Coronavirus: FCA tells firms to keep supporting customers

Out-Law News | 13 Jul 2020 | 5:27 pm | 2 min. read

The UK’s Financial Conduct Authority (FCA) has issued updated guidance to firms providing personal loans, credit cards and overdrafts on how they should support customers who are facing continued financial difficulties caused by the Covid-19 pandemic.

In guidance focusing on personal loans (12 page / 178KB PDF), credit cards (14 page / 219KB PDF) and overdrafts (9 page / 194KB PDF), the FCA said while customers who can afford to return to regular repayment or partial repayment of debt should do so, firms should continue to help those who cannot.

Support could include freezing or reducing payments to a level customers can afford for another three months on credit cards and personal loans; extending the availability of an interest-free overdraft amount of up to £500 for a further three months; and reducing the cost of borrowing on overdrafts above the interest-free buffer.

Customers that have not yet had a payment freeze or reduction, or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to coronavirus, can request such temporary support up until 31 October 2020.

The FCA said any full or partial repayment freezes offered under the updated guidance should not have a negative impact on the customer's credit files.

The regulator also published a feedback statement (20 page / 252KB PDF) on the draft guidance it originally published in June. It said it received broad backing for its proposals and there was strong support for continuing to allow customers to apply for temporary help until 31 October 2020.

In the feedback statement the FCA clarified that customers will not be able to apply for payment deferrals after that date. It also clarified the extent to which firms can rely on customer-provided information when granting payment deferrals, saying it was appropriate for temporary support to be based on customer-led processes given the often short time frames involved and the wider impact of Covid-19 on firms’ operations.

Following comments provided through the feedback process, the FCA said credit card persistent debt provisions suspended for customers granted payment deferrals would apply again when the deferral period ended. The period for which the payment deferral was granted will still be counted in the persistent debt assessments firms are required to make, although the FCA said it could be appropriate to give customers longer to respond to persistent debt communications.

Financial services regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said the FCA had taken on board a range of responses and looked to deal with areas of concern.

“In particular, the update to guidance on the interaction between payment deferrals and the persistent debt rules for credit cards should help to remove the confusion about the interaction of these rules that some firms had experienced,” Barber said.

“I would recommend that all firms read the feedback statement that accompanies the updated guidance. It clearly sets out the range of issues firms have been grappling with in implementing payment deferrals,” Barber said.

“Those firms that have had difficulty in resolving the requirements of the Consumer Credit Act and the FCA’s guidance on payment deferrals should also carefully consider the comments in the feedback statement. The FCA’s changes make it clear contextual information can be sent alongside prescribed CCA documents and the comments that they will, where relevant, take into account the circumstances of any breaches of CCA requirements and resulting consumer detriment when making regulatory decisions should also provide a degree of comfort to firms,” Barber said.

The FCA said it would update guidance relating to other consumer credit products, such as motor finance or high-cost short-term credit, soon.