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FCA proposes changes to support for borrowers in financial difficulty

  • 25/05/2023
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FCA proposes changes to support for borrowers in financial difficulty
The Financial Conduct Authority (FCA) has launched a consultation to make permanent changes to the support lenders offer borrowers who face financial difficulties, following the targeted support brought in during the pandemic.

The regulator said it was consulting on this as the financial resilience of UK households was “weakening”. 

The consultation paper said: “As consumers across the country are affected by the rising cost of living, it is important that lenders support their customers, including those in financial difficulty.” 

The proposed changes could see some aspects of tailored support guidance (TSG), which were introduced in 2021, incorporated into its Consumer Credit (CONC) and Mortgages and Home Finance: Conduct of Business (MCOB) sourcebooks.  

The FCA does not plan on keeping support guidance that was only relevant to the Covid-19 pandemic. 

This will apply to consumer credit lenders, mortgage lenders and administrators, as well as home purchase providers and administrators. 

It said it wanted to provide a stronger framework to support customers with payment difficulties to deliver good customer outcomes, as outlined in Consumer Duty. 

For mortgages, the FCA is proposing to give firms more scope to capitalise payment shortfalls where appropriate, improve disclosure for customers in payment shortfall and make the requirement to record telephone and video calls with customers in payment shortfall clearer. 


Supporting customers 

The FCA said its CONC 7 and MCOB 13 rules primarily focused on those who have already missed a payment, while TSG aimed to support borrowers before this happened as long as they showed that they were experiencing or likely to experience payment difficulties. 

The regulator said: “It is important that customers facing payment difficulties are encouraged to engage early with their lender. It is also essential that they get the support they need to help manage any payment difficulty and, where possible, to help them avoid or reduce any arrears or payment shortfall that may arise.  

“We therefore propose to expand the scope of the relevant chapters to make clear that they also apply to those who indicate to a firm that they are at risk of missing a payment, as well as any instances where this is identified by firms.” 

The FCA wants to expand the scope of MCOB 13.3.1R to ensure firms “deal fairly” with borrowers who have or may have payment difficulties. 

This will include circumstances where the customer has a payment shortfall, when a customer tells a firm that they are at risk of falling into payment shortfall, and where the firm becomes aware that a customer is at risk through other means. 

This might be through a debt adviser or where a borrower has multiple financial products with the same firm and has missed several payments. 

It said firms must act with discretion when engaging with customers about any help they may need and should not proactively take steps to identify such customers. 

As with TSG, firms must not take a “one size fits all” approach when offering support and the FCA said it was considering adding to the options that could be provided. 

Lenders will need to consider whether it is appropriate to waive or defer payment of capital and/or interest, whether it is appropriate to reduce the interest rate or apply simple interest. 

Alongside the current expectation to issue the MoneyHelper information sheet to mortgage borrowers, the FCA is proposing lenders also inform borrowers of free resources available and signpost them to guidance. 

Lenders must give borrowers “adequate information” of the impact any support may have on them, and the regulator is proposing that lenders explain the impact on the borrower’s overall balance and implications on their credit file. 


Easier route to mortgage capitalisation

It also proposed making it easier for lenders to offer the capitalisation of a mortgage, which is when any shortfalls are incorporated into future monthly repayments. The FCA said current guidance indicated that this should not be agreed to unless no other option is available. 

The FCA wants the Handbook to suggest that capitalisation may be appropriate if it is reasonably considered that the borrower can afford repayments, other options to repay the shortfall have been considered and it is deemed in the borrower’s best interest. 

The regulator said it will not prescribe the ways lenders determine that borrowers can afford the capitalisation of a mortgage. 

The consultation is open until 13 July and any new rules will come into force by the first half of 2024. 

Niki Cooke, chief revenue officer at Protection Guru, said: “It is imperative that lenders are putting in place the appropriate support for customers experiencing financial difficulty when making their monthly mortgage payments. Effective engagement from lenders should be available to ensure that customers can quickly act and given certainty with the cost-of-living crisis impact. 

“Advisers need to be as close to their customers as possible, providing options such as extending terms for remortgage clients, as they are having to extend to try and soften the blow on their finances of the inevitable increase in rates. 

“Too often, we are seeing that protection insurance to cover mortgage payments in case of unforeseen events is not part and parcel of the mortgaging and remortgaging process, elevating the issue of running into difficulty of meeting monthly payments when life events, such as separation, illness or even a loss of job incur.” 


Borrower redress 

This consultation paper was published along with the news that 17 lenders had paid over £47m in redress to 195,000 customers for failing to properly support borrowers in financial difficulties. 

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many firms have been following our temporary guidance, developed during the pandemic, to support borrowers in tough times. Our proposals today will help ensure this continues.  

“Where we see firms not providing the right support, we will act quickly to put this right. Firms are already paying up to £47m in compensation for not providing appropriate support to borrowers.  

“If you’re worried about keeping up with payments, we encourage you to talk to your lender as soon as possible.” 

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