On 2 April, 2020 the FCA proposed several measures, intended to come into effect within seven days, to provide relief to consumers across a range of consumer credit products. The measures complement the announcement from HM Government to provide support to mortgage holders, and the assistance to be provided to furloughed employees and the self-employed. The proposals are put forward by of consultation, with responses invited on an accelerated timeline by 9am, 6 April 2020.
These proposals amount to a significant intervention by the FCA, and include:
- new guidance to consumer credit lenders providing credit cards and retail revolving credit to consumers who are already facing temporary payment difficulties, or likely to experience temporary payment difficulties as a result of coronavirus, to provide forbearance by way of a three month payment holiday or to adopt an alternative approach if appropriate in certain individual circumstances, so as to treat that customer fairly;
- new guidance to UK deposit-takers, to:
- provide interest-free overdrafts of up to £500, for up to three months where requested by a customer in financial difficulty due to the impact of coronavirus; and
- to reconsider whether their recent changes to pricing structures, in light of the wider policy changes to overdraft charging structures, are consistent with the obligation to treat customers fairly in light of the exceptional circumstances arising from COVID-19;
- guidance to consumer credit lenders providing personal loans, to grant a payment deferral for up to 3 months for consumers experiencing, or who are reasonably expected to experience temporary payment difficulties as a result of circumstances relating to COVID-19; for example where there is a reduction in household income which would otherwise have been used to make loan repayments. In common with the proposed new guidance in respect of credit cards and retail revolving credit, lenders are not prevented from charging interest during the period of any payment deferral, but firms would wish to consider the application of Principle 6 in the context of any decision to do so in view of the regulator’s expectations.
If implemented as planned on 9 April, 2020, the new measures will effectively require consumer credit lenders to make substantial changes to their businesses in short order. Aside from the obvious system-related adjustments, the FCA has made clear that customer communications, in particular firms’ websites, must be clear as to the forbearance available.
The new guidance builds on the FCA’s Principles for Businesses and clearly articulates the regulator’s expectations of firms in the retail sector during the current pandemic. Firms with retail or consumer clients will face particular scrutiny from the FCA in their conduct of business at this time. It is clear that the FCA regard Principle 6 in particular as having a pervasive application, and firms should ensure they are picking up and acting on the messages and guidance issued by the FCA across their retail businesses. The regulator acknowledges that COVID-19 provides challenges for firms themselves, in particular small to medium-sized retail financial services firms, and has taken steps to alleviate the regulatory burden on firms where appropriate, including through adjustments to the supervisory agenda for this year, and other measures such as adjustments to the fees payable in connection with FOS complaints. However, this latest package of measures, perhaps unsurprisingly being achieved predominantly through the use of guidance relating to the application of Principle 6 in these unprecedented times, shows that the FCA continues to expect firms to think holistically about the impact of COVID-19 on their consumer customers and to respond with measures and mechanisms to support them.
If these measures take effect on 9 April, 2020 as planned, retail financial services firms should not only ensure that they adjust their systems, governance and controls to fully implement them across relevant consumer credit products, but also think more holistically about any wider retail business and the regulators’ likely expectations there.
