Content

What’s the issue?

The COVID-19 pandemic has brought a multitude of challenges to individuals and organisations across the country as it has unfolded. One thing that has remained constant throughout this period is the importance that financial services firms continue to treat their customers fairly, with particular consideration given to those customers considered vulnerable.

As Government support packages are gradually wound down over the coming months, there is a real risk that more consumers will require support from financial services firms. Consequently, the Financial Conduct Authority (FCA) has published extended guidance for lending businesses between June and July to ensure that its expectations regarding fair customer treatment remain clear.

It is possible that this guidance may evolve further over the coming months and we will provide further updates to this webpage should this be the case.

What has the regulator said?

The FCA has published various guidance for lending businesses, initially in April 2020, but this was updated in May, June and July. The key points are summarised below:

Mortgage lenders Consumer credit lenders Arranged overdrafts
  • Payment holidays: can be applied for by customers for an initial period of three months until October 31,  2020 where they are experiencing financial difficulty.
  • Further payment holidays: can be applied for until October 31 after an initial payment holiday period has come to an end. Lenders can grant one for a further three months (i.e. up to six months in total). Reduced monthly payments can also be agreed where customers can afford to make partial repayments after an initial payment holiday.
  • Halting repossessions: extending the temporary ban on property repossession until October 31, 2020 regardless of whether or not a possession order has been obtained.

Note: during any period of forbearance outlined above, interest can still be charged.
  • Three month payment freeze: can be applied for by customers until October 31, 2020 for most loans (see table below). Customers can apply for a further payment freeze of up to three months after the initial period comes to an end.
  • One month payment and interest freeze: can be applied for by customers with a high-cost short-term credit product up to October 31, 2020. Lenders are only required to grant a payment and interest freeze on such loans once during this period, but can elect to extend this if they deem this appropriate.
  • Motor finance halt on repossessions: of vehicles until October 31, 2020 unless a customer consents to repossession and it can be performed safely.
  • Rent-to-own halt on repossessions: if customers require the goods concerned during the period up to October 31, 2020. No charges can apply as a result of the unavoidable extension of agreements.
  • Interest free overdrafts: can be arranged up to £500 for an initial three-month period where requested by customers in financial difficulty until October 31, 2020.
  • Further extensions: to the initial three-month interest free overdraft period up to £500 can be requested where customers are continuing the experience financial difficulty.
  • Additional support: may be available above the £500 interest free overdraft limit set by the guidance (e.g. a higher limit for interest free periods), but consumers should contact firms to discuss their circumstances.
 
     

This guidance came into effect in June for mortgage lenders and July for consumer credit lenders. The FCA will continue to keep this guidance under review.

What are the issues in play?

Key overall considerations

  • Governance meetings: ensure that retail customer outcomes are monitored for the impacts of COVID-19 and fed through in management information and reporting.
  • Regularly review response plans: to incorporate customer feedback, evolving customer circumstances and wider factors such as the scaling back of Government support schemes from August 2020.
  • Evidence key decisions: that have an impact on customer outcomes including supporting rationale (an important consideration in respect of demonstrating “reasonable steps”).
  • Communicate clearly: and be consistent and joined-up with public and customer communications.
  • Communicate regularly: so customers are kept up to date as the situation evolves (helps to manage expectations).
  • Be clear on the implications of forbearance: for example, if a payment holiday is agreed, interest will likely still be charged (in most cases) and when payments resume they may be higher than they were previously.
  • Cash flow/capital position: in the context of forbearance; model and assess impacts.

Mortgage-specific considerations

  • Consider the longer term implications of halting repossessions: whilst this may be considered fair and appropriate during the period of the guidance, there may be longer term fairness impacts if customers cannot viably repay their debts. Consider whether this could result in any potential or actual detriment.
  • Customers can voluntarily continue with repossession: where they feel it is in their best interests and appropriate alternative accommodation has been sourced.

