Today, the FCA published draft guidance for regulated firms that enter into high-cost short-term credit (“HCSTC“) loans, including payday loans. The guidance also applies to firms that have acquired such loans.
The guidance applies in the exceptional circumstances arising out of the Covid-19 pandemic and its impact on the financial situation of customers. It is not intended to have any relevance in circumstances other than those related to Covid-19.
It sets out the FCA’s expectation that firms provide, for a temporary period only, exceptional and immediate support to customers facing payment difficulties due to circumstances arising out of Covid-19.
Which customers would be covered?
The guidance applies where customers are already experiencing or reasonably expect to experience temporary payment difficulties as a result of Covid-19.
Where a customer was in pre-existing financial difficulty, the FCA’s existing forbearance rules and guidance in CONC would continue to apply.
Any new relevant definitions?
Yes – the FCA defines ‘payment deferral’ as meaning an arrangement under which a firm permits the customer to make no payments under their regulated credit agreement for a specified period, or extends the period until payments are due, without being considered to be in arrears.
What would firms have to do?
Look at the customer’s situation – if a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to Covid-19, and wishes to receive a payment deferral, a firm should grant the customer a payment deferral for one month. Because of the nature of this product, the FCA considers one month is a more appropriate period than the three months’ deferral it is more generally suggesting.
The FCA confirms that an example of a situation in which a payment deferral may be appropriate is where there is or will be a temporary reduction in household income that would have otherwise been used to make loan payments.
However, there is no expectation under this guidance that the firm makes enquiries with each customer to determine the circumstances surrounding a request for a payment deferral, (or whether this is not in the customer’s interests). To this effect, the FCA has disapplied CONC 6.7.18R, 6.7.19R and CONC 6.7.21G. It has also disapplied CONC 6.7.23R to remove a restriction to enable consumers to benefit from these measures.
Be flexible – the firm should allow the customer to repay the deferred payment over such period and in such amount as the customer can reasonably afford, including over a period that extends beyond the original period of the loan.
The guidance does not prevent firms from providing more favourable forms of assistance if they choose to do so, for example by extending the temporary measures for longer than one month.
Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of 3 months.
Communicate clearly – firms should make clear in their communications, including on their websites, that the payment deferral is available as set out in the circumstances described above. Firms should also make customers aware, when contacting them about missed payments, of the availability of a payment deferral if their payment difficulties relate to circumstances relating to Covid-19.
Firms should also give customers adequate information to enable them to understand the implications of a payment deferral.
Consider if the customer is entitled to forbearance – where at the end of the deferral period the customer is entitled to forbearance under the FCA’s existing rules, the firm should consider the most suitable options that best suits its customer’s needs and ability to pay. This should include allowing any sums owed to be repaid by smaller instalments over an extended period, and waiving or reducing any other interest that is payable.
What would firms have to stop?
No interest, charges or missed payment fees – customers should have no liability to pay any charge or fee in connection with the permitting of a payment deferral.
Further, no interest should accrue during the deferral period. The FCA says this waiver of interest should have no impact on the firm’s calculation of the total costs of the agreement for the purpose of the Total Cost Cap in CONC 5A.2.2R. Such costs should continue to be calculated as though there had been no payment deferral. Firms should also not charge missed payment or other similar fees in respect of the payment deferral.
No reporting of worsening arrears statuses – firms should not report a worsening arrears status on the customer’s credit file during the payment deferral period. However, where additional forbearance is required, for example in the form of waived interest and charges (over and above the interest waived under this guidance), the FCA expects this to be reflected in the usual manner.
When are these measures likely to be implemented?
The FCA is looking for feedback on the measures by 5pm on Monday 20 April with a view to publishing final guidance by Friday 24 April 2020 and the final measures coming into force shortly after that.