FCA urges lenders to assist consumers during the COVID-19 pandemic
The ongoing COVID-19 pandemic has already had significant implications across a range of sectors including travel and a severe impact on finances both personal and business.
The impact of Coronavirus is currently being felt across the lending industry affecting both current borrowers, whose income may now be lower or non-existent, and lenders to whom repayments will be affected.
In an effort to combat the effects, the Financial Conduct Authority (“FCA”) has issued authoritative guidance which encourages lenders to provide three month repayment moratoriums/holidays on loans and reduce interest costs.
Although this guidance doesn’t amount to a rule as such, the FCA will be expecting lenders to follow the “guidance” and it would clearly be extremely difficult for a lender to justify not following this new guidance in light of the current climate. The FCA has sought to pin this guidance under Principle 6 of the FCA rules which states that a firm “must pay due regard to the interests of its customers and treat them fairly”.
So far, any rule changes have been limited and include a change to the Consumer Credit sourcebook (“CONC”) relating to minimum payments for credit cards and disapplying the detailed forbearance rules.
The guidance covers three areas: credit card debts, overdrafts and personal loans.
Credit Card debts
The guidance suggests that it is the debtor who should make contact with the lender and explain the position. If the debtor’s position (i.e. that they cannot afford the repayments) seems genuine then the lender should take the necessary steps to put a three month payment deferral in place.
The deferrals should not affect the debtor’s credit score negatively and there should not be a cost to the debtor in having the deferral in place.
The guidance applies to overdrafts on “primary personal current accounts” therefore professional and business accounts are excluded. The FCA has set out that lenders should be, for a short period, providing “exceptional and immediate support to consumers facing temporary difficulties with their finances, or who can reasonably expect to face temporary difficulties with their finances due to circumstances arising out of coronavirus”. The guidance sets out the FCA’s advice in relation to interest on different levels of overdrafts.
It is made clear however that lenders cannot suddenly increase their overdraft charges in anticipation of a rise in people making use of said overdraft; lenders will need to demonstrate that any charges are in line with the FCA’s guidance.
The “personal loan” section of the guidance is taken to apply to any other regulated consumer credit agreement that is not secured on land. The guidance is similar to that issued in respect of credit cards.
The current guidance is initially expected to last for three months however it is clear that much depends upon how long the pandemic continues and how long lasting its effects will be. The FCA will be expected to extend the provisions accordingly should it prove necessary to.
How can we help?
Ellis Jones’ Banking & Finance Litigation solicitors have specialist knowledge and expertise across a broad range of areas acting for clients in disputes with financial institutions. If you feel that you may have a valid reason for any of the above moratoriums but your lender is being difficult and you are unhappy with their stance, please contact Ellen Shipton or William Fox Bregman of our Banking and Finance Litigation Department on 01202 525333 or via an email enquiry.