What is the issue?
COVID-19 has impacted the lives of every individual across the country. It is critical that firms are
able to continue to treat customers fairly during this challenging time and it is also more likely that
customers will become vulnerable as the crisis unfolds meaning certain customers require greater
support than others.
There have been various support packages announced by the Government along with associated guidance from the regulator
to set expectations as to how this should be achieved in practice. It is possible that these expectations will evolve as the crisis
unfolds, therefore firms will need to be agile over the coming period having regard to regulatory expectation and actual
customer outcomes.
What has the regulator said?
The Financial Conduct Authority has published various guidance for lenders, the key points of which are:
Mortgage lenders
- Payment holidays: of up to three months where customers are experiencing financial difficulty.
- Halting repossessions: temporarily to ensure no one loses their home at this time regardless of whether a possession order has been obtained. However, interest can still be charged.
Consumer credit lenders
- Three month payment freeze: for most loans (see overleaf for details).
- One month payment and interest freeze: for high-cost credit.
- Further forbearance: for customers who continue to struggle post payment holiday (e.g. waiving of interest).
Arranged overdrafts
- Interest free overdrafts: of up to £500 for three months where requested by customers in financial difficulty.
- Overdraft pricing structures: to be reviewed for consistency and fairness in the context of COVID-19.
The guidance for mortgage lenders came into effect on 20 March 2020 and the regulator has committed to reviewing the impact it
has had in three months and may issue amended guidance following this review.
The guidance for consumer credit lenders and in respect of overdrafts came into effect during April 2020.
What are the practical issues in play?
Key overall considerations
- Governance meetings: ensure that retail customer outcomes
are updated for the impacts of COVID-19 and fed through in
management information and reporting.
- Regularly review response plans: to incorporate customer
feedback and evolving customer circumstances.
- 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 and when payments resume they may be higher
than they were previously.
- Cashflow/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 in the short term, there may be longer term
fairness impacts if customers cannot viably repay their
debts. Consider whether this could result in any
perceived 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”).
- 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 below the key forbearance guidance issued by the regulator across key lending products to date.
The regulator has committed to reviewing the impact these have had over the next three months and further announcements
may be made as the COVID-19 pandemic evolves.
| |
In scope of guidance (as at April 17, 2020)
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Notes
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Mortgages
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✓
|
- Three month payment holiday for impacted customers
- Repossessions halted for three months
|
Arranged overdrafts
|
✓
|
- Applies to arranged overdrafts only
- £500 charged at 0% for three months
|
Personal loans
|
✓
|
- Three month payment freeze/deferral
- Further forbearance for customers possible after initial period of forbearance
|
Guarantor loans
|
✓
|
Logbook loans
|
✓
|
Regulated credit union loans
|
✓
|
Regulated CDFI loans
|
✓
|
Credit cards and store cards
|
✓
|
Catalogue credit
|
✓ |
Home-collected credit
|
✓ |
Buy-now pay-later (BNPL)
|
✓
|
- Three month payment freeze/deferral
- If a BNPL customer is within the promotional period, firms should extend this by the length of the payment holiday
|
Hire purchase (inc. motor finance)
|
✓
|
- Three month payment freeze
- Firms must not take steps to end agreements or repossess
- Firms should unfairly change customer contracts
- Firms should work with customers who wish to retain vehicles at the end of a PCP agreement, but are unable to afford the balloon payment
|
High-cost short-term credit
|
✓
|
- One month interest-free payment freeze/deferral
- Customers should be allowed to pay the deferred payment in an affordable way thereafter
- RTO only: If social distancing means firms cannot redeem, collect or repossess goods they should not pass additional charges or fees to the customer
|
Pawnbroking
|
✓
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- Three month payment freeze/deferral
- If social distancing means firms cannot redeem, collect or repossess goods they should not pass additional charges or fees to the customer
|
Peer-to-peer
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x
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- Forbearance measures in respect of these products not currently within the scope of existing published guidance
- Guidance may be published in due course if forbearance measures are extended to these products
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| Premium finance
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x
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