In September, the Financial Conduct Authority (FCA) announced tailored support for borrowers affected by coronavirus (Covid-19) after 31 October, which it would keep under review as the pandemic evolved. Insurers and brokers who offer payment plans with interest rates charged on premiums should be aware of the grace they should be offering customers who are struggling due to illness or job loss.
As a result of increasing restrictions announced in recent weeks, the FCA is proposing to enhance these measures to provide further support to consumers impacted by coronavirus.
What are the FCA’s proposals?
The FCA proposes to extend payment deferrals and other support to personal loans, credit cards, motor finance, rent-to-own, buy-now-pay-later and pawnbroking customers who are experiencing payment difficulties because of coronavirus.
These proposals will mean that:
- those who have not yet had a payment deferral will be eligible for 2 payment deferrals of up to 6 months in total
- those who currently have an initial payment deferral, will be eligible for a further payment deferral of up to 3 months
High-cost short-term credit (HCSTC) consumers, such as those with payday loans, who have not yet had a payment deferral would be eligible for a payment deferral of 1 month.
It’s important that borrowers who can afford to make repayments continue to do so.
The FCA is urging consumers not to contact their lender until the enhanced measures are in place. Lenders will soon provide further information.
Under the FCA’s proposals, borrowers would have until 31 January 2021 to request an initial payment deferral.
A payment deferral under our proposals would not be reported as missed payments on a borrower’s credit file. This does not mean that consumers’ ability to access credit will be unaffected in future, as lenders may take into account a range of information when making lending decisions.
Consumer credit customers who have already benefitted from 2 payment deferrals (or 1 for HCSTC), and are still experiencing payment difficulties should speak to their lender who will be able to provide tailored support. This also applies to those who have resumed repayments after an initial payment deferral, as they would not be entitled to a further deferral, but should receive tailored support if they are experiencing payment difficulties.
Tailored support may be reported on a borrower’s credit file, and lenders should inform borrowers where this will be the case.
Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA said:
‘We recognise the challenges that many consumers face as the coronavirus crisis develops, and we are working to ensure support remains available to consumers who need it.
‘We know that many consumer credit borrowers are vulnerable. That’s why tailored support reflecting borrowers’ individual circumstances will still be offered and remains the most appropriate option for many. We are also proposing to extend payment deferrals for some consumer credit products to offer additional support.
‘It is in borrowers’ own long-term interest only to take a payment deferral when absolutely necessary. Those that are able to keep paying, should do so.
‘We are also asking borrowers not to contact their lender yet, and instead wait for further updates, including from their lenders, soon.’
The FCA is asking for comment on the proposals by 10am on Friday 6 November with the final guidance published as soon as possible after the comment period closes.
The FCA is working closely with trade bodies and lenders to make sure the enhanced measures come into effect as soon as possible, and consumers receive the information they need.
Support for other borrowers
Firms will also continue to offer tailored support to overdraft borrowers, as set out in September. This could include:
- reducing or waiving interest
- agreeing a programme of staged reductions in the overdraft limit
- transferring the overdraft debt to an alternative credit product on more favourable terms
We consider that this provides the necessary support to help consumers by tailoring it to those that need it, and helping them to manage the cost of their borrowing.
Premium finance consumers will continue to benefit from the tailored support we announced on 30 October.
The FCA will continue to keep the support available to consumers under review.