Accept All Cookies
On 2 April 2020, the UK Financial Conduct Authority (“FCA”) proposed a number of temporary measures designed to support users of certain consumer credit products during the adverse economic conditions in the UK generated by the COVID-19 pandemic. These proposals provide guidance to FCA regulated providers of credit cards, retail revolving credit facilities, arranged overdrafts and personal loans. The FCA decided to consult for an unusually short period on these proposals, with the consultation closing at 9:00 a.m. on 6 April 2020. The FCA intends for these measures to come into effect on 9 April 2020.
This memorandum focuses on the FCA’s proposals for firms providing personal loans and credit cards under the UK’s regulated consumer credit regime.
The FCA’s proposed guidance only applies where consumers are already experiencing, or reasonably expected to experience, temporary payment difficulties as a result of the COVID-19 pandemic. Where a customer was in pre-existing financial difficulty, the FCA’s existing forbearance rules and guidance in the Consumer Credit section of the FCA’s Handbook (“CONC”) will 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.
The proposed guidance is designed to explain and give context to Principle 6 of the FCA’s Principles for Business (“A firm must pay due regard to the interests of its customers and treat them fairly”). The FCA states that the guidance is potentially relevant to enforcement cases and will likely 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.
The proposed guidance suggests the key action firms should take during the crisis is to allow for payment deferrals by a consumer.
In the context of personal loans, a ‘payment deferral’ is defined as an arrangement under which a consumer credit firm permits the borrower to make no payments under their regulated credit agreement for a specified period without being considered to be in arrears.
In the context of credit cards and revolving credit agreements, a ‘payment deferral’ means an arrangement under which a firm permits the customer to make no payments (or a token payment not exceeding a £1 where firms’ system will not allow a zero payment) under their credit card or revolving credit agreement for a specified period without being considered to be in arrears.
Two separate but similar sets of guidance provide the regulator’s expectations in respect of payment deferrals for both types of consumer credit, including the following key aspects:
In the light of Principle 6 of the FCA’s Principle for Businesses, the proposed guidance suggests firms should review their pricing and interest strategies to consider whether they are consistent with the obligation to treat customers fairly in the light of the exceptional circumstances arising out of COVID-19. According to the FCA, interest rates for these types of products should not pose unjustifiable burdens on these consumers who may be experiencing payment difficulties. Note that the proposed guidance stops short of requiring card lenders to reduce interest rates during the pandemic and recognises that firms will sometimes charge much higher rates for cards which are usually marketed or offered to low income customers or those with poor credit ratings. That said, the clear regulatory expectation is that firms should consider whether it is in line with Principle 6 to maintain such higher rates during the COVID-19 pandemic.
 Consumer Credit (Temporary COVID-19 Support Measures) Order 2020.