This guidance applies to regulated firms that issue personal loans. For the purposes of this guidance, personal loan refers to 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 applies to credit union loans where they are regulated credit agreements. In addition, this guidance applies to firms that have acquired such loans.
It does not apply to a high-cost short-term credit agreement, buy now pay later agreement, hire purchase agreement (including motor finance), peer to peer agreement, pawnbroking agreement, premium finance, credit card and other retail revolving credit agreement or overdraft. The guidance does not apply to business loans.
This guidance applies in the exceptional circumstances arising out of the coronavirus pandemic (Covid-19) and its impact on the financial situation of personal loan customers. It is not intended to have any relevance in circumstances other than those related to coronavirus.
This guidance sets out our expectation that firms provide, for a temporary period only, exceptional and immediate support to customers facing payment difficulties due to circumstances arising out of coronavirus. It is intended to provide help to those who might be having temporary difficulty in making their personal loan payments due to a loss of or reduction in their income (or income of other members of their household) or to those who expect to experience such difficulties.
This guidance applies where customers are already experiencing or reasonably expect to experience temporary payment difficulties as a result of coronavirus. Where a customer was in pre-existing financial difficulty, our existing forbearance rules and guidance in CONC would continue to apply. These would include for example the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time.
We will review this guidance in the next 3 months in the light of developments regarding coronavirus and may revise the guidance if appropriate.
This guidance builds on Principle 6 ('A firm must pay due regard to the interests of its customers and treat them fairly'). It sets out the FCA’s expectations for firms to provide coronavirus related support for customers who are experiencing or reasonably expect to experience temporary payment difficulties at the current time. When implementing this guidance, firms should take account of the particular needs of their vulnerable customers.
The guidance is potentially relevant to enforcement cases and the FCA may take it into account when considering whether it could reasonably have been understood or predicted at the time that the conduct in question fell below the standards required by Principle 6.
This guidance comes into force on 14 April.
Payment deferrals
In this guidance, ‘payment deferral’ means an arrangement under which a firm permits the customer to make no payments under their regulated credit agreement for a specified period without being considered to be in arrears. As the customer would not be considered in arrears we would expect firms not to pursue relevant guarantors for payment during a deferral period, in respect of payments deferred under this guidance.
Where a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to coronavirus, and wishes to receive a payment deferral, a firm should grant the customer a payment deferral for 3 months unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so.
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.
In determining whether a 3 month payment deferral is obviously not in customers’ interests, firms should consider both customers’ need for immediate temporary support and the longer-term effects of a payment deferral on the customers’ situation, in particular the customers’ ability to repay any accrued interest once the payment deferral ends, and over what period. The interest rate and remaining term will be among the relevant considerations. For example, a payment deferral would obviously not be in customers’ interests if it would give the firms’ customers a greater overall debt burden compared to other solutions (that might involve reduced or waived interest for example) that could equally meet customers’ needs and that burden would be clearly unsustainable.
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. We have disapplied CONC 6.7.18R and 6.7.19R to give effect to this.
Where a 3 month payment deferral is not considered appropriate, firms should without unreasonable delay, offer other ways to provide temporary relief to the customer in accordance with treating the customer fairly. This could include reduced payments or a rescheduled term. This could also include a payment deferral of fewer than 3 months if, for example, the expected loss of income is for a shorter period, or accepting a sum below the normal payment due if, for example, the loss of income is partial.
This guidance does not prevent firms from providing more favourable forms of assistance to any customer including a longer payment deferral if deemed appropriate.
Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of 3 months. This means that a payment deferral could go beyond the point where the 3 month window for requesting a payment deferral expires.
Firms should make clear in their communications, including on their websites, that payment deferrals are available as set out in the circumstances described above. In addition, if, during an interaction between the firm and the customer, the customer provides information suggesting that the customer may be experiencing or could reasonably expect to experience temporary payment difficulties as a result of circumstances relating to coronavirus, the firm should ask whether the customer wishes it to consider granting a payment deferral.
Firms are not prevented from continuing to charge interest during a deferral period. If the customer is unable to resume payments at the end of the payment deferral period because of payment difficulties at that time, they should contact the firm. The firm should work with the customer to resolve these difficulties in advance of payments being missed.
Where a customer, who received a payment deferral, or a different solution for a period where a payment deferral has been deemed not in the customer’s interests, as a result of circumstances relating to coronavirus, is entitled at the end of the period to forbearance under our existing rules, then as part of this, we expect any interest accrued during the relevant period to be waived.
A firm should give customers adequate information to enable them to understand the implications of a payment deferral, including the consequences of interest that is accrued during this period and its effect on the balance due under the agreement and on future payments.
A customer should have no liability to pay any charge or fee in connection with the permitting of a payment deferral, or a different solution where a payment deferral has been deemed not in the customer’s interests, under this guidance.
The payment deferrals described here should be regarded as being offered in exceptional circumstances outside of the customer’s control. In accordance with the relevant Coronavirus Data Reporting Guidance published by the Credit Reference Agencies in consultation with SCOR, 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, we would expect this to be reflected in the usual manner.
Where customers have been unable to reach timely agreement with firms for a payment deferral because of firms’ operational difficulties and subsequently miss a payment which is reported to their credit file, or where they have entered into a similar temporary payment deferral arrangement with their lender as a result of the coronavirus situation which has resulted in a worsening arrears status being reported, we would expect firms to work with customers and Credit Reference Agencies to ensure that any necessary rectifications are made to credit files to ensure no worsening arrears status is recorded during the payment deferral period. Firms should also ensure no default or arrears charges are levied in relation to payments missed in these circumstances.
Process and next steps
The measures in this guidance should be brought into effect no later than 14 April. Firms are free, however, to implement these measures sooner, at any time from 9 April, if they wish and we would welcome firms doing so. To facilitate this, the changes to the CONC rules come into effect on 9 April.
If you have any questions or concerns about this guidance, contact us.
The FCA’s objectives and regulatory principles
The proposals in this guidance support our consumer protection objective and are designed to protect consumers by providing them with temporary support in the light of the current exceptional circumstances arising out of coronavirus.
Equality and diversity
We are required under the Equality Act 2010 to ‘have due regard’ to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by or under the Act, advance equality of opportunity between persons who share a relevant protected characteristic and those who do not, and to foster good relations between people who share a protected characteristic and those who do not.
As part of this, we ensure the equality and diversity implications of any new policy proposals are considered. We do not consider this guidance will adversely affect consumers with protected characteristics.