January is where consumer credit decisions are tested in the real world. The lending and underwriting choices made in the run-up to Christmas begin to surface in arrears, customer contact, complaints and requests for support. For the FCA, this is not simply an operational challenge for firms — it is a clear window into whether Consumer Duty is being delivered in practice.
While affordability and creditworthiness assessments determine who receives credit, it is collections and recovery activity that often determines whether outcomes remain fair once customers begin to struggle. Increasingly, the FCA views these two stages as inseparable.
Why collections matter more than ever under Consumer Duty
Historically, collections were treated as a downstream process: something that followed lending and sat largely outside product governance discussions. That distinction no longer holds.
Under Consumer Duty, the FCA expects firms to consider the entire customer journey, including what happens when repayments are missed. Collections behaviour directly affects customer outcomes, particularly for those in financial difficulty or vulnerable circumstances.
January is a predictable stress point. Customers may be juggling multiple commitments, facing reduced income, or dealing with financial and emotional pressure after Christmas. The FCA expects firms to have anticipated this and adapted their collections strategies accordingly.
Where firms fail to do so, the regulator is increasingly prepared to intervene.
The link between festive lending and January arrears
January arrears rarely arise in isolation. They are often the result of lending patterns in November and December, including higher borrowing volumes, increased reliance on short-term credit, or repeated refinancing.
From the FCA’s perspective, collections data is not just an operational metric; it is a feedback mechanism. Early arrears, missed payments, and customer distress provide valuable insight into whether underwriting assumptions were realistic and whether products were designed with sufficient headroom.
Firms that treat collections data as separate from lending decisions miss a critical opportunity to identify emerging risk — and to demonstrate learning under Consumer Duty.
What the FCA expects to see in responsible collections
The FCA has been clear that responsible collections are not about maximising recovery at all costs. They are about acting proportionately, sensitively and in the customer’s best interests.
In practice, this means recognising that customers in January may need time, flexibility and support rather than rigid enforcement. Firms are expected to offer forbearance options that are realistic and sustainable, and to ensure customers can access them without unnecessary friction.
Tone and approach matter. The FCA continues to raise concerns where collections communications are overly aggressive, unclear or fail to acknowledge a customer’s circumstances. Scripts, automation and digital journeys all need to reflect this reality.
Vulnerability and collections: where firms often fall short
January also exposes weaknesses in vulnerability frameworks. Many customers who enter collections in January were not vulnerable at the point of application, but become so as financial pressure mounts.
The FCA expects firms to identify vulnerability dynamically, not rely solely on self-disclosure or static indicators. Collections teams play a crucial role here, as they are often the first to hear about changes in circumstances.
Where firms lack training, escalation routes or discretion, vulnerable customers may receive inappropriate treatment. Under Consumer Duty, this is no longer acceptable.
Automation, consistency and human judgement
Automation has transformed collections, offering efficiency and consistency. However, the FCA has made it clear that automation must not come at the expense of fairness or sensitivity.
In January, automated processes that trigger standardised actions without recognising context can quickly lead to poor outcomes. Firms are expected to ensure that systems allow for human judgement, particularly where customers show signs of distress.
The regulator is increasingly interested in how firms test and monitor automated collections processes, and how they ensure outcomes remain appropriate during periods of heightened risk.
Collections as a governance issue
One of the most significant shifts in the FCA’s approach is the treatment of collections as a governance matter rather than a back-office function.
Boards are expected to have visibility over collections performance, not just headline arrears figures. This includes understanding customer outcomes, complaints trends, vulnerability indicators and the effectiveness of forbearance strategies.
Where firms cannot demonstrate Board oversight or learning from collections data, the FCA is likely to question whether Consumer Duty is truly embedded.
Closing the loop: learning from January
The FCA expects firms to use January as a learning opportunity. That means feeding insights from collections back into underwriting, product design and distribution oversight.
Patterns in missed payments, repeat borrowing or customer distress should inform future lending decisions. Complaints arising from collections activity should trigger review and improvement. This feedback loop is central to demonstrating good outcomes under Consumer Duty.
Firms that fail to close the loop risk repeating the same issues year after year — and facing increasing regulatory scrutiny as a result.
How ALPH supports firms on collections and Consumer Duty
ALPH Legal & Compliance supports consumer credit firms with collections and arrears reviews, forbearance framework design, vulnerability assessments and post-January assurance work. We help firms connect collections performance with lending decisions, governance and Consumer Duty evidence.
January is not just about managing arrears. It is about demonstrating that firms respond to customer difficulty in a fair, proportionate and responsible way. Firms that recognise that — and plan accordingly — are far better placed to meet the FCA’s expectations and protect both customers and reputation.