After the Government’s announcement on 31 October 2020 of another nationwide lockdown, the FCA published a statement proposing to update its temporary guidance on mortgages to support borrowers who continue to be faced with payment difficulties resulting from coronavirus. Responses are required by 10am on Thursday 5 November. A subsequent statement on 2 November 2020 proposed updates to the FCA’s temporary guidance on personal loans, credit cards, motor finance, rent to own, buy-now pay-later, pawnbroking and high-cost short-term credit to support consumer credit borrowers financially affected by the pandemic. The FCA is asking for comment on this by 10am on Friday 6 November.
Overview of FCA proposals
When the pandemic started, measures were implemented to provide support to those affected. As detailed in our earlier article, mortgage payment holidays were introduced in March and extended in June to provide relief to those struggling to make repayments as well as support for a range of consumer credit borrowers discussed here. The FCA expected the guidance outlined to expire on 31 October 2020 but in light of recent developments, it has permitted firms to act in accordance with that guidance beyond this deadline.
The FCA updated its mortgages and coronavirus webpage stating that the FCA will treat a firm continuing to act in accordance with the June guidance beyond 31 October 2020 as acting consistently with Principle 6. Similarly, the COVID-19 information for firms webpage states that the regulator is content for firms to continue to act in accordance with its July guidance beyond this date. This is until further guidance is published and the FCA also reminds firms of the September additional guidance.
The FCA’s proposals in its draft guidance to further support mortgage borrowers, in summary, state that:
- Borrowers who have not yet had a payment deferral under its June guidance will be eligible for 2 payment deferrals of up to 6 months in total.
- Borrowers who currently have an initial payment deferral, will be eligible for another of up to 3 months.
- Borrowers who have resumed repayments after an initial payment deferral will be eligible for another payment deferral of up to 3 months.
- Borrowers will have until 31 January 2021 to request a payment deferral. The FCA proposes that no one will have their home repossessed without their agreement until after this date.
The FCA also notes that some borrowers would not be eligible for a payment deferral if they have already had 2 payment deferrals (of up to 6 months in total) or borrowers have agreed alternative support with their lender, and so tailored support for these borrowers may be more appropriate to their circumstances. Lenders should inform borrowers where this will be the case.
The FCA also reminds firms that they should consider what is in the customer’s best interest and provide adequate information to ensure the customer understands the implications of any support offered, to enable them to make an informed decision. Firms should also take reasonable steps to contact their customer in good time before the end of a payment deferral period about resuming payments and discussing next steps.
Consumer credit borrowers
The proposed updates to FCA temporary guidance on personal loans, credit cards, motor finance, rent to own, buy-now pay-later, pawnbroking and high-cost short-term credit include:
- Consumer credit borrowers who have not yet had a payment deferral under the July guidance can request one which can last up to 6 months, unless it is not in the customer’s interests.
- Borrowers who are currently benefiting from a first payment deferral under the July guidance can apply for a second deferral.
- For high-cost short-term credit, such as payday loans, borrowers can apply for a payment deferral of one month if they haven’t already had one.
Consumer credit borrowers who have already benefited from payment deferrals but are still experiencing payment difficulties are urged to speak to their lender to agree tailored support. If a customer is expecting to have long-term financial difficulties, then the FCA highlight it may be in the customer’s interests to agree tailored support with the lender.
Should borrowers contact their lenders?
Mortgage and consumer credit borrowers are urged not to contact their lender until the enhanced measures are in place. The FCA is working closely with trade bodies and lenders to make sure the enhanced measures come into effect promptly and that borrowers receive the information they need as well as instruction on how to apply for this support if the proposals are confirmed.
Borrowers that can afford repayments
The FCA reiterates that customers who can afford to make repayments are urged to continue to do so thus borrowers should only take support if they need it.
Article co-authored by Anna Burdzy.