Consumer finance regulatory news, July 2020

Hogan Lovells

Hogan Lovells

Recent regulatory developments of interest to financial institutions with focus on consumer finance. Includes further COVID-19 support for customers, an FCA update on bank overdraft pricing decisions, and more.


  • COVID-19: FCA further measures to support credit card, overdraft and personal loan customers
  • Banks' overdraft pricing decisions and plans to support consumers: FCA update
  • Consumer Credit Directive review: European Commission consultation

COVID-19: FCA further measures to support credit card, overdraft and personal loan customers

Following a short consultation, on 1 July 2020 the UK Financial Conduct Authority (FCA) published the following updated guidance on credit cards, overdraft and personal loans to further support consumer credit customers if they are still experiencing temporary payment difficulties due to COVID-19:

It has also published a feedback statement, FS20/9, in response to its consultation.

Although there is a great deal of continuity from the measures introduced in April, there are changes as well as shifts in emphasis. Given the potentially serious knock-on consequences for firms after COVID-19 passes, firms should act swiftly but judiciously in implementing the necessary changes to documentation and processes.

Read the key points from the updated guidance in our briefing: COVID-19 - Further support for consumer credit customers: the FCA's updated guidance.

The guidance came into effect on 3 July 2020 and, unless renewed or updated, expires on 31 October 2020, except for those aspects that remain in force after 31 October to enable firms to address residual issues for those customers coming to the end of payment deferrals after that time.

Banks' overdraft pricing decisions and plans to support consumers: FCA update

The FCA has published a statement giving an update on its work relating to banks' overdraft pricing decisions and plans to support consumers. The statement follows on from the FCA's January 2020 letter, in which it asked banks to explain how they had reached their new overdraft rates ahead of the entry into force of the FCA's new rules on overdraft pricing in April 2020.

The FCA states that it has now analysed the strategic, competitive and financial drivers of banks' overdraft pricing decisions based on their responses to its letter. Having reviewed the evidence obtained, the FCA indicates that it does not intend to open a formal investigation at this stage.

The FCA notes that, while many of the banks' new rates were similar, it has seen a range of pricing structures and price points. It has also seen some challenger firms already offering lower overdraft rates. Overdraft charges are still higher than other mainstream borrowing products like credit cards and personal loans, but the FCA expects these forms of credit to create more competitive pressure on overdraft charges as consumers respond to the pricing changes and greater transparency.

The FCA intends to watch how prices develop, particularly during and after the coronavirus pandemic. It requires firms to publish information on their overdraft pricing alongside the information they already publish about current account services. This information is due to be published for the first time in August 2020 and will cover the quarter from 1 April to 30 June 2020. The FCA also plans to carry out a post-implementation evaluation of its overall package of overdraft remedies after April 2021.

Despite temporary measures introduced in light of COVID-19, the FCA states that it expects firms to continue with the support programmes they have put in place to manage the impact of their previously announced pricing changes and will monitor closely how they implement this support.

Consumer Credit Directive review: European Commission consultation

The European Commission has launched a single consultation to gather views on the following four initiatives that it plans to propose in 2020 and 2021 under its New Consumer Agenda framework:

  • a Communication on a New Consumer Agenda;
  • empowering the consumer for the green transition;
  • review of the Consumer Credit Directive (CCD); and
  • review of the General Product Safety Directive.

Last week we reported that the Commission had published an inception impact assessment following its evaluation of the Consumer Credit Directive (CCD). It is due to publish its findings in summer 2020.

In this consultation, there are four sections, one of which is dedicated to the review of the CCD. The Commission seeks views on issues identified during its evaluation, in particular, on scope, information provision, creditworthiness assessment and the impact of COVID-19 on the credit market and on consumers.

The Commission intends to use the results of the consultation to help it draft a legislative proposal to amend the CCD. It anticipates that it will publish this in Q2 2021.

The consultation runs until 6 October 2020.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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