The FCA's proposals for mortgages are essentially to extend the period during which the primary support measures apply, for a further four months, and to remind firms about their obligations to treat customers fairly.
The FCA summarises its proposals as follows:
- Extending the time these support measures are available – customers that have not yet had a payment holiday and are experiencing financial difficulty, as a result of Covid-19, will be able to request one until 31 October 2020.
- Customers who can afford to return to full repayment should do so – at the end of a payment holiday, firms should contact their customers to find out if they can resume payments and, if they can, agree a plan on how the missed payments will be repaid.
- Anyone who continues to need help gets help – lenders should continue to support customers who have already had a payment holiday where they need further help. Firms are expected to engage with their customers and find out what they can re-pay and, for those who remain in temporary financial difficulty, offer further support. An option firms should consider is a further three-month payment holiday.
- Keeping a roof over people’s heads – the current ban on repossessions of homes will be continued to 31 October 2020. This will ensure people are able to comply with the government's policy to self-isolate if they need to.
- Credit reference reporting – firms should not report a worsening status on the customer's credit file due to any new or continuing payment deferral period. However, consumers should remember that credit files aren't the only source of information which lenders can use to assess creditworthiness.
The FCA does not wish to close off other means of assistance, reminding firms that the Guidance would not prevent them from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.
The FCA encourages firms to signpost customers towards sources of debt advice, in particular for customers coming to the end of payment holidays and those with pre-existing payment shortfalls or those who are likely to be in longer-term financial difficulty.
The draft Guidance highlights the needs of vulnerable customers. Firms should make it easy for customers to access alternatives where they are unable to use online/digital services.
No surprise: The extension of relief for customers has been expected as restrictions on the ability to leave home and go to work continue.
How to implement?: Implementing the necessary operational changes and changes to policies, processes and documentation on an emergency basis to support customers has been an immense challenge and that challenge continues. Firms have sought to automate provision of payment holidays as much as possible through online/digital channels in order to respond to the challenge of providing assistance to customers in financial difficulty quickly. However, firms will need to work out how to balance automation of implementation with the need to offer customers outcomes that are in their best interests, which is likely to vary depending on individual circumstances. Firms must also consider the needs of vulnerable customers when implementing online/digital solutions.
Interest still runs: Customers need to understand that interest on their loans continues to accrue during payment holidays and if they wish to extend their payment holidays, they will need to understand the longer-term impact of paying more interest overall on their loans.
CRA records: Neutralising the impact of payment holidays on customers' credit histories is once again, much easier to say than to implement.
What happens at the end of a payment holiday?: The FCA reminds firms of their duty to act in the best interests of customers and say firms should distinguish between different categories of customer. Firms will have to contact customers in good time before the end of payment holidays and implement a contact strategy that is designed to obtain the information necessary to inform the appropriate options for customers going forward.
The FCA will accept comments on the proposals up to 5pm on Tuesday 26 May and say they expect to finalise the guidance shortly afterwards.
Mortgage lenders and servicers will now assess what changes will be needed for their operations, policies, processes and documentation to continue to support customers and meet the updated Guidance.
The proposals only apply to mortgages. The FCA says they will update their separate guidance for consumer credit products "in due course".
Please contact any of us if it would be helpful to discuss any of these developments.
Authored by Roger Tym, Neelam Hundai.