The Financial Conduct Authority (FCA) has confirmed a package of targeted temporary measures to help people with some of the most commonly used consumer credit products.
Following a short consultation the FCA will be going ahead with the proposals outlined last week, which will give firms the flexibility under our rules to provide temporary financial relief to those facing payment difficulties during the coronavirus (Covid-19) pandemic.
The measures include firms being expected to:
- offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus.
- allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months.
- make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force.
- ensure consumers using any of these temporary payment freeze measures will not have their credit file affected.
The rule changes will be in force from today and the full range of measures will apply by Tuesday 14th April 2020. This is to allow firms time to ensure they have the appropriate level of resources available to handle customer requests. All firms will be ready to receive customer requests by 14 April, although some firms including the major banks and building societies, will be adopting the changes today.
Consumers should check firm websites or social media posts for more information, and where possible use online services to request assistance. This will reduce the pressure on firm call centres who are experiencing a high demand in calls due to the current pandemic situation. If consumers need to get in touch by telephone please be patient and, if you can, wait until after the Easter weekend, even if your lender is offering help sooner than the 14th April 2020.
In response to the consultation, the guidance now includes clarification on which products are in scope. In particular, the FCA are confirming that the following products are covered: guarantor loans, logbook loans, home collected credit, a loan issued by Community Development Finance Institution and some loans issued by credit unions, but only where these are regulated. The guidance also applies to firms which have acquired such loans.
These measures won’t replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty. Consumers in financial difficulty should contact the Money Advice Service (MAS) for further guidance.
Christopher Woolard, interim Chief Executive at the FCA, said “We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic. The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time. The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.”
“Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.
“We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week.”
Responding to the FCA measures UK Finance says that it welcomes the package of targeted temporary measures confirmed today by the Financial Conduct Authority (FCA) for overdrafts, credit cards and instalment loans. The FCA’s announcement follows detailed discussions with the banking and finance industry on how best to adopt a common approach to supporting customers during the coronavirus crisis. Previous agreement on temporary mortgage payment relief for houseowners and private landlords was announced by mortgage lenders two weeks ago.
Eric Leenders, Managing Director of Personal Finance, UK Finance, said “Lenders stand ready at this most difficult of times to support customers and help the country get through this crisis and welcome today’s package of measures from the FCA to help deliver this.”
“We would remind customers of the FCA’s own guidance to think carefully before making use of these measures and only do so if they need immediate help. Where customers can still afford to make payments, they should continue to do so.”
“We would encourage customers who want to find out more information about the help available or who want to apply for temporary relief to go online where possible. To help their customers, lenders are constantly keeping their websites updated with the latest information, including FAQs, which can answer many queries.”
“For more detailed questions there are a range of different ways to get in touch, including through online chat, social media and mobile and banking apps. If customers do need to speak to their lender, we ask customers to be considerate of those most in need of immediate relief to ensure phone lines are available for this group and if possible consider waiting until after the Easter weekend to contact their lender.”
Peter Tutton, Head of Policy at StepChange Debt Charity, said “These are crucial measures from the FCA that give clear guidance on the help and support people struggling with an income shock during the Covid-19 crisis can expect. It brings clarity for consumers, credit providers and the debt advice sector. There are some outstanding questions on certain specific types of credit, like high cost credit, and we are looking for more detail on this shortly.”
Patricio Remon, President of Europe at Equifax, said “The FCA proposals will have a welcome impact on the lives of consumers in financial difficulty and should provide clarity for lenders and credit providers. We have worked closely with other credit reference agencies and developed reporting guidelines to help minimise any adverse effects on UK consumers’ credit files when lenders agree to an emergency payment freeze. The principles of the current CRA guidance were already designed to cover a range of portfolios including mortgages, credit cards and personal loans. Lenders who follow the principles of this reporting guidance should help minimise the impact of an emergency payment freeze on a consumer’s credit file.”
“The next important consideration is how lenders should treat consumers when the emergency payment freeze ends. A consumer that had an up-to-date payment status prior to being granted an emergency payment freeze should not see their payment status worsen when they exit from the emergency payment freeze. If a consumer is able to resume their normal contractual monthly payments, and pay each month when due, their payment status should continue to be reported as up-to-date moving forward.
“This is something that Equifax are encouraging lenders, trade associations and regulators to look at. Equifax will continue to work with regulators, lenders and other credit reference agencies to deliver the most appropriate customer outcomes in this unprecedented time.”
Darren Fisher, Director in DWF’s regulatory consulting practice, said “The new rules will be welcome news for many consumers and demonstrates how the FCA is creating a level playing field across the lending market including for those consumers who do not use mainstream credit.”
“The current crisis is also bringing immediate liquidity and capital adequacy challenges for consumer lending firms themselves. The fact that the FCA were not satisfied that consumer lending firm “Uncle Buck” met the ‘Adequate Resources’ Threshold Condition and required them to stop lending led to the firm being placed into Administration on 27th March and is a timely reminder that the regulator will intervene where firms don’t continually meet Threshold Conditions. However, the Finance and Leasing Association has secured access for independent and non-bank lenders to the Coronavirus Business Interruption Loan Scheme allowing firms to continue to run their business, support existing customers’ request for forbearance and to continue lending to new customers.”
“Gaining access to the CBIL is good news for consumer credit firms, helping them continue to lend to new customers and helping many more firms to continue to do business and bridge the immediate challenges, thus contributing to keeping the economy going and maintaining the integrity of financial markets.”