Background
The FCA has sought to assist customers using consumer credit products since the beginning of the coronavirus pandemic. On 9 April 2020, the FCA confirmed a package of targeted temporary measures to help borrowers with some of the most commonly used consumer credit products. Our article on this package of measures can be found here. Further proposals to support consumer credit customers were announced by the FCA on 19 June 2020; these proposals built upon the temporary financial relief already offered to consumer credit customers impacted by coronavirus in April. Please click here to view the CMS article on these proposals.
The Guidance announced by the FCA on 1 July 2020 marks the latest, and most long-term, set of steps taken by the regulator to assist consumers negatively impacted by the coronavirus pandemic. The Guidance came into force on 3 July 2020. It applies only to personal loans, overdrafts and credit cards (including other retail revolving credit, such as store cards and catalogue credit).
Interim Chief Executive of the FCA, Christopher Woolard, has set out the general position adopted by the regulator: ‘Since the coronavirus crisis began, we have made support available for those borrowers financially affected by the pandemic. For those who are now in a position to restart payments, it will be in their best interests to do so. But for those who still need it, the package we are confirming today ensures there is help and further support’.
Key Developments
The measures set out by the FCA in this most recent Guidance are principally concerned with providing options to customers who are continuing to feel the impact of coronavirus; notably, those who are coming to the end of a payment freeze and who have previously arranged an interest-free overdraft of up to £500. Of particular note – and a sign that the FCA recognises the longer-term impact of coronavirus - is the fact that customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, will be able to do so until 31 October 2020.
The FCA Guidance confirms the following:
- If customers can afford to return to regular repayment, or make partial payments, it is in their best interests to do so.
- Firms should contact customers coming to the end of a first payment freeze to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid.
- For customers still facing temporary payment difficulties as a result of coronavirus, firms will provide them with support, which could include freezing or reducing payments on their credit card and personal loans to a level they can afford for 3 months.
- Customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account can request up to £500 interest-free for a further 3 months. Firms will also provide these customers with further support where it is needed including reducing the cost of borrowing above the interest-free buffer, especially if this cost of borrowing would otherwise increase.
- Customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to coronavirus, would be able to request one up until 31 October 2020.
- Any payment freezes or partial payment freezes offered under this Guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.
Overdraft pricing and interest
In addition to the above, the FCA has confirmed that it will not extend the temporary general expectation in relation to overdraft costs. As a reminder, in April, the FCA temporarily required firms to make sure overdraft customers were not worse off on price compared to charges levied before the recent overdraft rule changes came into force.
Firms will once again be able to set their own prices, but overdraft customers who are financially impacted by coronavirus will still be able to request support on any additional borrowing in excess of £500. The FCA is clear that firms considering an increase to overdraft charges from the temporary level should give customers impacted by coronavirus sufficient opportunity to seek extra support before any changes take effect.
Next Steps
This Guidance came into force on 3 July 2020. As mentioned above, the Guidance only applies to personal loans, overdrafts and credit cards (including other retail revolving credit, such as store cards and catalogue credit). The Guidance does not apply to other consumer products, including motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later. The FCA will provide updated guidance for these products shortly.
The FCA has made clear, that when implementing this Guidance, firms should pay attention to the needs of their vulnerable customers and the most appropriate ways of engaging with them.
The FCA will continue to monitor overdraft pricing.
Co-authored by Oliver Bridal
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