Consumer credit and overdraft-specific considerations

  • Consider Consumer Credit Act implications: as forbearance may require lenders to enter into a modifying agreement and trigger affordability assessments required under the Consumer Credit Sourcebook (CONC). The FCA has stated any affordability assessment should be proportionate in this regard.
  • Reconsider overdraft charging structures in the round: to ensure that they are consistent with the obligation to treat customers fairly in light of the exceptional circumstances arriving from COVID-19.

Forbearance measures at a glance: A summary of the regulator’s announcements to-date

We have summarised the key forbearance guidance issued by the regulator across key lending products to date.

Product area
 In scope of guidance
(as at July 15, 2020)		 Notes (the below applies until October 31, 2020 unless stated otherwise)
Mortgages
 ✓
  • Payment holidays can be granted for an initial three-month period.
  • At the end of an initial three month period, a further three-month payment holiday can be granted (i.e. up to six months in total).
  • Ban on property repossessions unless the customer wishes hand back the keys and has sourced appropriate alternative accommodation.
Arranged overdrafts
 ✓
  • Applies to arranged overdrafts only.
  • £500 charged at 0% for an initial period of three months. This can be extended to six months if required.
Personal loans
 ✓
  • Payment freezes can be granted for an initial three-month period.
  • At the end of an initial three-month payment freeze period, a further three-month payment freeze can be granted (i.e. up to six months in total).
Guarantor loans
 ✓
Logbook loans
 ✓
Regulated credit union loans
 ✓
Regulated CDFI1 loans
 ✓
Credit cards and store cards
 ✓
Catalogue credit
 ✓
Home-collected credit
 ✓
Buy-now pay-later (BNPL)
 ✓
  • Payment freezes can be granted for an initial three-month period.
  • Where a customer is within the promotional period, firms should extend this by the length of any payment freeze.
Hire purchase (including motor finance)
 ✓
  • Payment freezes can be granted for an initial three-month period.
  • At the end of an initial three-month period, a further three-month payment freeze can be granted (i.e. up to six months in total).
  • Firms must not take steps to end agreements or repossess vehicles.
  • Repossession of vehicles may be permitted in exceptional circumstances (e.g. customer consents to this and it can be conducted with appropriate regard to Government guidance on physical distancing).
High-cost short-term credit ✓
  • Payment and interest freezes can be granted for a period of one month.
  • Customers should be allowed to pay the deferred payment in an affordable way thereafter.
Rent-to-own
 ✓
  • Payment freezes can be granted for an initial three-month period.
  • At the end of an initial three-month payment freeze period, a further three-month payment freeze can be granted (i.e. up to six months in total).
  • Ban on repossession of goods where customers require their use during this period. No fees or charges should be applied as a result of unavoidable extensions in agreements.
Pawnbroking
 ✓
  • Payment freezes can be granted for an initial three-month period.
  • At the end of an initial three-month period, a further three month payment freeze can be granted (i.e. up to six months in total).
  • Where a notice of intention to sell has been given, firms should suspend the sale for the period of the payment freeze.
Premium finance (retail customers only)
 ✓
  • Payment deferrals, which can be rolling, should be granted for a period of up to three months.
  • This guidance for premium finance lenders came into force on May 18, 2020 and will be in effect until August 18, 2020.
  • The FCA will review its guidance in this area prior to August 18, 2020 to assess whether it is still required.
Peer-to-peer
  x
  • Forbearance measures not currently within the scope of existing published guidance.
     

Footnotes

1  

Community Development Finance Institution: a not-for-profit lender which provides credit to individuals, small businesses and social enterprises who may find it difficult to access credit from mainstream lenders.



Contacts

Jonathan Herbst
Jonathan Herbst
Global Head of Financial Services
Email
jonathan.herbst@nortonrosefulbright.com
T: +44 (20) 74443166
Matthew Gregory
Matthew Gregory
Partner
Email
matthew.gregory@nortonrosefulbright.com
T: +44 (20) 74442467
Joe Bamford
Joe Bamford
Senior Associate
Email
joe.bamford@nortonrosefulbright.com
T: +44 20 7444 2140

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