The Financial Conduct Authority (FCA) has proposed an extension to a ban on repossessions until April.
The updated guidance on mortgages and consumer credit repossessions. follows a November announcement on further support for mortgage and consumer credit borrowers experiencing payment difficulties as a result of the pandemic. This included guidance for firms on the treatment of mortgage and consumer credit customers facing repossession. This provided that firms should generally not enforce repossessions before 31st January 2021.
Current guidance on mortgage repossessions means firms should not enforce repossessions before 31st January 2021 except in exceptional circumstances, such as a customer requesting that proceedings continue. The FCA proposes extending this guidance so that firms should not enforce repossessions before 1st April 2021.
The FCA says that this approach takes account of the worsening coronavirus situation and the government’s tighter coronavirus-related restrictions which mean that consumers could experience significant harm if forced to move home at this time as a result of repossession proceedings. There is a recognition that there are also government bans on evictions in some nations, which could also prevent firms from enforcing home repossessions.
The current consumer credit guidance means that before 31 January 2021 firms should not terminate a regulated agreement or repossess goods or vehicles under the agreement that the customer needs, except in exceptional circumstances.
The FCA proposes a change so that consumer credit firms will be able to repossess goods and vehicles from 31st January 2021. However, this should only be as a last resort, and subject to complying with relevant government public health guidelines and regulations, for example on social distancing and shielding. Importantly, firms will also be expected to consider the impact on customers who may be vulnerable, including because of the pandemic, when deciding whether repossession of goods or vehicles is appropriate.
The FCA says that the proposed approach reflects the different risks and harms that customers with goods or vehicles on credit are likely to face compared to those who are at risk of losing their home.
For customers who remain in payment difficulties under a relevant consumer credit agreement, continuing to restrict repossessions may not be in their interests. The shorter terms and higher interest rates on these agreements, combined with the depreciating value of the goods or vehicles, means that they could end up owing more in the long term if repossessions are prevented.
The approach, therefore, takes appropriate account of the risks to customers of further asset depreciation, whilst providing appropriate protections by ensuring that firms repossess only as a last resort and also consider the impact of repossession action on those who are vulnerable, as well as following relevant government public health guidelines and regulations when undertaking repossession action.
Commenting FCA guidance update Adrian Dally, Head of Motor Finance at the FLA, said “This is a welcome move as it allows lenders and consumers to decide together on the best outcome.”
“If a customer still needs their vehicle due to vulnerability, lenders will of course take that into consideration, but where a customer’s circumstances have changed so that they do not need their vehicle any longer and repossession is the best option, it is absolutely right that lenders can now offer that solution.”
Eric Leenders, Managing Director of Personal Finance at UK Finance, said “The banking and finance industry is committed to providing ongoing support to those facing financial difficulty as a result of the pandemic.”
“The industry is fully supportive of a moratorium on possessions remaining in place until 1 April 2021 to ensure customers do not lose their home at this difficult time. This is part of a package of support provided by lenders for those who need it, including payment deferrals and tailored assistance. It is vital that customers who are concerned about their finances go online or contact their lender to understand what options and support are available to them.”
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association, said “Mortgage lenders recognise the unique circumstances which are affecting some borrowers during the pandemic, a situation which can only be exacerbated by the current lockdown and the need for some businesses to temporarily close.”
“Normal forbearance measures will continue to be in operation however long the pandemic persists, but we are also asking Government to do their part, in the first instance by reducing the time that borrowers must wait for a Support for Mortgage Interest loan from the current 39 weeks to 13 weeks, adding to the options available, particularly for those who were in financial difficulty before the pandemic.”
Peter Tutton, StepChange Head of Policy, said “We called last week for mortgage repossessions to be halted until after the pandemic lockdown has ended, so we’re pleased to see today’s proposal from the Financial Conduct Authority to implement this until April. However, we’re concerned about the potential impact of the FCA’s proposal to allow repossession of goods and vehicles in some circumstances after 31 January – customers affected tend to be more vulnerable and some creditors have historically pursued repossession prematurely, which may not square entirely with the FCA urging firms to treat this as a last resort.”
“It’s vital that the FCA not only sets out strong protections, but also monitors the response of creditors and uses its supervision powers to enforce the guidance. For people experiencing debt during the pandemic, the consequences may create real and ongoing hardship even after the public health crisis ends. So it’s particularly important that there is a strong referral system to debt advice organisations for people who are at risk of serious consequences from debt, and we would like to see the FCA strengthen its requirements of firms to refer people to debt advice organisations who can help people plan a way to address all their debt in the round.”