New FCA Guidance on Forbearance during COVID-19
FCA has issued new guidance for lenders on how to treat customers adversely affected by coronavirus. Existing guidance is due to come to an end on 31st October so this new guidance will apply after that date. The guidance relates to customers who:
- have been granted 2 payment deferrals under the July guidance and remain in payment difficulties; or
- have been granted an initial payment deferral under the July guidance, were not granted a further payment deferral under that guidance, and remain in payment difficulties; or
- experience payment difficulties as a result of circumstances relating to coronavirus after 31 October, whether or not they have been granted a payment deferral or other support under the July guidance.
Firms may face enforcement action if they fail to act in accordance with the guidance.
Dealing with Customers at the end of a Payment Deferral period who Remain in Financial Difficulties
This guidance relates to cases 1 and 2 above.
Customers generally should not be considered in arrears during a payment deferral period. If the customer indicates that they continue, or reasonably expect to continue, to face payment difficulties at the end of a payment deferral, the firm should treat the customer fairly and work with the customer to resolve these difficulties in advance of payments being missed. Firms should:
- clearly communicate, as part of their engagement with the customer prior to the end of the payment deferral, including in writing, that when they receive future communications (including statutory notices) concerning any arrears on their account, these will, where relevant, include the deferred amounts but no worsening status has been reported to their credit file in respect of the deferred amounts or the payment deferral period(s)
- keep a record of the deferred amounts to ensure the firm can identify the unique circumstances in which they arose
- make reasonable efforts to reach an agreement with the customer to pay back the arrears as part of the wider forbearance offered by the firm
- treat customers fairly in considering whether and when to take steps to default or terminate the agreement (including repossession of any goods or vehicles), unless the customer is unreasonably refusing to engage with the firm and comply with applicable Consumer Credit Act 1974 provisions such as section 87 in respect of default notices and section 90 in respect of retaking protected hire purchase goods.
- take into account that the arrears arose by agreement with the firm and in exceptional circumstances; the customer was not expected to address the arrears during the payment deferral period and so may have had less time to address them
- not start possession action until all forbearance options have been actively considered and evidenced.
For some customers there may be a need to refinance the loan in order to make future payments affordable. Firms should identify and document circumstances in which this may or may not be appropriate.
In general FCA expects firms to start reporting arrears to credit reference agencies once deferral periods come to an end. However where a mechanism to repay deferred amounts is agreed at the end of a payment deferral period and the customer can resume at least the level of contractual payments FCA would not expect this to result in the reporting of an arrangement to credit files (subject to subsequent payment performance being reported in the usual manner).
Forbearance in The Current Environment
FCA expect firms to be flexible and employ a full range of short and long-term forbearance options to support their customers and minimise avoidable financial distress, stress and anxiety experienced by customers in financial difficulty. This may include short term arrangements under which the firm permits the customer to make no or reduced payments for a specified period. Firms should contact customers in good time before the end of a payment deferral period with information about resuming payments and how to access further support if needed. If the customer indicates that they continue, or reasonably expect to continue, to face payment difficulties, the firm should treat the customer fairly and work with them to resolve those difficulties before payments are missed. FCA expect firms to consider a range of forbearance options when dealing with their customers. This could for example include:
- suspending, reducing, waiving or cancelling any further interest or charges
- permitting the customer to make no or reduced payments
- allowing the customer a reasonable time and opportunity to repay the debt, including by deferment of payment of arrears
- accepting token payments for a reasonable period
- agreeing a repayment plan
Any agreed arrangement must be sustainable and enable the customer to meet priority debts. Firms must monitor arrangements to check that they remain sustainable.
Firms should ensure that staff are adequately trained for the roles that they perform and that they have appropriate oversight arrangements in place. This might mean using more experienced staff to deal with the most complex arrears and forbearance cases, including vulnerable customers at most risk of harm, and to support less experienced colleagues. Firms should consider how best to ensure that their staff have the right skills, capabilities and incentives to support consumers. Incentives and staff objectives should be aligned with delivering forbearance that is appropriate in customers’ individual circumstances.
The Senior Manager accountable for providing support to consumers under this guidance should critically review the firm’s policies, procedures and controls and ensure they are appropriate to meet the needs of customers seeking support. This includes ensuring incentives are aligned with fair customer outcomes and taking responsibility for ensuring appropriate governance and oversight is in place to deliver fair customer outcomes in practice.
This is a brief summary of the new guidance. You can find full details here: https://www.fca.org.uk/publication/finalised-guidance/finalised-guidance-consumer-credit-coronavirus-additional-guidance-firms.pdf