Recent regulatory developments of interest to financial institutions with focus on consumer finance. Includes the latest UK FCA COVID-19 updates. See also our General regulatory news linked in the related materials.
Contents
- COVID-19: FCA finalised guidance for mortgage firms
- COVID-19: FCA consults on additional draft guidance for consumer credit and overdrafts
- FCA review of future regulation of unsecured credit market: Christopher Woolard to chair
COVID-19: FCA finalised guidance for mortgage firms
On 14 September 2020, the UK Financial Conduct Authority (FCA) published finalised guidance containing additional guidance for mortgage firms in light of COVID-19. This guidance supplements the FCA's June 2020 guidance for mortgage firms, due to end on 31 October 2020. The finalised guidance, which came into effect on 16 September 2020, has not moved a great deal away from the draft published in August. It will remain in force until varied or revoked.
Read more in our briefing: Mortgages and COVID-19: Final FCA guidance on customer support after payment deferral period ends.
COVID-19: FCA consults on additional draft guidance for consumer credit and overdrafts
On 16 September 2020, the FCA announced guidance consultations for the following proposed additional guidance to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties due to COVID-19:
The proposals cover users of credit cards and other revolving credit (store card and catalogue credit), personal loans, overdrafts, motor finance, buy-now pay-later, rent-to-own, pawnbroking and high-cost short-term credit products. It supplements temporary FCA guidance published in July 2020 that is currently due to expire on 31 October 2020 (although the FCA is keeping this under review).
The draft guidance sets out the FCA's expectations of firms dealing with consumers who have benefitted from payment deferrals and support with the cost of their overdrafts under the July guidance who continue to face financial difficulties, as well as those whose financial situation may be newly affected by COVID-19 after the expiry of the July guidance.
If these measures are confirmed, the FCA would expect that firms:
- recognise the uncertainties and challenges that many customers will face in the coming months and provide tailored support which reflects their individual circumstances;
- work with customers approaching the end of a payment deferral to provide support before they miss payments;
- be flexible and employ a full range of shorter and longer-term options to support their customers to minimise stress and anxiety experienced by customers in financial difficulty;
- put in place sustainable repayment arrangements which are affordable and take account of their customers wider financial situation including their other debts and essential living expenses;
- give customers time and opportunity to repay and do not pressurise them into repaying their debt within an unreasonably short period of time;
- prevent customers' balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen; and
- recognise and respond to the needs of vulnerable customers.
The FCA will monitor firms to ensure borrowers are treated fairly, having regard to their individual circumstances. Customers should be given time to consider their options and to seek debt advice (if necessary) before deciding on the support they take.
Additionally, the FCA is proposing that firms contact overdraft customers who have received temporary support in order to determine if they still require assistance. Where a customer needs further support, firms should use measures such as reducing or waiving interest, agreeing a programme of staged reductions in the overdraft limit, or supporting customers to reduce their overdraft usage by transferring the debt. The guidance sets out when these options may be appropriate.
Where consumers require further support from firms, either at the end of payment deferrals under the guidance, or where they need support for the first time, this will be reflected on credit files in accordance with normal reporting processes. This will help lenders have an accurate picture of consumers' financial circumstances and reduce the risk of unaffordable lending. The FCA expects firms should be clear about the credit file implications of any forms of support offered to consumers.
The deadline for comments on the draft guidance is 21 September 2020.
FCA review of future regulation of unsecured credit market: Christopher Woolard to chair
The FCA has announced that Christopher Woolard, FCA Interim Chief Executive, will chair its review of the future regulation of the unsecured credit market.
The review will concentrate on how regulation can better support a healthy unsecured lending market. It will take into account:
- the impact of COVID-19 on employment security and credit scores; and
- changes in business models and new developments in unsecured lending, including the growth of unregulated products in retail and the workplace.
Mr Woolard will be assisted by an advisory group that will include individuals from outside the FCA with extensive expertise in consumer interests and unsecured lending, as well as Therese Chambers, the FCA Director leading its consumer credit business priority. The FCA will publish the composition of the advisory group and the detailed terms of reference for the review in due course.
Mr Woolard will make recommendations to the FCA Board in early 2021.
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