Consumer finance regulatory news, 8 March 2021

FIG Bulletin

Recent regulatory developments of interest to financial institutions with focus on consumer finance. This edition reports on FCA PS21/2 on the Breathing Space Regulations. See also our Related Materials links for updates with broader application.


Breathing Space Regulations: FCA PS21/2

Following its consultation in CP20/21, the UK Financial Conduct Authority (FCA) has published a policy statement, PS21/2, on changes to its Handbook in li

ght of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (Breathing Space Regulations), which come into force on 4 May 2021.

The Breathing Space Regulations establish a scheme in England and Wales giving someone in problem debt the right to legal protections from creditor action for a defined period while they receive debt advice and potentially enter an appropriate debt solution.

A consumer can access a 60-day moratorium after being advised and assessed as eligible by an FCA-authorised debt advice firm or a local authority. There is an alternative mechanism which a consumer receiving mental health crisis treatment may access after being certified by an Approved Mental Health Professional and confirmed as eligible by a debt adviser (the "mental health crisis moratorium"). There is no 60-day limit to a mental health crisis moratorium period, which will usually end 30 days after the mental health crisis treatment has concluded.

The Breathing Space Regulations impose obligations on debt advice firms to assess applications for, and to initiate, the moratorium, and on consumer credit lenders, mortgage lenders and other regulated firms, to comply with the restrictions and obligations imposed by the moratorium in respect of collecting and enforcing debts and applying interest and other charges.

The FCA is making the changes it proposed in CP20/21 to its Consumer Credit sourcebook (CONC). These changes clarify how the FCA's rules apply where the Breathing Space Regulations also apply, and to avoid duplicating the effects of the Regulations in a disproportionate way. The FCA also confirms that, as proposed in its consultation, the FCA is not making changes to rules or guidance in the Mortgages and Home Finance Conduct of Business sourcebook (MCOB) or in CONC 8 (debt advice).

The final rules come into force on 4 May 2021.

The FCA notes that it does not have powers under the Breathing Space Regulations to supervise or to enforce compliance. However, systematic non-compliance with the Breathing Space Regulations is likely to be of concern to the FCA as it may call into question whether a firm is meeting the specific rules in the FCA Handbook, the suitability requirements in the Threshold Conditions or breaching one of the Principles for Businesses, such as Principle 6 (treating customers fairly).

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Authored by Yvonne Clapham


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