COVID-19: FCA consults on extended support for consumer credit customers

The FCA has published proposals to enhance support to users of consumer credit products who face payment difficulties due to COVID-19. The proposals take the form of updates to its July 2020 updated temporary guidance and its September 2020 additional guidance, together with some CONC 6 and 7 rule disapplications to allow for application of the proposed updated guidance. Support under the guidance for credit cards, personal loans, RTO, BNPL, pawnbroking, motor finance and HCSTC products is being extended to 31 January 2021, although some provisions will remain in force beyond 31 January 2021 for customers granted payment deferrals which come to an end after that time. The September 2020 additional guidance on overdrafts is not included in this latest update as the FCA thinks the current version provides the necessary support to help consumers (for now at least).

The FCA has published six sets of draft updated guidance. There is also a draft COVID-19 Consumer Credit Instrument 2020, which sets out amendments to CONC 6 and 7 to allow for firms’ application of the proposed updated guidance.

For more on the FCA’s current updated and additional 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) and here (September 2020 additional guidance). In the draft updated guidance, the FCA refers to the July guidance (including as updated under this latest amendment round) as its Credit Payment Deferral Guidance. The September ‘Consumer credit and Coronavirus: Additional Guidance for firms’ (as updated) is referred to as its Tailored Support Guidance.

Tailored Support Guidance: key proposed changes

Scope

  • There are amendments to make it clear that the guidance is relevant to firms dealing with customers who need more tailored short or long-term support as a result of COVID-19. This includes where they have exhausted the support available under the Credit Payment Deferral Guidance and where they are experiencing payment difficulties once payment deferrals are no longer available under that guidance.
  • Specifically, there is clarification that the guidance supplements the Credit Payment Deferral Guidance and sets out the FCA’s expectations of firms when dealing with customers who:
    • have been granted 2 payment deferrals under the Credit Payment Deferral Guidance and remain in payment difficulties;
    • have been granted an initial payment deferral under the Credit Payment Deferral Guidance, were not granted a further payment deferral under that guidance, and remain in payment difficulties; or
    • experience payment difficulties as a result of circumstances relating to coronavirus after 31 January 2021, whether or not they have been granted a payment deferral or other support under the Credit Payment Deferral Guidance, unless they are granted a further payment deferral under that guidance.

CONC 7 and the end of a payment deferral

  • Within the guidance on when CONC 7 applies to customers at the end of a payment deferral, the requirement on firms to treat customers fairly in considering whether and when to take steps to default or terminate an agreement has been amended to remove:
    • the specific reference to repossession of goods or vehicles. This appears to tie in with the amended guidance on repossession that refers to this step as a ‘last resort’ (see below); and
    • the exception for cases where the customer is unreasonably refusing to engage with the firm. This again apparently reflects an increased requirement on firms to help the customer whatever the circumstances.
  • Also within that guidance, the requirement for firms not to start repossession action until ‘all forbearance options have been actively considered and evidenced’ has been amended. It now states that such action should not be started ‘unless all other reasonable attempts to resolve the position have failed’. Again, this appears to place a heavier onus on firms to do more to help before resorting to repossession.

CRA reporting

  • The expectation on firms, in relation to all customers, to report any further forms of support, whether or not it follows after a payment deferral, to credit files in the usual way is now subject to an exception for the situation where such reporting would be inconsistent with the Credit Payment Deferral Guidance.

Repossessions – motor finance and RTO

  • There is revised guidance on the treatment of customers under regulated motor finance agreements or RTO agreements who experience payment difficulties, including where they are receiving support under the Credit Payment Deferral Guidance. As a result, the guidance on repossessions in the Credit Payment Deferral Guidance for motor finance and RTO has been removed.
  • The proposed amended guidance emphasises that:
    • while there is no ‘one-size-fits-all’ approach to how long firms should offer forbearance before commencing proceedings, action to seek possession should be a last resort and should not be started unless all other reasonable attempts to resolve the position have failed; and
    • the need for fair and appropriate treatment of vulnerable customers, including as a result of circumstances related to COVID-19, should be borne in mind by firms in the context of commencing or pursuing repossession.

In a speech on the FCA’s priorities for the credit market on 3 November 2020, Jonathan Davidson, FCA Executive Director of Supervision (Retail and Authorisations), acknowledged that meeting the challenges of vulnerability is one of the particular issues faced by firms in following the FCA’s credit guidance.

Credit Payment Deferral Guidance: key proposed changes

Support under this guidance is being extended to 31 January 2021, although some provisions will remain in force beyond 31 January 2021 for customers granted payment deferrals which come to an end after that time.

Treatment of customers whose initial payment deferral expires between 30 October 2020 and entry into force of the updated guidance

  • Where a customer’s initial payment deferral expired in the period between 30 October 2020 and the date before this updated guidance came into force and the customer continued to face payment difficulties due to COVID-19, firms should review whether the outcome the customer will receive under the Tailored Support Guidance is equivalent to, or more favourable than that which the customer would likely have received under this guidance in its updated form. If it is not, the firm should make reasonable efforts to contact the customer and give them an opportunity to take up any further help under this guidance.
  • Where a firm provides a further payment deferral in these circumstances, it should work with the customer and CRAs to make sure that any necessary rectifications are made to credit files to ensure no worsening status is recorded in respect of the period after the end of the initial payment deferral and before the further payment deferral is in place.

More on debt help and money guidance

  • There is enhanced guidance on helping customers to understand what types of debt help or money guidance are available. This includes setting out how firms should try to make debt referrals as effective as possible, eg considering whether the customer would benefit from a specialist source of debt advice such as making a self-employed customer aware of business debt advice providers and the debt advice referral strategies in the Money Advice Service Strategic toolkit for creditors

Removal of repossessions guidance for motor finance and RTO

  • As mentioned above, the Credit Payment Deferral Guidance for motor finance and RTO has been amended to remove the guidance on repossessions which is now set out, in a revised form, in the Tailored Support Guidance.

What about overdrafts?

In its press release on the draft updated consumer credit guidance, the FCA confirms that its 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 deadline for comments on the draft guidance was 10am on Friday 6 November 2020.

The FCA specifically requested feedback on:

  • The scope of the proposals and its proposal not to enable consumers who have already benefitted from an initial payment deferral to be able to benefit from a further payment deferral if they have been able to resume payments since their initial payment deferral came to an end. Instead, the FCA is proposing that they would benefit from the Tailored Support Guidance should they face COVID-19 related payment difficulties.
  • The approach to repossessions in relation to motor finance and RTO which is now set out in the updated Tailored Support Guidance.
  • The intention to maintain the tailored support set out in the additional guidance on overdrafts published on 30 September 2020.
  • The intention to maintain its approach to premium finance so that consumers can continue to benefit from the tailored support provided for in the additional guidance published on 30 October 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: Virginia Montgomery.

 

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