The Financial Conduct Authority (FCA) has announced proposals to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties due to coronavirus (Covid-19).
The proposals will cover users of credit cards and other revolving credit (store card and catalogue credit), personal loans, overdrafts, motor finance, buy-now pay-later (BNPL), rent-to-own (RTO), pawnbroking and high-cost short-term credit (HCSTC) products.
During the initial phase of the pandemic, payment deferrals provided consumer credit borrowers with immediate and temporary support. They have helped millions of consumers through the immediate impacts of the current emergency and helped firms provide support at unprecedented scale.
Many customers who have had a payment deferral are expected to resume full repayment. However, some will remain in financial difficulty.
The draft guidance published today applies both to consumers who have benefitted from payment deferrals and support with the cost of their overdrafts under the current guidance who continue to face financial difficulties, as well as those whose financial situation may be newly affected by coronavirus after the current guidance ends. It will ensure they get the support they need in these extraordinary times.
The FCA expects the current guidance will expire on 31st October 2020, but will keep this under review depending on how the wider situation develops.
Christopher Woolard, Interim Chief Executive at the FCA, said: “Our proposals are designed to help people who have been facing payment difficulties because of the pandemic get back on track with tailored support from firms. For those who can restart payments, it is in their best interests to do so.”
If these measures are confirmed, the FCA would expect that firms:
- Recognise the uncertainties and challenges that many customers will face in the coming months, and provide tailored support which reflects their individual circumstances.
- Work with customers approaching the end of a payment deferral to provide support before they miss payments.
- Be flexible and employ a full range of shorter and longer-term options to support their customers to minimise stress and anxiety experienced by customers in financial difficulty.
- Put in place sustainable repayment arrangements which are affordable and take account of their customers wider financial situation including their other debts and essential living expenses.
- Give customers time and opportunity to repay and do not pressurise them into repaying their debt within an unreasonably short period of time.
- Prevent customers’ balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen.
- Recognise and respond to the needs of vulnerable customers.
The FCA will monitor firms to ensure borrowers are treated fairly having regard to their individual circumstances. Customers should be given time to consider their options and to seek debt advice (if necessary) before deciding on the support they take.
Additionally, the FCA is proposing that firms contact overdraft customers who have received temporary support to determine if they still require assistance. Where a customer needs further support, firms should use measures such as reducing or waiving interest, agreeing a programme of staged reductions in the overdraft limit, or supporting customers to reduce their overdraft usage by transferring the debt. The guidance sets out when these options may be appropriate.
Where consumers require further support from firms, either at the end of payment deferrals under the guidance, or where they need support for the first time, this will be reflected on credit files in accordance with normal reporting processes. This will help lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending. The FCA expects firms should be clear about the credit file implications of any forms of support offered to consumers.
Reacting to the announcement, Eric Leenders, Managing Director of Personal Finance at UK Finance, said “The industry has provided unprecedented support to customers as part of its clear plan to get Britain through the coronavirus crisis.”
“It will always be in the best interest of customers who are able to resume their loan payments to do so. However, lenders stand ready to offer tailored support and flexibility to those who continue to face financial difficulties and will be working closely with the Financial Conduct Authority as it finalises this guidance.”
“It is vital that those who are experiencing payment difficulties get in touch with their provider and make use of the online support available as soon as possible to discuss the options available to them.”
Richard Lane, Director of External Affairs here at StepChange, said “The FCA has recognised the unique circumstances that continue to face people whose finances have been negatively affected by the pandemic, but the effect may still be to leave them at serious financial disadvantage through no fault of their own. While we welcome the broad thrust of this new guidance, we have concerns that it leaves open the risk of different lenders adopting very different approaches, leaving customers caught in something of a lender lottery in terms of how their ongoing problems may be managed.”
“We need to understand how lenders will implement the guidance in practice, but we welcome the strong signposting to debt advice that the FCA flags as an appropriate measure that lenders should put in place. With over 4 million people having built up significant debt as a result of the pandemic, we see it as vital that people shouldn’t be put in a situation where they experience long-term financial difficulty or exclusion as a result of measures taken to control the virus. Government support needs to complement regulatory action to achieve this.”
Jane Tully, Director of External Affairs at the Money Advice Trust, said “The FCA’s Covid-19 measures to date have helped millions of consumer credit customers through this difficult period – and the regulator is right to issue specific guidance to help firms put in place tailored support beyond October.”
“With the full economic impact of Covid-19 yet to be felt, the support available to customers cannot go back to normal, when their lives and finances remain anything but.”
“We are pleased to see that firms will be expected to offer targeted payment reductions and deferrals for customers facing short-term uncertainty beyond October. We also welcome the FCA’s specific guidance for firms on refinancing existing credit agreements where lower payments can be made over a longer term – this is an important post-Covid forbearance option that should be made more accessible to customers.”
“The regulator’s plans could go further, however – in particular, we need to see continued credit rating protections where the outbreak has caused only temporary financial difficulty.”