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Coronavirus - FCA issues further draft Covid-19 guidance for Buy-Now Pay-Later and other high cost products - UK

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

20-04-2020

On Friday 17 April the FCA issued draft guidance on Buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking. It proposes temporary financial relief for customers impacted by coronavirus and is intended to complement measures finalised on 9 April which were brought in to address the impact of Covid-19 on consumer credit customers. This guidance was published alongside draft measures for high cost short term credit and motor finance.

There is a short window in which to provide feedback by Monday 20 April and the measures would come into force on Friday 24 April 2020. The guidance is intended to be reviewed in 3 months’ time.

In the same way as the Covid-19 measures in relation to personal loans, credit cards and overdrafts, the aim of the guidance is to provide ‘exceptional and immediate support’ to those customers facing financial difficulties due to Covid-19 and is intended to build on TCF principles and guidance in CONC around customers in financial difficulty. Firms are required to consider in particular the needs of vulnerable customers. Where customers already face financial difficulty, other than due to Covid-19 the existing CONC guidance and forbearance rules continue to apply.

The FCA in its draft guidance, expects firms offering BNPL and RTO to offer payment deferrals and re-iterates its previous guidance in this respect and in relation to CRA reporting. Again, firms are not expected to make enquiries into each customer’s circumstances and the recent Handbook change disapplying CONC 6.7.18 and 6.7.19 (on the meaning of ‘re-finance’) is extended by draft instrument to cover this guidance also.

Although firms can continue to charge interest in relation to the payment deferral period, if the customer is entitled to be treated with forbearance under existing rules then interest must be waived. 

Buy-Now Pay-Later

  • Where the customer’s agreement is a BNPL agreement and the customer is within the promotional period, the firm should extend the promotional period for the length of the payment deferral.
  • The FCA highlights firms’ obligations under CONC 6.7.16A under which firms to give notice to customers of what action they need to take towards the end of the promotional period in good time for them to act. The guidance requires this notice to include:
    • the possibility of deferring the end of the promotional period
    • an explanation of the consequences of this on backdated interest on any outstanding balances at the end of the promotional period.

RTO

  • The goods should not be re-possessed during the guidance period if the customer needs them.
  • The firm should allow the customer to rely on insurance and warranties during the payment deferral period or any extension period.
  • If the RTO firm is unable to redeem, collect or repossess goods due to social distancing, they should not pass on any additional charges or fees to the customer.
  • The firm should allow the customer to repay the deferred payments/any accrued interest over a period and in amounts as the customer can reasonably afford.
  • Any waiver of interest should not be taken into account in the total cost of credit cap calculation under CONC 5B

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

 

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