The Financial Conduct Authority (FCA) has announced proposals to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties due to coronavirus (Covid-19).
The proposals will cover users of credit cards and other revolving credit (store card and catalogue credit), personal loans, overdrafts, motor finance, buy-now pay-later (BNPL), rent-to-own (RTO), pawnbroking and high-cost short-term credit (HCSTC) products.
During the initial phase of the pandemic, payment deferrals provided consumer credit borrowers with immediate and temporary support. They have helped millions of consumers through the immediate impacts of the current emergency and helped firms provide support at unprecedented scale.
Many customers who have had a payment deferral are expected to resume full repayment. However, some will remain in financial difficulty.
The draft guidance published today applies both to consumers who have benefitted from payment deferrals and support with the cost of their overdrafts under the current guidance who continue to face financial difficulties, as well as those whose financial situation may be newly affected by coronavirus after the current guidance ends. It will ensure they get the support they need in these extraordinary times.
The FCA expects the current guidance will expire on 31 October 2020, but will keep this under review depending on how the wider situation develops.
Christopher Woolard, Interim Chief Executive at the FCA, said: “Our proposals are designed to help people who have been facing payment difficulties because of the pandemic get back on track with tailored support from firms. For those who can restart payments, it is in their best interests to do so.”
If these measures are confirmed, the FCA would expect that firms:
- Recognise the uncertainties and challenges that many customers will face in the coming months, and provide tailored support which reflects their individual circumstances.
- Work with customers approaching the end of a payment deferral to provide support before they miss payments.
- Be flexible and employ a full range of shorter and longer-term options to support their customers to minimise stress and anxiety experienced by customers in financial difficulty.
- Put in place sustainable repayment arrangements which are affordable and take account of their customers wider financial situation including their other debts and essential living expenses.
- Give customers time and opportunity to repay and do not pressurise them into repaying their debt within an unreasonably short period of time.
- Prevent customers’ balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen.
- Recognise and respond to the needs of vulnerable customers.
The FCA will monitor firms to ensure borrowers are treated fairly having regard to their individual circumstances. Customers should be given time to consider their options and to seek debt advice (if necessary) before deciding on the support they take.
Additionally, the FCA is proposing that firms contact overdraft customers who have received temporary support to determine if they still require assistance. Where a customer needs further support, firms should use measures such as reducing or waiving interest, agreeing a programme of staged reductions in the overdraft limit, or supporting customers to reduce their overdraft usage by transferring the debt. The guidance sets out when these options may be appropriate.
Where consumers require further support from firms, either at the end of payment deferrals under the guidance, or where they need support for the first time, this will be reflected on credit files in accordance with normal reporting processes. This will help lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending. The FCA expects firms should be clear about the credit file implications of any forms of support offered to consumers.
Stakeholders can make comments on this draft guidance by 10am on 21 September 2020.
Notes to editors
- Read our guidance consultation on consumer credit and coronavirus: Additional Guidance for Firms.
- Read our guidance consultation on overdrafts and coronavirus: Additional Guidance for Firms.
- For customers whose payment deferrals come to an end after 31 October 2020, the current guidance will continue to apply.
- Find out more information about the FCA.