The FCA has published six sets of finalised guidance, and a COVID-19 Consumer Credit Instrument 2020 (FCA 2020/68), which sets out amendments to CONC 6 and 7 to allow for firms’ application of the updated guidance.
For more on the FCA’s COVID-19 guidance on consumer credit products, take a look at our previous articles here, here (July 2020 updated guidance on credit cards, personal loans, RTO, BNPL, pawnbroking, motor finance and HCSTC), here (September 2020 additional guidance) and here (November 2020 draft guidance).
In the final updated guidance, the FCA refers to the July guidance (including as updated under this latest amendment round) as its Payment Deferral Guidance. The September ‘Consumer credit and Coronavirus: Additional Guidance for firms’ (as updated) is referred to as its Tailored Support Guidance.
Payment Deferral Guidance: key changes in final versions
With the exception of the regime for High-Cost Short-Term Credit (see below), the approach to payment deferrals outlined in each of the draft sets of guidance has been further amended to reflect increased flexibility of the deferral regime.
- Support is being extended to 31 July 2021.
- Eligible customers impacted by coronavirus should be able to benefit from payment deferrals of up to 6 monthly payments in total, provided in tranches with a maximum of three months' payments in a single payment deferral period.
- Firms should not provide deferrals for payments extending beyond 31 July 2021.
- Eligible customers seeking a first payment deferral, and those customers who have not yet taken 6 months’ worth of deferrals, can seek a new payment deferral up to 31 March 2021. After this date, deferrals can only be offered if they cover consecutive payments and a customer is eligible for a further payment deferral. (i.e. a customer can only get a further deferral for after 31 March 2021 if the deferral extends one they are already benefitting from and they remain eligible).
Where a customer indicates that they may be experiencing, or they reasonably expect to experience, payment difficulties as a result of circumstances relating to coronavirus, a firm should first offer any support the customer is eligible for under this guidance (an initial or follow up deferral) before providing support under the Tailored Support Guidance.
Where the firm determines (acting reasonably) that any deferral sought by the customer is obviously not in the customer's interests, the firm can grant a payment deferral of a different amount to what the customer indicated they can afford, or a deferral of less than 3 monthly payments (or less than the maximum permitted). If neither option is appropriate, the firm can treat the customer in accordance with the Tailored Support Guidance.
A firm should treat a customer who fails to respond to further communications after missing their first payment after a payment deferral period in accordance with the Tailored Support Guidance.
Credit card payment deferrals and persistent debt requirements
Given the increased flexibility provided in firms being able to provide up to 6 months of deferral in a variety of combinations (i.e. not just 2 tranches of 3 months), the guidance for credit cards has been amended to address scenarios where payment deferrals are not consecutive and the persistent debt rules apply in the intervening period.
If a firm has issued a persistent debt communication after a payment deferral and subsequently a further deferral is arranged, the firm should consider what further information it can provide to reduce possible customer confusion (e.g. explaining how the payment deferral regime and the persistent debt rules interact).
RTO, BNPL and pawnbroking payment deferrals
As before, the guidance provides that the firm should implement deferrals for RTO and pawnbroking arrangements by extending the redemption or promotional period (respectively). The finalised guidance has been expanded to provide that where a firm considers whether the customer should be given a further payment deferral, this should happen before the end of the current payment deferral rather than before the end of the redemption or promotional period.
As a result, if a deferral is required after 31 March 2021, it can only be provided if the customer will still be within the redemption or promotional period during that further deferral.
High-Cost Short-Term credit (HCSTC)
The guidance for HCSTC will expire on 31 March 2021.
Customers are therefore able to request a single payment deferral of 1 month at any point up to 31 March 2021. Customers who have already had the benefit of such a deferral should be treated in accordance with the Tailored Support Guidance.
Tailored Support Guidance: key changes in final version
Scope
Broadly speaking, the approach set out in the draft Tailored Support Guidance remains the same:
- The guidance is relevant to firms dealing with customers who need more tailored short or long-term support as a result of COVID-19 who are not receiving payment deferrals under the Payment Deferral Guidance. This includes where they have exhausted the support available under the Payment Deferral Guidance and where they are experiencing payment difficulties once payment deferrals are no longer available under that guidance.
- The FCA has further clarified that the guidance supplements the Payment Deferral Guidance and sets out the FCA’s expectations of firms when dealing with customers who:
- were previously in financial difficulties unrelated to coronavirus, but subsequently experience difficulties due to circumstances arising out of coronavirus;
- have been granted the maximum number of payment deferrals under the Payment Deferral Guidance and remain in payment difficulties;
- for whom a payment deferral was not considered to be in their best interests; or
- experience payment difficulties as a result of circumstances relating to coronavirus after 31 July 2021.
Repossessions – hire purchase, conditional sale and consumer hire motor finance
As before, the finalised guidance emphasises that action to seek possession should be a last resort, and can only occur after 31 January 2021 where the customer’s payment difficulties arise from circumstances relating to coronavirus. The process should not be started unless all other reasonable attempts to resolve the position have failed and the guidance highlights the need for fair and appropriate treatment of vulnerable customers in the context of commencing or pursuing repossession.
The guidance has been expanded to provide further examples of the exceptional circumstances in which termination of an agreement before 31 January 2021 or repossession is permitted to include:
- where the customer has parted with possession of the goods or vehicle, such as where they have been abandoned; or
- where the customer wishes to voluntarily terminate the credit agreement and surrender the goods or vehicle.
What about overdrafts?
The September 2020 additional guidance on overdrafts still stands, so firms will continue to offer tailored support to overdraft customers under that guidance. Likewise for its October 2020 additional guidance for insurance and premium finance firms. However, as with its other guidance it will keep this support under review.
Next steps
The guidance came into effect on 25 November 2020.
In his 3 November speech, Jonathan Davidson stated that over the coming months the FCA is dedicating ‘significant resources’ in its supervision to look at how firms have adapted to the challenges in the current environment and the outcomes consumers receive. This work will include looking at ‘how well firms have planned, resourced and trained their staff’ to make sure that customers get appropriate support and forbearance when needed. While the FCA is ‘not looking to catch out firms on minor mistakes’, if it does see ‘significant issues’, it will intervene.
Please contact any of us if it would help to discuss any of the above points in more detail or if you’d like help with your implementation strategy.
Authored by Charles Elliott and Neelam Hundal
