The City regulator has set out proposals on how to continue to support personal loan customers that are struggling amid the pandemic.
In April, the Financial Conduct Authority (FCA) introduced rules requiring personal loan providers to offer temporary payment freezes to borrowers affected by the Covid-19 pandemic.
Now it has proposed 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. The FCA said if customers can afford to return to regular repayments it is in their best interest to do so.
For customers still facing temporary payment difficulties as a result of coronavirus, the regulator has proposed firms should continue to provide them with support. Options include a further payment deferral or reducing payments to an amount the customer can afford for a further three months.
The FCA also wants to extend the scheme so customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to Covid-19, would be able to request one up until 31 October 2020.
This guidance only applies to credit cards and other retail revolving credit, such as store cards and catalogue credit, personal loans and overdrafts.
Where a customer needs further temporary support to bridge the crisis, the FCA said any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files.
“We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency,” said Christopher Woolard, interim chief executive at the FCA.
“The proposals we’ve announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus.
“Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”
The FCA said it welcomes comments on these proposals until 5pm on 22 June 2020 and expects to finalise the guidance shortly afterwards.
Eric Leenders, managing director, personal finance of trade body UK Finance, said the FCA draft guidance follows extensive collaboration between the industry and regulator and provides welcome clarity on the potential next steps available to consumer credit customers.
“The industry will be responding to these draft proposals and looks forward to the regulatory guidance being finalised swiftly to ensure both borrowers and lenders can plan ahead to ensure customers can have some peace of mind regarding the consequences of Covid-19 on their money,” said Leenders.
Bill McCaffrey, head of consumer finance at law firm CMS, said whilst the FCA’s proposal of extending payment deferrals for a further three months will be welcome relief to some customers, trouble may be brewing.
“Extending relief means that some customers will receive a payment deferral of six months,” he said.
“This is not payment forgiveness though, the deferred amounts, and interest, will need to be caught up when payments resume. Although the latest statement is applicable only to credit cards, personal loans, and overdrafts, it is likely that similar measures will be proposed for motor finance shortly.”
Stephen Haddrill, director general of the Finance & Leasing Association, also welcomed the proposals and said the FCA, the Treasury and the Bank of England must ensure their approach to forbearance and support for lenders are developed together.
“Helping customers through this difficult period remains a priority for lenders, but with more parts of the economy reopening, lenders also have a responsibility to transition customers back to regular payments where possible,” said Haddrill.
“The FCA’s advice to customers to consider carefully if a further payment deferral is really the best option is important.
“The cost of forbearance is already at unprecedented levels. The FLA has sought urgent assistance from government to enable lenders to continue to provide affordable lending to consumers and businesses through the crisis and during the recovery.”