What’s this about?

The FCA has published its final rules which incorporate the current Tailored Support Guidance into its Handbook Rules – by making amendments to CONC and MCOB. The new rules are in PS24/2. The FCA has also published new non-Handbook Guidance for mortgage firms in FG24/2, which replaces the previous Guidance in FG23/2.

What you need to know

Key points

  • These new rules do not just incorporate existing requirements into the Handbook – there are new expectations and requirements. There will need to be changes to policies and procedures.
  • The implementation period is shorter than the industry was hoping for. There will be just over 6 months to implement the new rules. The new rules come into force on 4 November 2024.

Points of more detail

  • It’s wider than just actual payment difficulties: MCOB and CONC will be amended to capture customers in potential financial difficulty at an earlier stage. This is achieved by widening the scope of the rules to include customers who may have payment difficulties, not just those who do have difficulties.
  • Identifying at-risk customers is key: Lenders will need to consider how they identify customers at risk of falling into payment shortfalls and include this within their written policies and procedures. Awareness of a customer's situation might come from that customer missing instalments on other products or be highlighted by a third-party debt adviser.
  • Policies and procedures for ongoing assessment: It is important that lenders periodically review their policies and procedures aimed at helping customers who have or may have payment difficulties at “appropriate intervals”.
  • Transparency of forbearance options: For mortgages and overdrafts, there will need to be website publication of the range of forbearance measures that may be used to support customers in payment difficulties (although this requirement is not imposed for loan products The FCA has expanded what options a firm may consider, including waiving or deferring payment of capital and/or interest and reduction of interest rates.
  • Communications: Lenders will be expected to engage with customers via a range of different channels to reflect individual customers' circumstances.
  • Signposting debt advice: The Handbook will be strengthened to require lenders to inform customers of free and impartial debt advice from not-for-profit bodies and to effectively communicate the benefit of accessing free advice. This is likely to need more than simply a standard reference in letters.
  • Effect of the arrangement on wider indebtedness: A new rule is to be introduced which requires lenders to take account of the effect of any potential arrangement on the customer’s overall balance. The lender will need to consider the customer’s wider indebtedness and the effect any arrangement will have on other debts, for instance utilities bills.
  • More information provided to customers considering their options: Lenders will need to give customers adequate information to understand the implications of any proposed arrangement, including on not agreeing to the arrangement, including any impact on the customer’s credit file. The FCA also wants customers to have clearer information about what information a lender will and will not report to credit files, with a very to removing some of the reluctance in customers seeking initial help.
  • Ongoing review: Any arrangements agreed with customers must remain suitable and be reviewed at appropriate intervals. It may not always be suitable renew an arrangement on the same terms.

Specific points for mortgage firms

Lenders must not automatically capitalise payment shortfalls where the impact would be material. However, lenders will have to discretion to decide when it may be appropriate to capitalise if that leads to a better customer outcome and, taking account of the root cause of the payment shortfall, the customer can afford capitalised payments.

These will need to be sent to customers in arrears, even if charges are not being incurred.

Lenders were concerned about the proposed requirement to notify customers of a payment shortfall if not remedied within 5 days. The FCA is not going ahead with this proposed change, noting the feedback that a large number of customers do remedy a payment shortfall within 30 days and that additional communications may be counter-productive.

Specific points for unsecured lenders

Whilst CONC 7 applies to consumer credit lending which includes some SMEs, it was recognised that firms may need to consider different factors when (a) providing forbearance to SME customers and (b) considering income and expenditure information. This has been reflected in the Handbook.

The FCA is increasing the obligations on firms when it comes to identifying early repeat use of overdrafts, including the information firms need to have under review. The FCA points to firms that offer both personal current account and overdraft products being likely to have advanced analytics teams and using those resources to develop methods that identify customers most at risk of harm. Firms will need to consider their communication strategies for identified customers.

The FCA is now making it a Handbook requirement that, where a firm has entered into a sustainable repayment arrangement as a forbearance measure, and as long as the customer is meeting the terms of the arrangement, the firm must reduce, waive or cancel any further interest or charges to the extent necessary to ensure the level of debt under the arrangement does not rise for the period of the agreement. The new rule will make it clear that any such waived interest or charges cannot be later re-imposed.

The FCA is not implementing more detailed descriptions of acceptable charges, although it will implement a requirement on firms to consider the frequency and nature of charges. There is a suggestion that some charges might now be out of line with reductions in costs as a result of firms using more electronic communication.

In the Consultation the FCA proposed introducing a new requirement that firms must take all reasonable steps to ensure that any payment arrangements are sustainable. This will be implemented with supporting guidance in CONC 7 and CONC 5D and there has been a slight amendment to the scope of “priority debts” that need to be factored in when a firm considers whether a payment arrangement is suitable. The FCA says it is conducting a review of CONC 8 Debt Advice.

CONC 7.3.17R will be extended to goods and vehicles. The FCA acknowledges that there is no ‘one-size-fits-all’ approach to forbearance before commencing repossession but actions to repossess should not be started until all other reasonable attempts have failed.

The FCA is implementing the proposed guidance on VT so that where it may be in a consumer’s best interest to VT, this information is provided in good time and is clear, fair and not mis-leading to allow a consumer to decide how to proceed. The information to be provided includes information about reporting to credit reference agencies.

CONC App 1.2 will be amended so that lenders will be required to include in their calculation of the APR situations where they may exercise their rights under a continuous payment authority to take all the balance outstanding under the agreement which results in regular redrawing by the customer.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

12 April 2024

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