ATTACK OF THE SLUDGE
EXPLAINING AND AVOIDING SLUDGE PRACTICES

ALPH L&C

We are sure that by now you are knee deep into the final Consumer Duty and your brain is saturated with new terminology from manufacturers, distributors and Sludge Practices.

So, what are Sludge Practices? The FCA defines them as: an excessive friction that hinders consumers from making decisions in their interests, by taking advantage of their behavioural biases. We will set the scene.

On Friday at 3.00pm, Mr Smith applies for a loan on your website. The site is simple to use, explanatory and he has completed his application in under ten minutes. You run all your affordability and creditworthiness checks and approve his loan in under an hour. You notify him that his loan will be paid out the same day and Mr Smith receives the funds by the end of the day.

Over the weekend, Mr Smith does a bit more shopping around online and sees that he could have got his loan at a cheaper interest rate. He looks at his contract and sees that he can withdraw from the loan and repay it by either calling, emailing, or writing to you but notes there are no bank details for him to repay the money.

He first visits the FAQ page of your website to see what is says about withdrawing from the loan. There is no information. He then visits the Contact Us page. His choices are to write a letter, email, live chat or telephone. The live chat is offline so he decides to call. He notes that the lines close at 12.00pm. At 11.30am a recorded message informs him that wait times may be slightly longer than usual due to the bank holiday. At 11.55am he gets cut off. His next step is to send an email, to which he gets an immediate response stating that you anticipate responding within three working days. Mr Smith tries to log into his account but there does not seem to be a ‘Pay Now’ button.

By this point, Mr Smith is ready to submit a complaint. He reads your complaints policy and sees that he can only complain by post. He is now well and truly in the sludge as the relative ease of applying for a loan has been countered by the obstacles of withdrawing.

The FCA expects you to review your product and practices under Principle 12 and PRIN 2A, including the cross-cutting rules and outcomes. This means you are expected to ensure fairness and continually test and monitor to ensure that the customer is receiving a fair outcome.

When creating any Consumer Duty reports, it would be vital that this is listed, and any updates recorded with full root and branch analysis of any changes. Reviews should include every aspect of the customer journey, websites, and all communications.

This list is not exhaustive. With this new mindset, sludge is easily spotted. Remember that there are many opportunities in the complete loan process where sludge can be created.

ALPH L&C Limited are an Associate CCTA Member assisting members with regulatory compliance and legal advice.