This guidance applies to regulated firms that enter into rent-to-own (RTO), buy-now pay-later (BNPL) (as defined in the FCA Handbook), or pawnbroking agreements. In addition, this guidance applies to firms that have acquired such loans.
This guidance applies in the exceptional circumstances arising out of the coronavirus (Covid-19) pandemic and its impact on the financial situation of customers. It is not intended to have any relevance in circumstances other than those related to coronavirus.
This guidance sets out our expectation that firms provide, for a temporary period only, exceptional and immediate support to customers facing payment difficulties due to circumstances arising out of coronavirus. It is intended to provide help to those who might be having temporary difficulty in making payments due to a loss of or reduction in their income (or income of other members of their household) or to those who expect to experience such difficulties.
This guidance applies where customers are already experiencing or reasonably expect to experience temporary payment difficulties as a result of coronavirus. Where a customer was in pre-existing financial difficulty, our existing forbearance rules and guidance in CONC would continue to apply. These would include for example the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time.
We will review this guidance in the next 3 months in the light of developments regarding coronavirus and may revise the guidance if appropriate.
This guidance builds on Principle 6 ('A firm must pay due regard to the interests of its customers and treat them fairly'). It sets out the FCA’s expectations for firms to provide coronavirus related support for customers who are experiencing or reasonably expect to experience temporary payment difficulties at the current time. When implementing this guidance, firms should take account of the particular needs of their vulnerable customers.
The guidance is potentially relevant to enforcement cases and the FCA may take it into account when considering whether it could reasonably have been understood or predicted at the time that the conduct in question fell below the standards required by Principle 6.
Payment deferrals
In this guidance, 'payment deferral' means an arrangement under which a firm permits the customer to make no payments under their regulated credit agreement for a specified period, or extends the period until payments are due, without being considered to be in arrears.
Where a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to coronavirus, and wishes to receive a payment deferral, a firm should grant the customer a payment deferral for 3 months unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so.
Where the agreement in relation to which a customer is granted a payment deferral is:
- a pawnbroking agreement, the firm should extend the redemption period for 3 months or, if the redemption period has already ended, agree not to give notice of intention to sell an item of pawn for that period. If notice of intention to sell has been given, the firm should suspend the sale for 3 months.
- a BNPL agreement where the customer is within the promotional period, the firm should extend the promotional period for 3 months.
Where an RTO customer has a payment deferral or the agreement is extended we would expect firms to consider the impact on warranties or insurance sold or arranged by the firm. We expect firms to take steps at least as favourable to those it has taken, or would take, where customers are in a similar position due to our standard forbearance rules, for example, by allowing the customer to continue to be able to rely on insurance and warranties during a payment deferral or an extension to the RTO agreement. Where this is not possible, firms should make customers aware of the implications.
Where the term of an RTO agreement is being extended and the customer has insurance or warranties they have purchased separately, firms should bring to the attention of the customer the need to consider wider implications.
An example of a situation in which a payment deferral may be appropriate is where there is or will be a temporary reduction in household income that would have otherwise been used to make loan payments.
In determining whether a 3 month payment deferral is obviously not in customers’ interests, firms should consider both a customer’s need for immediate temporary support and the longer-term effects of a payment deferral on the customer’s situation, in particular the customer’s ability to repay any accrued interest once the payment deferral ends, and over what period. The interest rate and remaining term will be among the relevant considerations. Whether the agreement is subject to a price cap that would limit the accrual of additional interest may also be relevant, for example an RTO agreement entered into after 1 April or 1 July 2019 (as determined by CONC 5B). A payment deferral would obviously not be in customers’ interests if it would give the firms’ customers a greater overall debt burden compared to other solutions (that might involve reduced or waived interest for example) that could equally meet customers’ needs and that burden would be clearly unsustainable.
There is no expectation under this guidance that the firm makes enquiries with each customer to determine the circumstances surrounding a request for a payment deferral, or whether this is not in the customer’s interests. We have disapplied[2] CONC 6.7.18R and 6.7.19R to give effect to this.
Where a 3 month payment deferral is not considered appropriate, firms should without unreasonable delay, offer other ways to provide temporary relief to the customer in accordance with Principle 6: treating customers fairly. This could include waiving or reducing interest, alone or together with reduced payments or a rescheduled term. This could also include a payment deferral of fewer than 3 months if, for example, the expected loss of income is for a shorter period, or accepting a sum below the normal payment due if, for example, the loss of income is partial. Where payment deferral is reduced, appropriate changes to the time periods related to pawnbroking redemption periods and BNPL promotional periods above should be made by the firm.
In all cases, a payment deferral or other way to provide temporary relief should both provide the necessary immediate temporary support to customers and avoid the build-up of unsustainable debt as a result of interest, fees or charges.
Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of 3 months. This means that a payment deferral could go beyond the point where the 3 month window for requesting a payment deferral expires.
