The FCA confirmed further measures to ensure that consumer credit firms provide support to users of consumer credit products who continue to face payment difficulties due to Covid-19.
The FCA’s ‘Consumer credit and Coronavirus: Additional Guidance for Firms’ applies to running-account credit providers (e.g. credit card and retail revolving credit providers), personal loan providers, motor finance providers, rent-to-own providers and pawnbrokers and supplements the temporary guidance issued in July which subsists until 31st October 2020.
The Additional Guidance came into force on 2nd October 2020 and provides a framework for firms to provide support to customers whose financial circumstances are affected by Covid-19 after 31st October 2020.
Customers who continue to experience payment difficulties at the end of the payment deferral period (31st October 2020)
The July guidance set out that firms should take reasonable steps to contact their customers in good time before the end of a payment deferral period about resuming payments and to engage with them about their options when it expires.
If the customer is able to resume full payments, the firm should allow the customer to repay the deferred amounts over the remaining term or give the customer a longer period of time for repayment. When a customer experiences, or is reasonably expecting to experience, payment difficulties as a result of circumstances arising out of Covid-19 contacts the firm post-31st October 2020, the FCA expects the firm to offer the customer appropriate forbearance options which includes giving consideration to the forbearance tools in CONC 7.3.5G (e.g. suspending, reducing, waiving or cancelling any further interest or charges).
The Additional Guidance requires firms to communicate to customers in writing, as part of their engagement with the customer prior to the end of the payment deferral, setting out:
when they receive future communications (including statutory notices) concerning any arrears on their account, these will, where relevant, include the deferred amounts; and
no worsening status has been reported to their credit file in respect of the deferred amounts or the payment deferral period(s).
The key consideration advanced by the FCA in the Additional Guidance is that firms should not take a ‘one size fits all’ approach to the provision of forbearance but should rather seek to understand the individual circumstances of customers and offer forbearance that is suitable to the customer’s circumstances. For example, it would be expected that a firm offers a customer short-term arrangements where the customer’s circumstances are uncertain and therefore they cannot commit to a longer-term arrangement.
The FCA note that a credible alternative to providing forbearance is to ensure that where the customer is not able to resume the level of contractual payments provided for under their existing agreement that the agreement can be replaced, varied or supplemented. Where a firm replaces, varies or supplements the agreement, it is reminded that CONC 5.2A requires that the firm does not enter into a new regulated credit agreement without carrying out an appropriate creditworthiness assessment and taking that properly into account. In addition, firms are reminded of CONC 6 which sets out (1) that a firm must not encourage a customer to refinance a regulated credit agreement if the result would be that the customer’s commitments are not sustainable or (2) refinance the customer’s existing credit with the firm unless it does so at the customer’s request or with the customer’s consent and the firm reasonably believes that it is not against the customer’s best interests to do so.
The Additional Guidance sets out that firms should provide customers with sufficient information in writing about the refinancing option and other alternative options available to the customer to enable the customer to enable the customer to assess the information and make an informed decision.
The Additional Guidance highlights that firms should only agree repayment plans that are sustainable (i.e. that do not adversely affect the ability of the customer to meet their essential living expenses and priority debts). The FCA states that where a customer has multiple non-priority debts, it expects a sustainable repayment plan to be no more than the firm’s proportionate share, vis-à-vis other non-priority debts, of the customer’s disposable income. The FCA expects a firm’s offer of a repayment plan to be informed by an objective income and expenditure assessment. The FCA expects firms to monitor the ongoing sustainability of repayment plans, for example, based on information the firm holds or missed payments.
Where a customer, without prompting or pressure from the firm, makes a proposal to the firm, the firm may put this in place without undertaking an income and expenditure assessment. However, in such circumstances, the FCA expects firms to make it clear to customers that the customer can request a review of this arrangement at any time and the firm should contact the customer after 60 days of the arrangement being in place (1) to confirm whether they require further support or (2) to conduct a review of the sustainability of their arrangement.
Where a customer has credit secured on a good or has a good subject to a hire purchase or conditional sale agreement, the firm should ask the customer whether the good is a necessity to determine if the debt is priority or non-priority. Where a customer regards a good as a necessity, firms should only treat arrears relating to that good as a non-priority debt where the firm can objectively demonstrate that the good is not a necessity for the customer.
The Additional Guidance sets out that the FCA expects firms to resume normal CRA reporting once all of a customer’s payment deferral periods have come to an end under the July guidance. The FCA makes it clear that it would not expect firms to report a mechanism to repay deferred amounts under the temporary forbearance guidance as ‘an arrangement’ where, at the end of the payment deferral period, the customer can resume, at least, the level of contractual payments. For all other customers, the FCA expects firms to report any further forms of support, whether or not it follows after a payment deferral, to credit files in the usual way.
Quality Assurance Methodology
The Additional Guidance sets out that firms should adopt a quality assurance approach that reviews the end-to-end process, rather than focusing on individual interactions in isolation. This will enable firms to better evaluate the fairness of customer outcomes overall and conduct robust root cause analysis.
The Additional Guidance encourages firms to take into account the communication preferences expressed by, or known needs of, customers. For example, where firms use digital communication channels to communicate with customers experiencing payment difficulties, the FCA expects provision to be made for customers (e.g. particularly vulnerable customers) to communicate with the firm through alternative non-digital channels.
It is recommended that firms ensure that its written arrears and forbearance policies (or the equivalent) specifically set out the firm’s processes to handle accounts that remain in arrears at the end of the payment deferral period (paragraph 3.8 of the Additional Guidance). Where a firm refinances agreements as a forbearance strategy, it is recommended that it sets out in its arrears and forbearance policy (or the equivalent) how it will identify the circumstances where refinance may be against the customer’s best interest.
It is recommended that firms ensure that it sets out in its arrears and forbearance policy (or the equivalent) details of the income and expenditure assessment that will be carried out to inform the offer of a repayment plan. Firms can include in its written policies details of any tools which it leverages to ensure that the income and expenditure is objective (e.g. the spending guidelines in the Standard Financial Standard).