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Coronavirus - FCA finalises guidance on temporary financial relief for consumer credit customers - UK

  • United Kingdom
  • Coronavirus
  • Financial services and markets regulation
  • Payment systems and digital commerce
  • Financial services - Retail finance

16-04-2020

On Thursday 9 April, the FCA confirmed measures to support consumer credit customers facing financial difficulty as a result of COVID 19 on personal loans, credit cards and overdrafts. Measures introduced by the new rules became applicable on Tuesday 14 April after a brief implementation period over the Easter bank holiday period.

The new rules and guidance finalise the proposals issued by the FCA for consultation on Thursday 2 April, as reported in our first briefing on this topic.

The FCA has also published a Feedback Statement FS20/3.

What’s new?

The key updates and clarifications introduced in the final sets of guidance are as follows:  

  • Customers can request a payment deferral or assistance in relation to their overdraft, at any time for 3 months from the date the guidance comes into force. This means that the deferral period for some customers may continue after 14 July.
  • The guidance adds that a payment deferral should be granted unless it is ‘obviously not in the customer’s interests to do so’ and expands on when it considers this to be the case. The Feedback Statement suggests that this can be done at a book/cohort level.
  • The FCA has added to the draft guidance, clarifying that firms are not expected to make enquiries with the customer to determine whether a payment deferral is in the customer’s interests and has also now disapplied CONC 6.7.18R and 6.7.19R to this end.
  • The guidance is now slightly clearer in that firms should not report the worsening arrears status on the customer’s credit file during the payment deferral period but any additional forbearance can be reported in the usual manner - although it remains silent on whether firms can report where customers have been offered alternative solutions. It also requires the firm to make rectifications where there has been an operational delay in granting a customer a payment deferral and this has resulted in reporting a missed payment.
  • It also clarified that where firms conclude not to offer a payment deferral, they are expected to offer alternative solutions to the affected customers.

Although the FCA in its Feedback Statement expresses the view that ‘it is likely that the deferral of payments is capable of being put in place without an agreement to vary the contractual terms’, it leaves the issue of addressing the Consumer Credit Act considerations very much with firms.

The FCA has also launched a new webpage addressed to customers affected by COVID 19 where it summarises the measures put in place and warns customers to carefully consider the appropriateness of the measures for their individual circumstances before entering into any arrangements.   

Updates introduced to the guidance notes

Personal Loans

  • The scope has been clarified and the table below summarises what personal loan products are in and out of scope of the new rules.

In Scope

Out of scope

  • Regulated credit agreement, secured (other than on land) or unsecured
  • Guarantor loan
  • Logbook loan (secured by bill of sale)
  • Home collected credit Agreement
  • Loan issued by a community development finance institution
  • Credit union loans where they are regulated credit agreements

NB: This guidance applies to firms that have acquired these product agreements, and not just to firms who are primary offerors of these products.

  • High-Cost Short-Term credit agreement
  • Buy Now Pay Later agreement
  • Hire purchase agreements (including motor finance)
  • Peer to Peer agreement
  • Pawnbroking agreement
  • Premium finance
  • Credit cards or other retail revolving credit agreements or overdraft
  • Business loans
  • The guidance now explicitly states that guarantors should not be pursued for payment in relation to deferred payments during the deferral period.
  • The requirement in the draft guidance to include explanatory wording in CCA notices has been removed. The Feedback Statement explains that provided clear information is provided to the customer, this can be provided in a separate communication.

Credit cards (including retail revolving credit)

  • The guidance makes it clear that where firms use indulgences or waivers to give customers a payment deferral under this guidance, the FCA expects such firms to also give these customers indulgences or waivers to relieve the customers from any potentially adverse consequences arising under the contract from non-payment during the payment deferral (for example in relation to fees and charges and 0% interest deals).
  • The guidance re-iterates that customers whose payments have been deferred should not have their card or facility suspended but acknowledges that this does not affect  the firm’s ability to suspend a customers’ card where the firm acts in accordance with its obligations under section 98A of the Consumer Credit Act 1974, for example in the event of fraud.
  • The following proposed rule changes have been confirmed:
    • suspending the persistent debt remedies for customers whose payments have been deferred; and
    • suspending the requirement to set a minimum payment amount.

Overdrafts

  • The scope of the new rules is clarified to state that the new rules do not apply to Basic Bank Accounts.
  • New customers and existing customers who are offered a new or increased overdraft should be eligible in the same way as existing customers.
  • Firms can choose to extend this measures to all customers for the same fixed period which must be of at least 3 months duration, starting no later than 14 April.

Next steps

As mentioned in our last briefing, these new rules and guidance have been put in place very rapidly by the FCA as a response to the crisis. We expect the FCA to monitor the implementation of these measures and re-assess their effectiveness in the coming weeks. Christopher Woolard, interim chief executive at the FCA has reported that the FCA knows that there is still more work to be done.

We are expecting further measures to support customers in other parts of the market in the near future including motor finance and Buy Now Pay Later.

We will keep you updated and are more than happy to assist you navigate the new rules and guidance.