New FCA Consumer Duty Rules: What Creditors Need to Know

The Financial Conduct Authority's Consumer Duty came into effect on July 31, 2023, fundamentally changing how firms—including creditors and debt collectors—must treat customers. Yet 18 months later, many businesses still don't understand how these rules apply to debt recovery.

This isn't optional compliance guidance. These are enforceable standards, and the FCA has already issued fines to firms that fail to meet them. If you're recovering debts—whether directly or through third parties—here's what you need to know.

What Is the Consumer Duty?

The Consumer Duty introduces a higher standard of care than previous regulations. It requires firms to act in good faith, avoid causing foreseeable harm, and enable customers to pursue their financial objectives.

For creditors, this means debt recovery can't just be legally compliant—it must also be fair in substance, not just form.

The Four Outcomes

The Consumer Duty framework is built around four customer outcomes. Here's how each applies to debt recovery:

1. Products & Services Outcome

What it means for creditors: Your products, services, and payment terms must be fit for purpose and meet customers' needs. This affects how you structure payment plans and settlement arrangements.

Practical application:

• Payment plans must be sustainable based on the debtor's actual financial circumstances
• You can't impose repayment terms that are clearly unaffordable just to maximize recovery
• Settlement offers must be genuinely accessible, not technically available but practically impossible

2. Price & Value Outcome

What it means for creditors: Charges must represent fair value. This includes interest, late fees, and collection costs.

Practical application:

• Statutory interest (8% per annum) is generally defensible
• Compound interest or punitive rates (e.g., 15-20%) may not meet the fair value test
• Collection costs must be reasonable and proportionate—you can't charge £500 in "admin fees" on a £1,000 debt
• All charges must be clearly disclosed upfront, not buried in terms and conditions

3. Consumer Understanding Outcome

What it means for creditors: Communications must be clear, timely, and help customers make informed decisions.

Practical application:

• Demand letters must clearly state: the amount owed, how it's calculated, payment options, and consequences of non-payment
• Legal jargon should be minimized or explained in plain English
• You must proactively provide information about free debt advice services (StepChange, Citizens Advice, etc.)
• If a customer is confused or doesn't understand, you have a duty to clarify—not exploit that confusion

4. Consumer Support Outcome

What it means for creditors: Customers must be able to easily contact you, get support when needed, and have issues resolved quickly.

Practical application:

• You can't make it deliberately difficult to discuss payment difficulties (e.g., premium-rate phone lines, complex IVR systems)
• If a customer indicates financial difficulty, you must respond constructively—not just send more demands
• Complaint handling processes must be accessible and fair
• Using third-party collection agencies? You're still responsible for ensuring they meet Consumer Duty standards

Vulnerable Customers

This is where many creditors fall short. The Consumer Duty requires you to identify and provide extra support to vulnerable customers. Vulnerability can be:

• Financial: Low income, over-indebtedness, unexpected loss of income
• Health-related: Mental health conditions, serious illness, cognitive impairment
• Life events: Bereavement, divorce, redundancy
• Resilience: Limited literacy, poor English, digital exclusion

Red Flags for Vulnerability

Train your collections team to recognize these indicators:

• Repeated missed payments following a life event
• Confused or inconsistent responses to communication
• Mention of health issues, caring responsibilities, or recent bereavement
• Evidence of multiple debts or financial difficulty
• Request for help or mention of struggling to cope

When vulnerability is identified, you must:

• Pause aggressive recovery action
• Signpost to free debt advice and mental health support
• Consider temporary forbearance or reduced payments
• Document all vulnerability considerations and decisions

Evidence & Monitoring Requirements

The FCA expects firms to actively monitor whether they're delivering good outcomes. This means:

Data You Must Track

• Recovery rates by customer demographic and vulnerability status
• Complaint volumes and themes
• Default rates on payment plans
• Customer outcomes (payment in full, partial settlement, write-off)
• Abandonment rates if using collection agencies

Regular Reviews

• Quarterly analysis of whether recovery processes are causing foreseeable harm
• Testing communications for clarity with real customers
• Mystery shopping your own collection process
• Third-party compliance audits (if using agencies)

If the data shows poor outcomes—for example, 80% of payment plans defaulting within 3 months—you're required to investigate and fix the root cause.

What Good Looks Like

Here's how compliant creditors are approaching debt recovery under Consumer Duty:

Proactive Communication

Instead of: "Payment is 30 days overdue. Pay immediately or we will take legal action."

Compliant approach: "We notice your payment is 30 days overdue. If you're experiencing financial difficulty, please contact us—we can discuss payment plans or refer you to free debt advice services. If there's an issue with our invoice, let us know so we can resolve it."

Affordable Payment Plans

Instead of: Insisting on repayment within 6 months regardless of circumstances

Compliant approach: Requesting an income/expenditure breakdown and structuring payments around what the debtor can genuinely afford, even if that means longer timescales.

Transparent Charges

Instead of: Applying statutory interest without explanation

Compliant approach: "We're entitled to charge interest at 8% per annum under the Late Payment of Commercial Debts Act. This currently adds £X per day. If you'd like to discuss settling the principal without interest, please get in touch."

Third-Party Oversight

Instead of: Handing debts to a collection agency and walking away

Compliant approach: Regular audits of agency communications, requiring agencies to flag vulnerability, monitoring complaint rates, and maintaining joint responsibility for outcomes.

Common Compliance Failures

These are mistakes we see repeatedly:

1. Ignoring Financial Difficulty Signals

A customer mentions they've been made redundant. Instead of pausing to discuss options, the creditor continues automated collection letters threatening legal action. This is a clear breach.

2. Unreasonable Collection Costs

Adding £200 in "administration fees" to a £500 debt, or charging for multiple tracing reports when the customer's address hasn't changed. The FCA has said explicitly that costs must be justified and proportionate.

3. Outsourcing Responsibility

Using a bulk collection agency that sends aggressive template letters, then claiming "we're not responsible for their approach." Under Consumer Duty, you absolutely are.

4. Confusing Communications

Demand letters that reference multiple legal provisions without explaining what they mean, or settlement offers buried in dense legal text. If a reasonably capable person can't understand your letter, it fails the Consumer Understanding test.

Enforcement & Penalties

The FCA has enforcement powers including:

• Fines up to £millions for serious breaches
• Public censure and reputational damage
• Requirement to compensate affected customers
• In extreme cases, prohibition from regulated activities

They've already made clear this isn't a "wait and see" approach. Firms that fail to meet Consumer Duty standards will face action.

Practical Steps to Take Now

1. Review all template communications: Do they meet the Consumer Understanding test? Are they clear, fair, and non-threatening?
2. Audit your charges: Can you justify every fee and interest charge as representing fair value?
3. Train your team: Can they recognize vulnerability? Do they know how to respond?
4. Check third-party contracts: Do your collection agencies meet Consumer Duty standards? How do you monitor compliance?
5. Implement monitoring: Start tracking the data points the FCA expects you to analyze
6. Document everything: If challenged, you'll need to show you considered Consumer Duty at every decision point

The Bottom Line

Consumer Duty hasn't made debt recovery impossible—it's made bad debt recovery practices unlawful. Creditors who genuinely try to understand their customers' situations, communicate clearly, and offer fair solutions will still achieve strong recovery rates.

Those who continue with aggressive, inflexible, or confusing approaches will find themselves on the wrong end of FCA enforcement action.

The good news? Compliant debt recovery often delivers better outcomes anyway. Customers who feel fairly treated are more likely to engage, more likely to maintain payment plans, and more likely to preserve the commercial relationship.

Win-win.