As noted earlier, the FCA has published the new rules that firms require to implement by 14 April 2020.
Who does the rules apply to?
It applies to all personal loan customers who are already experiencing or reasonably expects to experience temporary payment difficulties as a result of coronavirus.
It does not apply to customers who are in pre-existing financial difficulty – usual forbearance rules should continue to apply to that cohort of customers.
Personal loan customers are customers who have entered into a regulated credit agreement, secured (other than on land) or unsecured; including a guarantor loan, a logbook loan (secured by Bill of Sale), home collected credit or a loan issued by a Community Development Finance Institution. It only applied to credit union loans where they are regulated credit agreements. It also applies to firms who have acquired such loans.
It does not apply to high-cost-short-term credit agreements, buy now pay later agreements, hire purchase agreements (inc motor finance), peer to peer agreements, pawnbroking agreements, premium finance, credit cards, other retail revolving credit, overdrafts or business loans.
Any new relevant definitions?
Yes – the FCA has defined “payment deferral” as meaning an “arrangement under which a firm permits the customer to make no payments (or a token payment not exceeding £1 where firms’ systems will not allow a zero payment) under their credit card or revolving credit agreement for a specified period without being considered to be in arrears.”
What must firms do?
Look at the customer’s situation – if a customer qualifies and wishes to receive a payment deferral, the firm must grant the payment deferral for 3 months unless the firm reasonable determines that it is not in the customer’s interest to do so.
Where a 3 month payment deferral is not considered appropriate, firms must offer alternative temporary relief measures straightaway e.g. by offering reduced payments, offering a payment deferral of less than 3 months, accepting less than the usual repayment amount, rescheduling the term etc. These other measures are appropriate where a payment deferral would be deemed to create a greater overall debt burden for the particular customer.
Rely on self-certification – the FCA is not expecting firms to make enquiries with each customer to determine the circumstances surrounding the request (CONC 6.7.18R and 6.7.19R is disapplied).
Extend the payment deferral — firms can provide more favourable forms of assistance including longer payment deferrals is they wish.
Charge Interest – firms can continue to charge interest during the referral period. However, where a customer is entitled to usual forbearance after expiry of the payment deferral period, then firms should waive accrued interest during the payment deferral period at that point.
Engage with Customers – documentation should communicate to customers that they should engage with the firm towards the end of the payment deferral period if they are not able to resume payments. Firms must work with customers to resolve these difficulties in advance of payments being missed.
Communicate with customers and update call centre/branch policies – firms should make it clear in their communications (including websites) that payment deferrals are available. Firms should also brief agents/staff to identify issues where a payment deferral payment might be appropriate so that they can offer these when relevant.
Firms should also provide customers with adequate information to enable them to understand the implications of a payment deferral, including the consequences of accrued interest.
Monitor reporting at the CRAs – where a firm has not implemented these changes properly which has resulted in a customer missing a payment – a NOC should be filed with the relevant CRAs to remove any adverse entries on the file.
Deadline – firms must meet the deadline and be able to offer payment deferrals by 14 April 2020 at the latest – firms can choose to offer these measures earlier if they wish.
What must firms not do?
No Fees or Charges – firms cannot charge any fees or charges in connection with a payment deferral.
Not report to the credit reference agencies – use of a payment deferral should not negatively impact a customer’s credit file.
CONC changes and suspensions come into force from today (9th April)