FCA finalises guidance for borrowers in financial difficulty

The FCA has finalised its rules and guidance to strengthen protection for consumer credit and mortgage borrowers in financial difficulty. It has decided to bring parts of its current guidance in FG23/2 for mortgage firms into its Rules and to replace that guidance with updated guidance.

The new rules and updated guidance build on the guidance the FCA issued during the pandemic, and have been adapted to address difficulties borrowers face in the ongoing cost of living crisis. The new rules will:

• include a requirement on consumer credit and mortgage firms to ensure they should provide appropriate support to customers in or at risk of payment difficulty;
• clarify FCA expectations on consumer credit and mortgage firms on customer engagement and provision of information to help customers;
• expect consumer credit and mortgage firms to consider a range of forbearance options and take reasonable steps to ensure they remain appropriate;
• require consumer credit firms to take into account a customer’s individual circumstances when providing forbearance (bringing these firms into line with mortgage firms);
• give guidance to consumer credit firms on how to determine their “necessary and reasonable costs”;
• give mortgage firms more scope to capitalise payment shortfalls;
• improve disclosure by mortgage firms of payment shortfalls; and
• clarify FCA’s expectation that mortgage firms record calls with customers in payment shortfall;
• clarify for all affected firms that when they give information to customers to help them understand the implications of any payment arrangement this must include how it will be reported on their credit file;
• more clearly explain what “priority debts” are;
• amend CONC to play more emphasis on supporting customer to engage through appropriate accessible channels; and
• amend CONC guidance to require firms where possible to share with customers a record of any income and expenditure assessment the firm has made.

The FCA made some changes following consultation, including around the factors firms should consider when dealing with SME borrowers – and specifically to firms in the consumer hire sector.

The updated guidance reflects not only the new rules, but also the rule changes from June 2023 consequent on the Mortgage Charter. They guidance applies alongside MCOB and the FCA’s vulnerable customer guidance. It explains:

• providing forbearance and what forms this can take – and gives guidance on providing forbearance at scale, contract variations, reduction in payments without forbearance, interest rate switches, term extensions and temporary reduction of payments; and
• when firms varying contracts do not have to comply with the MCOB requirement to provide advice

The changes will take effect from 4 November.