The guidance provides clarity on which products are within scope, with the FCA confirming that the following products are included: guarantor loans, logbook loans, home collected credit, loans issued by the Community Development Finance Institution and regulated loans issued by credit unions. The guidance also applies to firms who have purchased these loans. The guidance does not, however, apply to motor finance, high-cost short-term credit and buy now pay later agreements, although guidance impacting the motor finance sector is expected next week.
The FCA has reiterated that the guidance will not replace normal forbearance rules which would be suitable for customers in immediate and serious financial difficultly, and has advised that those consumers should contact the Money Advice Service for further guidance.
Whilst there are concerns that the guidance will encourage consumers to request payment deferrals even if they are not in immediate financial need, Christopher Woolard, the interim Chief Executive at the FCA has emphasised that they should only be utilised by those facing financial difficulties as a result of Covid-19:
“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.”
The guidance published today has amended the draft proposals published last week, with the headline changes below.
Further detail on what firms should consider when deciding whether a three month deferral is or is not in a consumer’s interests
In determining whether or not a three month payment deferral is or is not in a customer’s interests, firms should consider their need for immediate temporary support and the longer-term effects of a payment deferral, particularly their ability to repay any accrued interest once it ends, and over what period. The interest rate is also relevant. The guidance gives the example of a payment deferral not being in a customer’s interests if it gave them a greater overall debt burden when compared with other solutions (such as those involving reduced or waived interest) that could still meet their needs.
Disapplication of CONC 6.7.18R and 6.7.19R
Despite the above, the guidance does not impose an expectation on firms to make enquiries with each customer to determine the circumstances surrounding the request for a payment deferral, and whether or not it would be in their interest. CONC 6.7.18R and 6.7.19R have been disapplied to reflect this.
Customers can ask for a payment deferral at any point
The guidance allows customers to request a payment deferral at any point after the measures come into force, for a period of three months. This means that a payment deferral could go beyond the point where the three month window for requesting a payment deferral expires.
Recording payment deferrals with Credit Reference Agencies
The guidance also provides information for firms about how payment deferrals should be recorded with credit reference agencies. Under the Coronavirus Data Reporting Guidance published by credit reference agencies in accordance with the Steering Committee on Reciprocity Guidance, firms should not report a worsening arrears status on a customer’s file during the payment deferral period. If additional forbearance is required, the FCA would expect this to be reflected in the usual manner.
If a customer is unable to reach agreement with a firm on a payment deferral and misses a payment as a result of a firm’s operational difficulties which impacts their credit file, or if they have entered into a temporary payment deferral as a result of Covid-19 which results in a worsening arrears status being reported, the guidance states that the FCA expects firms to work with customers and credit reference agencies to ensure their credit files are changed to ensure no worsening arrears status is recorded during the payment deferral period. Firms will also need to ensure that no default or arrears charges are imposed in such circumstances.
Customers should be relieved of any potentially adverse consequences
If firms use indulgences or waivers to grant a payment deferral to credit card customers, the guidance states that the FCA expects firms to also give the same customers indulgences or waivers to relieve them of any potentially adverse consequences arising under the contract from non-payment during the payment deferral. The FCA gives the example of fees and charges and 0% interest deals.
The FCA does not expect firms to pursue guarantors (in relation to personal loans)
If a customer was granted a payment deferral, they would not be required to make any payments under their regulated agreement for a specified period. As a result, they would not be considered to be in arrears. The guidance (in relation to personal loans) states that as a customer would not be considered to be in arrears in these circumstances, the FCA would not expect firms to pursue relevant guarantors for payments during the deferral period, in relation to payments deferred.
What about modifying agreements?
In addition to the guidance, the FCA also published FS 20/3, containing feedback on the proposed guidance and rules (the Statement). Within the Statement, the FCA acknowledged that payment deferrals can very likely be put in place without the need for a modifying agreement, albeit it is subject to the precise terms of the variation and how it impacts the existing provisions of the agreement. Even if a firm does make an mistake in this process, the FCA would expect that a court would take account of the fact a firm was looking to treat the customer fairly (assuming this is the case) as part of its decision on granting an enforcement order (if it was necessary). If a firm does consider a modifying agreement is appropriate, the FCA states that it should ensure that the process is streamlined to ensure a seamless customer journey.
The relevant rule changes are in force from today, with the full range of guidance applying from Tuesday 14 April 2020. The FCA appear to be of the view that this will give firms enough time to ensure they have the appropriate level of resources available to handle customer requests, and go onto state: “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”.
The press release accompanying the guidance appears to acknowledge that firms are already experiencing a high number of consumer calls, encouraging them to check firm’s websites and social media posts before contacting them via telephone, particularly over the Easter bank holiday. Where consumers do need to get in touch via telephone, the FCA has stated that they should try to wait until after Easter, even if their lender is offering help sooner than 14 April 2020. While this may go some way to assist in mitigating the number of queries posed by customers in the immediate term, firms will need to ensure that their communications are unequivocal in their messaging to make sure that customers are aware of the circumstances in which so called ‘payment holidays’ are available and whether or not it would be in their interest to benefit.