circumstances.
• effectively direct customers who need it to money guidance or free debt advice.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months. 

“Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.

“The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.”