The FCA has today published its updated guidance for credit cards, revolving credit, personal loans and overdrafts relating to the coronavirus pandemic.
The guidance comes into force on 3 July; note however that it does not apply to other types of consumer credit lending including motor finance, rent to own, high cost short term credit and pawnbroking, which will be the subject of a separate guidance consultation to follow.
The guidance outlines the requirements on lenders to provide further support to customers who are experiencing repayment difficulties as a result of the pandemic.
The key message is that customers who have taken a payment holiday in line with the FCA's original guidance back in April should return to full or partial repayments if they can afford to do so. If not, however, further measures are provided to support them.
These include enabling customers to request a further 3 month £500 interest-free overdraft on their main personal current account or a further 3 month payment holiday.
Customers who have not yet had a payment holiday or an arranged interest-free overdraft of up to £500 but who are experiencing temporary financial difficulty due to coronavirus can request one up until 31 October 2020, after which date the 'window' for requests will close. However it may be appropriate for firms to offer further periods of reduced or token payments after that date for customers still facing financial difficulties in line with existing regulatory requirements under CONC 7.
Lenders should contacts customers coming to the end of an existing payment holiday to establish their position. Where the customer does not respond, firms are able to proceed on the basis the customer is able to resume repayments, but where the first payment due is missed or the customer indicates they unable to meet this payment, firms should offer further support as appropriate.
The FCA has also confirmed that:
- Firms should be able to rely solely on information provided by customers when reducing payments to a level the customer can afford, but can choose to undertake more detailed enquiries where appropriate.
- Where firms conclude that a payment deferral is obviously not in the customer's interests, it is considered unlikely such a conclusion could typically be justified solely on the basis of information provided by the customer.
- Evidence of the basis on which a decision is taken that a payment deferral is not in customers' interests must be retained in all cases
- Firms should provide other forms of support where a further payment deferral is not in the customer's interests, which may include a longer or shorter deferral period or refinancing. However any proposed refinancing solution must be 'clearly in the customer's interests and taking into account the customer's wider financial circumstances' and the FCA reminds firms that they would need to carry out a proportionate creditworthiness (including affordability) assessment in relation to any new facilities offered
- Whilst it remains the case that interest may continue to accrue during payment deferral periods, if the customer remains in difficulty such as to require forbearance under the FCA rules at the end of a payment deferral period, any interest that would not have accrued but for the payment deferrals should be waived. The effect should be that a customer would not, in respect of deferred amounts, be in a worse position, in terms of interest, than if they had paid those amounts in full in accordance with the agreement
- customers whose payments have been deferred should NOT have the use of their credit card or revolving credit facility suspended except 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 or where there is a significantly increased risk of customers being unable to fulfil their obligations to repay the credit.
As under the original guidance the FCA has provided that any payment deferral offered in accordance with the revised guidance should not have a negative impact on the customer's credit file; however it has also stressed that customers should be aware that credit records with Credit Reference Agencies (CRAs) are not the only source of information which lenders can use to make lending decisions. The FCA has acknowledged that this approach creates a tension and risks adversely impacting the integrity of the CRA data, leaving the door open to further debate on this issue.
The position on post-contractual notices is also unchanged: where payments are missing in accordance with the FCA guidance Notices of Sums in Arrears will be triggered unless the agreement has been modified or varied. If the firms reasonably considers that documentation risks confusing the customer, the firm must provide contextual information to reduce that risk. The FCA has reiterated, however, that it will take into account the circumstances of any breaches of CCA requirements and resulting consumer detriment when making regulatory decisions.
Lenders should act now to:
- Contact customers coming to the end of a coronavirus-related payment holiday 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 coronavirus-related temporary payment difficulties including freezing or reducing payments to an affordable level for a further 3 months
- Ensure that they are recognising and providing for the needs of vulnerable customers
- Flag free sources of debt advice and money guidance to affected customers.
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.