Firms should make clear in their communications, including on their websites, that payment deferrals are available as set out in the circumstances described above. Firms should make it as easy as possible for their customers to contact them both online and by phone. In addition, if, during an interaction between the firm and the customer, the customer provides information suggesting that the customer may be experiencing or could reasonably expect to experience temporary payment difficulties as a result of circumstances relating to coronavirus, the firm should ask whether the customer wishes it to consider granting a payment deferral. Firms should also make customers aware, when contacting them about missed payments of the availability of a payment deferral if their payment difficulties relate to circumstances relating to coronavirus.
Firms are not prevented from continuing to charge interest during a deferral period. If the customer is unable to resume payments at the end of the payment deferral period because of payment difficulties at that time, they should contact the firm. The firm should work with the customer to resolve these difficulties in advance of payments being missed.
Where a customer, who received a payment deferral, or a different solution for a period where a payment deferral has been deemed not in the customer’s interests is entitled at the end of the period to forbearance under our existing rules due to circumstances relating to coronavirus, we expect any interest accrued during the relevant period to be waived.
On an RTO agreement this waiver of interest should have no impact on the firm’s calculation of the total cost of the agreement for the purpose of the total cost of credit cap in CONC 5B.2.11 R. Such costs should continue to be calculated as though the interest had not been waived, thus having the effect of limiting the extent to which further interest or charges could be added.
The firm should allow the customer to repay the deferred payments and any accrued interest over such period and in such amount as the customer can reasonably afford, including over a period that extends beyond the original period of the loan. For example, in some circumstances the deferred amounts could be repaid in addition to normal repayments across a small number of months after the deferral, or over the remainder of the original term. Where necessary, repayments of the deferred amount could be repaid across an extended period that goes beyond the original term.
A firm should give customers adequate information to enable them to understand the implications of a payment deferral, including the consequences of interest that is accrued during this period and its effect on the balance due under the agreement and on future payments.
In relation to BNPL agreements, firms’ attention is drawn to the communication obligations in CONC 6.7.16A R regarding giving customers notice of any action they need to take towards the end of the promotional period, in good time for them to take that action. In these circumstances that should include the possibility of deferring the end of the promotional period and explain the consequences of this on backdated interest on any outstanding balances at the end of the promotional period.
A customer should have no liability to pay any charge or fee in connection with the permitting of a payment deferral, or a different solution where a payment deferral has been deemed not in the customer’s interests, under this guidance.
The payment deferrals described here should be regarded as being offered in exceptional circumstances outside of the customer’s control. In accordance with the relevant Coronavirus Data Reporting Guidance published by the Credit Reference Agencies in consultation with SCOR, firms should not report a worsening arrears status on the customer’s credit file during the payment deferral period. However, where additional forbearance is required, for example in the form of waived interest and charges, we would expect this to be reflected in the usual manner.
Where customers have been unable to reach timely agreement with firms for a payment deferral because of firms’ operational difficulties and subsequently miss a payment which is reported to their credit file, or where they have entered into a similar temporary payment deferral arrangement with their lender as a result of the coronavirus situation which has resulted in a worsening arrears status being reported, we would expect firms to work with customers and Credit Reference Agencies to ensure that any necessary rectifications are made to credit files to ensure no worsening arrears status is recorded during the payment deferral period. Firms should also ensure no default or arrears charges are levied in relation to payments missed in these circumstances.
Redeeming, collecting or repossessing goods
During the period this guidance is in force, firms should observe the Government’s instructions on social distancing and self-isolation. Where this prevents collection or repossession of goods through no fault of the customer, no interest, fees or charges should be charged.
Where a customer is experiencing temporary difficulties related to coronavirus and needs the goods, we consider that commencing or continuing repossession action is very likely to contravene Principle 6 – absent exceptional circumstances (such as a customer requesting that repossession continues).
No interest, fees or charges should be charged where adhering to the Government’s instructions prevents a customer making a payment. This includes where the customer is unable to attend a store to redeem an item taken in pawn as well as where a store is closed because of coronavirus. It also includes where a customer is not able to make a payment remotely or the firm is unable to accept such payments.
Where a firm has closed its stores, they should communicate this and any implications to customers, for example by SMS or email, signs in store windows, or recorded messages on their phone lines. Firms should also make it clear how customers can get in touch with them.
Process and next steps
We want to act quickly to protect consumers in these difficult times. We consider that the delay involved in publishing a formal consultation accompanied by a cost benefit analysis would be prejudicial to the interests of consumers. We are therefore not doing so. There is no statutory requirement to prepare a cost benefit analysis in relation to guidance.
We would welcome comments from stakeholders on this draft guidance by 5pm on Monday 20 April 2020. Please send your comments to: [email protected]
Timing
We will aim to publish the final guidance by Friday 24 April 2020, with them coming into force shortly after.
The FCA’s objectives and regulatory principles
The proposals in this guidance support our consumer protection objective and are designed to protect consumers by providing them with temporary support in the light of the current exceptional circumstances arising out of coronavirus.
Equality and Diversity
We are required under the Equality Act 2010 to ‘have due regard’ to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by or under the Act, advance equality of opportunity between persons who share a relevant protected characteristic and those who do not, and to foster good relations between people who share a protected characteristic and those who do not.
As part of this, we ensure the equality and diversity implications of any new policy proposals are considered. We do not consider this guidance will adversely affect consumers with protected characteristics.