In a timeframe reserved for emergency measures, the FCA required firms to have responded to its proposed measures by Monday 6 April. If confirmed, the new rules come into force on Thursday 9 April.
The package is intended to complement measures already announced by the government to support mortgage holders and renters and the assistance being provided for furloughed employees and the self-employed.
In summary, the FCA are proposing consumer credit firms offer:
- A three-month repayment freeze on personal loans
- A three-month freeze on credit cards, store cards and catalogue credit debt or allow consumers to make a nominal payment with a requirement on firms not to suspend cards during this period
- Zero interest for three months on up to £500 for customers affected by coronavirus using an existing arranged overdraft on their main personal current account
With the exception of the £500 overdraft proposal, firms would be entitled to charge a reasonable rate of interest where a customer requests a temporary payment freeze. In the event that a customer requires full forbearance that interest should be waived. The FCA have also mandated that consumers using any of these measures should not see their credit rating affected. While this will undoubtedly assist many consumers with short term cash flow, firms need to ensure that they continue to treat their customers fairly. As a result, firms should not charge excessive interest which may cause mounting and spiraling debt that consumers cannot repay, effectively creating longer term financial hardship.
The importance of the FCA's Principles for Businesses is long established and a failure to act in accordance with one or more of the Principles is nearly always at the heart of enforcement action. Consumer Credit firms should not forget this when operating in this extraordinary environment and the FCA will undoubtedly be looking to firms to act in accordance with the Principles, and in the spirit of the rules, rather than maintaining strict policies which might, for example, be perceived to result in consumer detriment. Similarly, Senior Managers should have the Senior Managers & Certification Regime ("SM&CR") Conduct Rules front of mind when reacting to COVID-19. After all, they will be ultimately accountable tomorrow for the decisions that they take today.
In summary, the FCA proposals will be welcome news for many consumers and demonstrates how the FCA is creating a level playing field across the lending market including for those consumers who do not use mainstream credit. That said, the current crisis is also bringing immediate liquidity and capital adequacy challenges for consumer lending firms themselves. The fact that the FCA were not satisfied that consumer lending firm "Uncle Buck" met the 'Adequate Resources' Threshold Condition and required them to stop lending led to the firm being placed into Administration on 27th March and is a timely reminder that the regulator will intervene where firms don’t continually meet Threshold Conditions. However, the Finance and Leasing Associated ("FLA") has secured access for independent and non-bank lenders to the Coronavirus Business Interruption Loan Scheme ("CBIL") allowing firms to continue to run their business, support existing customers' request for forbearance and to continue lending to new customers.
Gaining access to the CBIL is good news for consumer credit firms, helping them continue to lend to new customers and helping many more firms to continue to do business and bridge the immediate challenges, thus contributing to keeping the economy going and maintaining the integrity of financial markets.
In the meantime, the FCA have delayed a number of consumer credit publications and scheduled reviews that were due before the end of June until further notice, most notably:
- Motor Finance Policy Statement
- Consumer Credit Act ("CCA") review
- Credit Information Market Study
This recognises the need for both the FCA and firms to prioritise their activities and focus on those areas of greatest consumer risk and need.