Consumer credit debts see three month moratorium: credit cards, overdrafts and personal loans

15 Apr 2020

The COVID-19 crisis has prompted the Financial Conduct Authority (FCA) to issue authoritative guidance to consumer credit lenders obliging them to grant a three month moratorium on debts and to reduce interest costs.
Whilst borrowers are working out how to continue servicing their debt and lenders work out how to survive loss of an income stream, the FCA issued the new guidance on 9 April 2020 and it came into force yesterday, Tuesday 14 April 2020.
The rule changes, in overview, are:
  • to give indulgence to debtors during this crisis by relaxing the rule that prescribes that minimum payments be made on credit card statements; and
  • to disapply the forebearance rules for dealing with credit card debtors contained in CONC 6.7.27R to 6.7.40G.
Other than those two changes, the FCA are offering what they deem as “guidance”. The FCA has said “this guidance sets out our expectation that firms should provide, for a temporary period only, exceptional and immediate support to consumers facing payment difficulties due to circumstances arising out of coronavirus. The FCA has made it clear that this guidance is based on it’s Principle 6, that “a firm must pay due regard to the interests of its customers and treat them fairly”. They have followed this with a statement confirming “This 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”.
Credit card debts
The FCA has really left to onus with the debtor – any debtor who is experiencing financial difficulty due to COVID-19 should contact their lender to request a deferral. Lenders may wish to undertake their own due diligence but then if satisfied, should grant a payment deferral as they see fit, up to a maximum of three months. Lender may wish to offer a shorter period where debtors may return to their full income quicker than three months. The FCA have confirmed that these deferrals are not to be entered as adverse items on the debtor’s credit record and the lender should not charge any fee for granting the deferral.
Similar to the mortgage repayment holiday announced by the government, this is only a deferral of the debt and it is not written off altogether. Lenders are still entitled to charge interest during any deferral period but, if at the end of any deferral period, the debtor is still experiencing financial difficulties, the ordinary forebearance rules will apply (see CONC 6.7.27R. The FCA have said that in any such circumstances, they would expect the interest accrued during the deferred period to be waived.
The full guidance issues can be found for lenders here and for borrowers here.
The guidance on relates to overdrafts on a customer’s “primary, personal current account” and therefore excludes any business accounts and applies to lenders including passported EEA firms (but excludes private banks and credit unions).
The guidance states that for a period of three months:
  • no interest should be payable in respect of up to £500 of the balance of the arranged overdraft;
  • where an arranged overdraft has a limit of over £500, firms should not charge interest on the first £500 irrespective of whether the balance exceeds that amount; and
  • in the case of an arranged overdraft with a limit of £500 or below, the entire balance should be interest-free. 
The period of three months starts from the date that the customer requests it and therefore could be in force longer than the scheme generally remains available to all customers, if not extended by the FCA. Customers will be able to apply in the usual manner and will be subject to the lender’s creditworthiness checks, as they usually would.
The FCA has confirmed that it expects that the guidance will allow firms to provide “for a temporary period only, exceptional and immediate support to consumers facing temporary difficulties with their finances, or who can reasonably expect to face temporary difficulties with their finances, due to circumstances arising out of coronavirus”. They have also acknowledged that “overdraft facilities are not an appropriate means to manage long-term financial difficulty and wish to guard against future over-indebtedness”. The FCA further confirms that “[w]here a customer was in arrears in circumstances other than those related to coronavirus our existing forbearance rules and guidance in CONC would continue to apply in the first instance.”
Rules for overdraft pricing continue to be set out in the FCA’s document PS19/16 and the FCA have confirmed that “for all firms, they will need to demonstrate to the FCA that the rates they charge are consistent with this guidance”. Lenders will therefore have to be mindful that they cannot hike up overdraft charges unnecessarily without regard for the guidance. The full guidance on overdrafts can be found here.
Personal loans
The FCA has confirmed that all other regulated consumer credit agreements other than those secured on land will follow similar guidance to that on credit cards.
The FCA will continue to review this guidance over the course of the next three months in light of developments with COVID-19 and will revise the guidance as they see fit. Full guidance can be found for firms here.
If you have any concerns or queries as a result of any of the above, please contact Gwen Godfrey, Michael Wrigley or Katie Layton by phone or by email, or get in touch with your usual contact at DMH Stallard LLP.

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