FCA Proposes Guidance to Further Support Consumer Credit Customers
FCA announced proposals that would provide continued support for certain consumer credit products to users, who are facing a financial impact because of the exceptional circumstances arising from the COVID-19 pandemic. The proposed guidance outlines the support that financial firms would be expected to provide to motor finance, credit card and other revolving credit (store card and catalog credit), and personal loan customers, whose loans are coming to an end of a payment freeze and for those who are yet to request one. For customers yet to request a payment freeze or an arranged interest-free overdraft of up to GBP 500, the time to apply for one would be extended until October 31, 2020. The comment period for the proposed guidance with respect to motor finance and high-cost credit products ends on July 06, 2020 while the comment period for the proposed guidance on credit cards, overdrafts, and personal loans ends on June 22, 2020. FCA expects to finalize the guidance shortly afterward.
The guidance applies to credit cards and other retail revolving credit, such as store cards and catalog credit, personal loans, and overdrafts. The proposals stipulate that, at the end of a payment freeze, firms should contact their customers to find out if they can resume payments, and if so, agree a plan on how the missed payments could be repaid. Where a customer needs further temporary support to bridge the crisis, any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files are not the only source of information that lenders can use to assess creditworthiness. The proposed guidance also stipulates that anyone who continues to need help gets help; for customers still facing temporary payment difficulties as a result of COVID, firms should provide them with support by reducing payments on their credit card and personal loans to a level they can afford for three months
The proposals also include support for overdraft customers. This means allowing customers who are negatively impacted by COVID and who already have an arranged overdraft on their main personal current account to request up to GBP 500 interest-free for a further three months; it also means providing further support in the form of lower interest rates on borrowing above the interest-free buffer and repayment plans for those who would benefit from them. In April, FCA set a temporary general expectation across the market that firms should ensure all overdraft customers are no worse-off on price when compared to the prices they were charged before the recent overdraft rule changes came into force (those changes benefited most customers). FCA, however, does not propose to extend this temporary measure across the whole market. Customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to GBP 500 and experience temporary financial difficulty, due to the pandemic, would be able to request one up until October 31, 2020.
When implementing the guidance, firms should be particularly aware of the needs of their vulnerable customers and should consider how they engage with them. Firms should also help customers understand the types of debt help and money guidance that are available and encourage them to access the resources that can help them.
- Initial Press Release
- Press Release on Further Support
- Draft Guidance on Credit Cards
- Draft Guidance on Overdrafts
- Draft Guidance on Personal Loans
- Draft Guidance on Motor Finance
- Information on Mortgage Payment Holiday
- Information on Consumer Loans
Comment Due Date: June 22, 2020
Keywords: Europe, UK, Banking, Consumer Credit, COVID-19, Credit Risk, Guidance, Payment Holiday, FCA
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
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