28 Jul Old tech fails customers on COVID payment holidays
COVID-19 is shining a light on a chronic under investment in IT systems which is now failing customers despite regulators’ focus on operational resilience.
Multiple independent sources have conferred to elanev that UK lenders are failing to adequately account for regulator mandated payment holidays in response to COVID-19. Details of failures at two well-known UK companies servicing some 40 million customer accounts have come to light. The failures have arisen as a result of outdated systems that cannot adequately account for regulator mandated payment holidays in response to COVID-19.
The first lender’s operational resilience failure arises from an inability within their systems to differentiate between customers requesting payment holidays and those that do not. Their solution is to put all their customers on a payment holiday. Fortunately for the affected customers their credit ratings will be unaffected. By now however, we would have reasonably expected the firm to have lettered affected customers.
The operational resilience failure at the second firm is significantly worse. Unlike the first firm, this institution is able to differentiate between customers on payment holidays and those that are not. However, very worryingly they are unable to report payment holidays to the 3 UK credit reference agencies (CRAs). Instead the CRA’s get arrears information. So, if a customer is on a payment holiday for 3 months their credit file at all 3 CRAs will show that they have missed 3 payments.
General Data Protection Regulation (GDPR) compounds the error once the misstatement has gone to the CRAs. Due to GDPR the firm cannot directly request a retrospective correction by the CRA. This has to come from the customer concerned. Most customers will be ignorant of the incorrect credit record unless the firm contacts them to advise them of the situation. All these steps take time adding further stress to the customers concerned.
Whilst the customer’s credit record remains incorrect the ability for the customer to access credit across the UK lending sector may be much diminished. Favourable terms that had previously been available to them will be removed or replaced with less favourable terms. This comes on top of the significant economic pressure on customers as a result of COVID-19. Their propensity for financial vulnerability will increase.
For those customers that take the initiative and seek to correct the error imposed on them the outcome may not be as how they wished. The CRAs are not empowered to alter the history of a customer’s credit record. Although they can put a note on the account to identify the payment holiday and correct the credit rating they cannot remove the erroneous arrears record. Users of CRA credit data typically look for missed payments and so these will be flagged. Automated decisioning will act on this data. The note on the record will not be factored into these processes. As a result, the outcomes will be less favourable for the customer.
In summary, one of the UK’s largest and best-known companies has incorrectly and possibly irreversible damaged customers’ credit records. The implications are not just restricted to the customers but are also potentially systemic. The error will impact the accuracy of the credit data held by the 3 largest UK CRAs not just in the short term but in the longer term. This in turn will affect the accuracy of the credit decisioning and related processes undertaken by the commercial users of the credit data across the UK. There will then be a feedback to the original customer and through no fault of their own their propensity for financial vulnerability will increase.
These are just two examples where despite spending considerable amounts of money on operational resilience, under investment in legacy systems has failed customers. The COVID – 19 crisis continues to shine a light on such institutions.