Further to the previous indication from the Financial Conduct Authority (FCA) on 2 November, the regulatory body has now published draft additional guidance for consumer credit lenders, in light of the additional restrictions currently in place in England as part of the response to the COVID-19 pandemic.
The proposals apply to credit cards, motor finance, personal loans, rent-to-own, and buy-now-pay-later agreements. Specifically, the measures are intended to address those who are in payment difficulties as a result of the impact of coronavirus. The sets of draft guidance can be accessed here.
As anticipated, the headline measures are:
- Borrowers who have not yet had a payment deferral shall be eligible for up to 2 deferrals, for a total of 6 months
- High-cost short-term credit customers, such as payday loan borrowers, would be eligible for a payment deferral of 1 month, if they have not already had one
- Borrowers would have until 31 January 2021 to request an initial payment deferral
Whilst deferrals would not be reported as missed payments on a credit file, they may still affect the credit score of a borrower, and their ability to access credit in the future.
In the context of motor finance and rent-to-own agreements, section 6 of the draft guidance sets out that firms should not, absent exceptional circumstances, terminate the regulated
agreement or repossess goods or vehicles under the agreement that the customer needs, prior to 31 January 2021. An example of exceptional circumstances in the case of a firm seeking a return of goods order, is where the customer requests that the proceedings continue.
Firms are permitted to commence. re-commence and/or continue proceedings, where a court order is required for return of goods, as long as they act in accordance with the guidance, relevant regulatory and legislative requirements and pre-action protocols. Litigation is to be seen as a last-resort.
Customers who have already utilised the maximum-allowed deferrals would need to contact their lender to seek ‘tailored support’. Tailored support may be reported on credit files, and consists of a bespoke agreement between lender and borrower. This may include:
- Reduced or waived interest
- A staggered series of reductions in the borrower’s overdraft limit
- Transferring the overdraft debt to an alternative credit product with more favourable terms
Currently, the FCA is inviting comments on their draft proposals up until 10:00am on Friday 6 November 2020. The final guidance will be published soon thereafter.