Recent regulatory developments of interest to financial institutions with focus on consumer finance. Includes FCA COVID-19 updates and review findings from equity release sales and advice process review.
- COVID-19: FCA proposes further support for credit card, personal loan and overdraft customers
- COVID-19: FCA updates mortgage guidance
- Equity release sales and advice process review: FCA review findings
COVID-19: FCA proposes further support for credit card, personal loan and overdraft customers
On 19 June 2020, the UK Financial Conduct Authority (FCA) published proposed updated temporary guidance for firms relating to continued support for users of certain consumer credit products who are facing a financial impact because of the exceptional circumstances arising from COVID-19. The draft guidance comprises:
The proposals outline the support firms would be expected to provide credit card and other revolving credit (store card and catalogue credit) and personal loan customers coming to an end of a payment freeze, as well as those who are yet to request one.
For customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500, the time to apply for one would be extended until 31 October 2020.
For those who have already taken up support and are still experiencing temporary payment difficulties due to COVID-19, firms would continue to offer support with options including a further payment deferral or reducing payments to an amount the customer can afford for a further three months.
At the end of a payment freeze, firms should contact their customers to find out if they can resume payments, and if so, agree a plan on how the missed payments could be repaid. If customers can afford to return to regular repayment the FCA notes that it is in their best interest to do so.
Firms should be particularly aware of the needs of their vulnerable customers and should consider how they engage with them. Firms should also help customers understand the types of debt help and money guidance that are available and encourage them to access the resources that can help them.
The consultation ends on 22 June 2020 and the FCA expects to finalise the guidance shortly afterwards.
The FCA emphasises that this proposed guidance only applies to credit cards and other retail revolving credit, such as store cards and catalogue credit, personal loans and overdrafts. It does not apply to other consumer credit products, such as motor finance, high-cost short-term credit, rent-to-own, pawnbroking and buy-now pay-later. These are covered by separate guidance that will be updated soon.
COVID-19: FCA updates mortgage guidance
On 16 June 2020, the FCA updated its guidance for mortgage firms in light of COVID-19.
The guidance has been updated to clarify that firms that were unable to provide personalised information under the 4 June 2020 version of the guidance, but provided information and assistance in a manner that is consistent with the updated guidance, will not be treated as having acted inconsistently with the guidance.
The updated guidance states that where a firm is unable to provide personalised information, it should provide customers with the clearest information and assistance possible to help them understand the impact of their decision on their monthly payment and mortgage term and enable them to make an informed decision. In considering how best to provide this information and assistance, a firm may wish to consider a combination of options such as:
- representative examples that are relevant to the customer's circumstances;
- representative examples that a customer can be guided through (for example, using an online tool) relevant to the customer's circumstances;
- providing a calculator embedded on its website that will allow a customer to understand the impact on their own monthly payment, mortgage term, or both;
- signposting to an external calculator that can be used by the customer to understand the impact on their own monthly payment, mortgage term, or both, and providing the customer with information on their loan balance, remaining term and interest rate so that this can be used in the calculator; and
- signposting to an external calculator and signposting to where customers can find reasonably up-to-date information on their loan balance, remaining term and interest rate so that this can be used in the calculator.
In addition, the updated guidance explains that where an existing regulated mortgage contract is being varied or other assistance is provided in line with the guidance, the FCA's Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) rules, MCOB 7.6.28R and MCOB 7.6.28AR, set out the required disclosure about any change in the payments due.
Equity release sales and advice process review: FCA review findings
The FCA has published its key findings following its review into the equity release sales and advice process.
The FCA notes that its findings were mixed. It saw cases where lifetime mortgages were working well, unlocking equity for consumers who would not have been able to afford traditional mortgages or other sources of borrowing. However, the FCA also saw cases where it was not clear that the advice was in the best interests of the consumer.
The FCA identified three significant areas of concern about the suitability of advice provided, detailed further in its findings, which it considers increase the risk of harm to consumers in this market:
- insufficient personalisation of advice;
- insufficient challenging of customer assumptions; and
- lack of evidence to support the suitability of advice.
In light of the review, all firms offering equity release products are advised to read the FCA's findings and take action to ensure consumers are receiving advice tailored to their personal circumstances. In particular, all firms should ensure that:
- they take reasonable steps to obtain sufficient information from customers to provide advice;
- when giving advice to enter into an equity release transaction (for the first or subsequent time, including making amendments to existing equity release products), the advice given is suitable; and
- they collect and retain the necessary evidence to support that assessment of the suitability of advice and how it was determined.
Where necessary, the FCA is addressing its findings with the firms in the sample reviewed. As part of its ongoing supervision of mortgage intermediaries, the FCA will undertake further work to review the suitability of advice in the lifetime mortgage market.