As England moved into a second Covid-19 lockdown, the Financial Conduct Authority (FCA) announced further proposals to support consumer credit and mortgage borrowers impacted by the pandemic. It has now published finalised updated guidance after a short feedback period. This is a continuation of the support first offered in the initial lockdown and the various guidance documents have been periodically updated since then. They will be kept under review as the situation continues to evolve.
The finalised updated guidance for consumer credit comes into force today, 25 November 2020. There is payment deferral guidance covering high-cost short-term credit (HCSTC), personal loans, credit cards, motor finance, rent-to-own, buy-now pay-later and pawnbroking, and separate tailored support guidance.
The finalised updated guidance for mortgages, also comprising payment deferral guidance and separate tailored support guidance, came into force on 20 November 2020. New temporary guidance to help some borrowers with maturing interest-only and part-and-part mortgages came into force on 31 October 2020. Links to the mortgage guidance documents can be found at the end of the FCA's press release.
- Consumer credit and mortgage borrowers should continue to make payments if they can afford to do so, and only request payment deferrals where absolutely necessary
- With the exception of HCSTC, those borrowers who have not yet had a deferral can apply for deferrals of up to six months in total
- Those who currently have/have had a deferral can top up to six months in total
- HCSTC customers are eligible for a one-month deferral if they have not yet benefitted from one
- Customers have until 31 March 2021 to apply
- With the exception of HCSTC, ongoing deferrals can then be extended to 31 July 2021 (covering consecutive payments and subject to the six-month maximum)
- Customers who have not yet had a deferral and think they will need the full six months should apply in good time before their February 2021 payment to cover February to July 2021 inclusive
- Payment deferrals will not be recorded as missed payments on a customer's credit file but lenders may take them into account when making lending decisions
- Tailored support will be provided where a deferral is obviously not in the customer's interest, where they have already exhausted the support available under the payment deferral guidance or are in arrears
- Tailored support, which could include the offer of further payment deferrals, may be reported on a credit file and lenders should inform customers accordingly
- The tailored support guidance for consumer credit lenders includes a section on repossession which is relevant to motor finance and rent-to-own firms
- Customers struggling with overdraft costs can request tailored support, which could include reducing/waiving interest
- No one should have their home repossessed without their agreement until after 31 January 2021.
Steps for lenders to take now
Lenders should act now to:
- Familiarise themselves with the relevant guidance and the FCA's expectations
- Contact customers coming to the end of a payment deferral period to establish if they can resume repayments and agree a plan on repayment of the missed instalments
- Provide support to customers who are still experiencing temporary payment difficulties, including by considering their other debts and essential living costs - give them sustainable arrangements which allow reasonable time and opportunity to repay the debt
- Ensure that customers receive appropriate forbearance that is in their interests after consideration of their individual circumstances and treat them fairly
- Ensure that they are recognising and responding to the needs of vulnerable customers
- Flag free sources of debt advice and money guidance to affected customers and allow them time to consider their options
- Ensure that they are complying with training, monitoring and record-keeping requirements, with clear and effective systems, policies and processes in place
- Ensure that any staff incentives are aligned with providing customers with the help they need.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.