Those measures were thought to be needed for a temporary period only, and the FCA always had the intention of revisiting that guidance in light of developments regarding coronavirus in the intervening period. The updated guidance came into force on 3 July 2020.
The key guidance in relation to Personal Loans is as follows:
Payment Holiday Window Extended
Customers that haven't yet had a payment holiday can now ask for one at any point before 31 October 2020. That needs to be made clear on Firms' websites and should be actively offered to customers who appear to be having temporary payment difficulties due to coronavirus.
Firms Need to be Proactive
The onus is on Firms to take all reasonable steps to contact their customers in good time before the end of the initial payment deferral period to work out what the best options are for repaying the payments that have been missed. Considering that many of these arrangements were put in place at the beginning of April, Firms will need to have commenced this process some time ago, in order to ensure they are able to meet their obligations in this regard. A huge amount of effort and resource is needed by Firms given the volume of deferrals in place. It is not clear whether contacting the customer by letter alone will constitute "reasonable steps."
Firms can rely solely on information provided by customers in some circumstances (such as reducing payments to a level the customer can afford) but not in others. For example, if the Firm concludes that a payment deferral is not in the customer's best interests, then consideration of customer information alone would not be sufficient to reach that conclusion.
Best Interests of the Customer:
The FCA make it clear that if a customer can afford to return to regular repayments or make partial repayments, it is in their best interests to do so.
If after the end of an initial payment deferral, and before their first payment is due, a customer indicates that they cannot resume payments immediately, Firms should offer to reduce payments for a period of three months to a level that is affordable. A Firm can refuse a further payment deferral if it is obviously not in the customer's best interest to do so, and should weigh up the need to provide urgent support against the longer term debt burden.
Where a payment deferral is not in a customer's best interests, the forbearance requirements in CONC 7 still need to be applied. The FCA have expressly stated that Firms could offer a refinancing solution to deal with a customer's payment difficulties where this is clearly in their best interests in light of their wider financial circumstances.
Difficulties arise where customers don't engage at the end of the payment holiday period. Firms can assume those customers are now able to pay, but if they fail to make their first payment or perhaps, they make the first payment and fail to make the next, Firms are required to offer further support in line with the guidance where it is in the customer's interest to do so.
Waiving of Interest
Where customers require forbearance at the end of the deferral period, any interest that would have accrued but for the payment deferral must be waived. The effect of the interest waiver should be that a customer would not, in respect of the deferred amounts, be in a worse position in terms of interest than they would have been had those amounts been paid in full in accordance with the agreement.
No Impact to Credit Status
Firms should not report a worsening status on the customer's credit file held with the Credit Reference Agencies ("CRAs") during the deferral period, notwithstanding concerns around the risk associated with "masking" of credit files and the potential to impede responsible credit decision making. The FCA acknowledge there is a risk of "consumer misunderstanding" in relation to these issues and require customers to be warned that the payment deferral could have an impact on lending decisions, notwithstanding that these arrangements are not recorded on credit files. Firms must also ensure a "reasonable period of time" is afforded to determine an appropriate solution with customers before reporting any new arrears with CRAs.
One Size Fits All Approach Won't Work
A one size fits all approach is unlikely to meet the requirements of Principle 6 in terms of which a Firm must pay due regard to the interests of customers and treat them fairly. A single prescriptive solution offered to all customers who require further support will therefore not meet the FCA's requirements. Firms need to understand each customer's particular needs.
Will NOSIAs being sent cause Customer confusion?
The inconsistency of the technical requirements of the Consumer Credit Act on the one hand and the obligations on Firms to avoid treating the payment deferral as arrears on the other, has again been emphasised to the FCA. Whilst they seem to recognise the challenge, legislative changes are no longer on the agenda. The guidance makes clear that where a Firm (acting reasonably) considers that CCA documentation (NOSIAs for example) risks confusing the customer, the Firm must provide "contextual information" to reduce that risk. The only comfort for Firms, to the extent there is any, is the fact the FCA recognise that these measures have been introduced quickly, that Firms have expressed operational challenges in meeting CCA requirements and the circumstances of any breach by Firms will be taken into account when making regulatory decisions.
Firms Must Keep a Paper Trail
Record keeping is always crucial in a consumer credit environment, but Firms must ensure, now more than ever, they have effective records in place so that they can demonstrate that the options offered and granted to customers were consistent with customer interests. This will help address any complaints that may arise further down the line.
In their Feedback Statement 20/9 addressing points raised in their consultation on the guidance, the FCA acknowledge that some non-bank lender Firms have been placed under a significant liquidity burden because widespread payment holidays across their portfolio cannot be accommodated by the securitisation structures that they have in place. Whilst the FCA recognise the significant financial challenges, they consider consumer protection the priority regardless of the business model of the Firm. They point out that government funding schemes may be available and where possible such Firms need to try and re-negotiate their existing funding lines! Easier said than done.
Other Consumer Lending
Further guidance has also been issued for overdrafts and credit cards which includes certain persistent debt provisions in CONC being suspended for the deferment period, an obligation to review rates and pricing, interest free overdrafts of up to £500 being provided (with potential for top up support) and a prohibition on cards and credit facilities being automatically suspended.
The guidance doesn’t apply to other consumer credit products such as motor finance which is covered by separate FCA guidance.