FCA announces proposals to further support consumer credit customers

This extension of support for customers impacted by coronavirus echoes additional measures recently implemented in the mortgage market, with Christopher Woolard, Interim Chief Executive of the FCA stating: “The proposals we’ve announced today would provide an expected minimum level of financial support for customers who remain in, or enter, temporary financial difficulty due to coronavirus. Where customers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”

The FCA has asked for all stakeholders to respond to the draft guidance by 5pm on Monday 22 June and expects to finalise the guidance shortly after this deadline. It has emphasised that the Proposals (if implemented) will not apply to other consumer credit products, such as motor finance, high-cost-short-term credit, rent to own, pawn broking and buy-now-pay-later, which are covered by separate guidance and will be updated in due course.

The key points arising out of the Proposals are:

• As a customer reaches the end of their payment deferral, firms should contact customers to find out if they are able to resume payments. If they are, firms and the customer should agree a plan on how the missed payments can be repaid. Emphasis is placed on what is in a customer’s best interests, and if it is in their best interests to resume regular payments, they should do so.
• If a customer continues to experience financial difficulty as a result of coronavirus, they should continue to get help. This could involve firms offering further payment deferrals, reducing payments on a customer’s credit card or personal loan to an amount they can afford for three months.
• If a customer is negatively impacted by coronavirus and already has an arranged overdraft on their main personal current account, they would be permitted to request up to £500 interest-free for a further three months, with firms also providing further support in the form of lower interest rates on borrowing above the interest-free cap and repayment plans for customers who would benefit.
• Extending the deadline for making a request for a payment deferral or an arranged interest free overdraft of up to £500 by customers experiencing temporary financial difficulty due to coronavirus to 31 October 2020.
• Waiving any accrued interest in relation to a payment deferral period (in respect of personal loans and credit cards), of any length, which was granted in either of the following circumstances: <br/>Where the customer, at the end of an initial payment deferral period, was <br/>not<br/> given a further full or partial payment deferral of any length under the Proposals and was entitled to forbearance under CONC 6 (for credit cards only) or CONC 7, additional interest accrued as a result of the initial payment deferral should be waived as soon as practicable at the end of the initial payment deferral period.<br/>Where the customer was given a further full or partial payment deferral of any length under the Proposals and, at the end of that period, continues to have payment difficulties and is entitled to forbearance under CONC 6 (for credit cards only) or CONC 7, additional interest accrued as a result of both the initial and further payment deferral should be waived as soon as practicable at the end of the further deferral period.
• Any customer receiving a full or partial payment deferral under the Proposals should not have a negative effect on their credit file, although customers must be aware that firms may use other sources of information to assess creditworthiness.

In April, a temporary expectation was set by the FCA that overdraft customers should be no worse off on price when compared to prices they were charged before the recent overdraft rule changes came into force, a change which benefitted most customers. While the FCA doesn’t intend to extend the temporary measures, overdraft customers who are financially impacted by coronavirus will continue to be permitted to request a reduced interest rate on any additional borrowing over £500, and the FCA has stated that it will continue to monitor overdraft pricing.

The Proposals also reiterate that firms should be particularly aware of the needs of vulnerable customers, and consider how they engage with them. The FCA states that firms should help customers understand the types of debt help and money guidance that is available and encourage them to access those resources that could provide assistance.