What has happened to date?
In its initial response to the pandemic earlier this year, the FCA published guidance on consumer credit and coronavirus in April 2020 providing immediate and temporary support for consumer credit customers by introducing a 3 month payment deferral to those unable to make payments. As the situation evolved, it was updated in July 2020 to permit customers still struggling to take a second payment deferral of up to 3 months.
The FCA further published additional guidance in September setting out the tailored support firms should provide to those who have had deferrals but remain in financial difficulty, as well as those newly affected once the July guidance expired at the end of October. After the second English lockdown was announced on 31 October 2020, the FCA published proposals to further support consumer credit customers discussed in an earlier article.
The current Payment Deferral Guidance for consumer credit customers consist of five documents: personal loans, credit cards (including retail revolving credit), motor finance, high-cost short-term credit agreements and rent-to-own, buy-now pay-later and pawnbroking agreements.
The FCA also published the Covid-19 Consumer Credit Instrument 2020 (FCA 2020/68) which disapplies some rules in the Consumer Credit sourcebook (CONC).
Who can apply for a payment deferral?
The FCA states that customers who can keep up with payments on their loans or credit products should continue making payments. Payment deferrals should only be arranged where absolutely necessary. The FCA’s updated guidance clarifies who can access payment deferrals:
- Customers who have not yet had a payment deferral are eligible for payment deferrals of up to 6 months.
- Customers who currently have a payment deferral, or previously have had a deferral of less than 6 months, can apply for further deferral. The total length of deferrals cannot exceed a maximum of 6 months in total.
- Customers who have already had 6 months of payment deferrals or who are in arrears or receiving tailored support, will not be eligible for further payment deferral.
- High-cost short-term credit customers, such as those with payday loans, will be eligible for a payment deferral of 1 month.
Customers have until 31 March 2021 to apply for an initial or further payment deferral. After this date, they will be able to extend existing deferrals to 31 July 2021 provided these extensions cover consecutive payments, and subject to the maximum 6 months allowed.
The FCA encourages customers who have not yet deferred payments but expect they will, and might require the maximum 6 months, to apply in good time before their February 2021 payment is due.
The Credit Payment Deferral Guidance remains in force until 31 July 2021. Guidance relating to high-cost short-term credit consumers expires on 31 March 2021. All guidance will remain in force as necessary to allow firms to deal with customers under the relevant parts of that guidance after the respective dates.
A payment deferral should only be made if it is in a customer’s best interests. If a firm deems a deferral not to be, a firm should instead provide tailored support appropriate to the customer’s circumstances with Sheldon Mills, interim Executive Director of Strategy and Competition at the FCA, stating that tailored support ‘remains the most appropriate option for many borrowers’.
The Tailored Support Guidance is an updated version of the September 2020 guidance and supplements the Payment Deferral Guidance. Firms should first offer consumers support they are entitled to under the Payment Deferral Guidance, before providing support under the Tailored Support Guidance. It remains in force until varied or revoked.
The FCA emphasises that firms should have regard to their customer’s best interests and treat them fairly. Customers are required to be treated with forbearance and due consideration, and should be given sustainable arrangements, taking into account their other debts and essential living costs. They are not to be pressurised into repaying their debt within an unreasonable timeframe. Firms should recognise vulnerability and respond to the particular needs of vulnerable customers as well as having clear, effective and appropriate policies and procedures for dealing with customers in payment difficulties.
Consumers facing difficulties with the cost of their overdrafts as a result of the ongoing pandemic will be able to request support that reflects their individual circumstances. This could include reducing or waiving interest or further payment deferrals, but these would not be subject to the Payment Deferral Guidance. Deferrals provided in this way should thus be reported to credit files.
As detailed in Schedule 6 of the Tailored Support Guidance, a firm should not, unless in exceptional circumstances, terminate a regulated agreement or repossess goods or vehicles before 31 January 2021. Exceptional circumstances include:
- Where the customer wishes to continue with repossession.
- Where the customer has parted with possession of the goods or vehicles.
- Where the customer voluntarily wishes to terminate the credit agreement and surrender the goods or vehicle.
Firms may commence, or re-commence and continue, proceedings where a court order is required to recover possession of the goods or vehicles as long as they act in accordance with this guidance and other regulatory and legislative requirements. Firms should remain mindful of the need for fair and appropriate treatment of customers.
Will a customer’s credit file be affected?
The FCA confirmed that payment deferrals made under the Payment Deferral Guidance would not be reported as missed payments on a consumer’s credit file. However, lenders may take this information into account in future lending decisions.
Tailored support may be reported on a customer’s credit file and lenders should inform them where this will be the case.
In its Feedback Statement (FS20/18) the FCA acknowledged that most respondents supported its proposals. The FCA explained that in publishing its final guidance, it had made several changes including amendments to clarify:
- The relationship between the Credit Payment Deferral Guidance and the Credit Tailored Support Guidance and when firms should follow each.
- The scope and application of the Credit Payment Deferral Guidance and Credit Tailored Support Guidance.
- When firms should offer payment deferrals, including to those customers who have already taken payment deferrals under the FCA's previous guidance and those who are experiencing payment difficulties as a result of coronavirus and need support for the first time.
- The FCA's expectations of firms in relation to repossessions activity in respect of customers who experience payment difficulties as a result of the pandemic.
While it remains to be seen how long the crisis will continue, it is clear that the FCA is keen to ensure consumer credit customers affected by coronavirus continue to receive the support that they need. This is echoed by the FCA, confirming that it will continue to keep the support available to consumers under review. However, given the breadth of support, it is clear that firms providing credit to those utilising such measures will come under increasing pressure as the crisis deepens further.
Article co-authored by Anna Burdzy.