The new guidance will supplement the information given in March, which was later updated in June.
If a firm has dealt with a customer who reached the end of their payment holiday before the guidance was issued, it must review its approach if customers are still unable to make repayments.
The FCA said firms had the flexibility and scope to tailor their approach to help multiple customers. In this situation, there are no requirements on how customer information is collected or how the appropriateness of forbearance is considered.
To deal with large numbers of payment deferrals ending at the same time, firms are able to offer short-term support which is broadly suitable to certain types of customers. Firms can also offer support on less information than what is required under MCOB 13 but support must be reviewed in 60 days.
However, the FCA warned short-term support may not be suitable for those who need their circumstances assessed quickly such as the unemployed, those with a short time left on their term or with high levels of debt.
Credit reporting
As stated in the additional guidance issued in September, normal credit reporting must resume at the end of a deferral from the status it was frozen at.
This will apply to customers who have had payment deferrals as well as those who experience financial difficulties as a result of the coronavirus after 31 January 2021, regardless of whether they have benefitted from a deferral or not, unless they are eligible for further support.
If a mechanism to repay accrued amounts is agreed at the end of a deferral, this should not result in negative reporting but subsequent credit reporting should resume as normal.
If customers are unable to reach a timely agreement due to firm’s operational issues and subsequently miss a payment which is reported to their credit file, firms must work with the Credit Rating Agency to rectify this and ensure no worsening status is recorded.
Also, no defaults or arrears charges must be levied to payments missed in these circumstances and customers should be returned to the position they would have been in if there were no operational issues.
New deferrals
For those who have not benefitted from any previous mortgage payment holidays, a full or partial payment holiday for three months must be offered unless an alternative means of support is more suitable.
The FCA said firms should act in the customer’s best interests with no regard to its own commercial interests.
It is not expected that the circumstances around the need to defer payments should be looked into, however enquiries can be made to offer alternatives, but this should not cause unnecessary delays.
Other means of support can include a shorter payment holiday, offering long term solutions such as an alternative product or a longer term as well as reducing or waiving interest.
Customers must be given sufficient information on the impact of a payment deferral, including personalised information on how it will affect their monthly payments or the term of their mortgage. Customers should also be informed that a partial deferral will have less of an impact on their financial circumstances.
Where personalised information is not available, firms should give customers the clearest information to help understand impact of payment deferral.
Firms should also give customers representative examples of how a mortgage payment holiday could affect them and they should also be directed to either online calculators either on the firm’s website or elsewhere so they can work out the loan balance, remaining term and interest rates.
At the end of deferral
When a customer has reached the end of their mortgage payment holiday, firms must distinguish between those who can resume payments immediately, those who are unable to resume due to circumstances arising from coronavirus, and those who have a payment shortfall.
Customers should be contacted in good time before the deferral period ends and have options explained to them. It should also be explained what will happen if they do not respond to communications.
If customer does not respond, a firm must proceed under the basis that they are able to resume full payments.
This can be a lump sum payment or the extension of the mortgage term unless it takes customer past retirement or is not legally possible.
Before capitalising sums, customers should receive personalised information on impact on monthly payments or mortgage term and firms must provide them with an estimate on costs. It should also be made clear that overpayments can be made instead of lump sum payments.
Payments should not automatically be capitalised if it will have a material impact on the customer.
If customers are treated as if they can make repayments but miss the following one, firms must contact them. If it turns out they are unable to repay the missed payment, additional help should be offered.
Customers who do not respond to communications after missing a payment should be considered as in a payment shortfall, the FCA advised.
If a customer is unable to resume payments after the first deferral, a full or partial deferral to an amount the customer believes they can afford should be offered unless alternative support is agreed upon.
If payments have resumed but the customer falls into difficulty, a full or partial deferral should be offered. This does not apply where a customer has agreed on an alternative option or has not maintained contractual repayments since the end of the deferral.
Firms should provide information describing the consequences for the total amount payable for those who are unable to resume payments or require extra help. It must also be explained that a worsening of their credit status will not be reported if a further deferral is taken, but lenders can take such information into account when making decisions.
Under MCOB requirements, missed payments covered by this guidance should not be considered a payment shortfall. However, if a new mortgage contract has been entered into, standard MCOB requirements apply and an illustration should be issued.
Record keeping
Firms must ensure staff are trained to implement processes and records must be kept to show how the support options presented were in the customer’s best interests.
Initial and further deferrals should also be recorded by firms, as well as any alternatives provided or problems affecting a customer’s ability to access support.
The FCA’s firm supervisors will be able to access firm records and outcomes of customer monitoring.
Debt and money advice
Firms should direct customers to free and impartial debt advice and money guidance.
To make referrals effective, firms should consider directing customers to digital tools, or offer to transfer a call directly to a debt advice provider. For those who may need specialised support, firms should direct customers to specialist services.
For customers who do not need debt advice, firms should suggest the customer sets up a budget or explain that it is better to pay for essential expenses and priority debts first.
The regulator said the consultation for this guidance was not statutory and asked firms to respond quickly as it said delays associated with publishing a formal consultation with a cost benefit analysis would go against customers’ interests.
Firms must respond by 10am on 5 November to FCAconsumercredit@fca.org.uk
