High-cost short-term credit and coronavirus: temporary guidance for firms

This guidance applies to regulated firms that enter into high-cost short-term credit (HCSTC) loans, including payday loans and applies to firms that have acquired such loans. It applies to both current loans and loans entered into after the guidance comes into force.

This guidance applies in the exceptional circumstances arising out of the coronavirus pandemic (Covid-19) and its impact on the financial situation of customers. It is not intended to have any relevance in circumstances other than those related to coronavirus.

This guidance sets out our expectation that firms provide, for a temporary period only, exceptional and immediate support to customers facing payment difficulties due to circumstances arising out of coronavirus. It is intended to provide help to those who might be having temporary difficulty in making payments due to a loss of or reduction in their income (or income of other members of their household) or to those who expect to experience such difficulties.

This guidance applies where customers are already experiencing or reasonably expect to experience temporary payment difficulties as a result of coronavirus. Where a customer was in pre-existing financial difficulty, our existing forbearance rules and guidance in CONC would continue to apply. These would include for example the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time. 

We will review this guidance in the next 3 months in the light of developments regarding coronavirus and may revise the guidance if appropriate.

This guidance builds on Principle 6 ('A firm must pay due regard to the interests of its customers and treat them fairly'). It sets out the FCA’s expectations for firms to provide coronavirus related support for customers who are experiencing or reasonably expect to experience temporary payment difficulties at the current time. When implementing this guidance, firms should take account of the particular needs of their vulnerable customers.

The 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.

Payment deferrals

In this guidance, ‘payment deferral’ means an arrangement under which a firm permits the customer to make no payments under their regulated credit agreement for a specified period, or extends the period until payments are due, without being considered to be in arrears.

Where a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to coronavirus, and wishes to receive a payment deferral, a firm should grant the customer a payment deferral for at least one month. This would entitle the customer to request that the payment due on the next contractual due date can be deferred until at least the following monthly due date.

An example of a situation in which a payment deferral may be appropriate is where there is or will be a temporary reduction in household income that would have otherwise been used to make loan payments.

In order to treat customers fairly in the current exceptional circumstances no additional interest arising as a result of the deferral should be charged to the customer and the payment deferral should have no impact on the amount of the balance that was outstanding at the time when the payment deferral was granted. This deferment of the payment and interest should have no impact on the firm’s calculation of the total costs of the agreement for the purpose of the Total Cost Cap in CONC 5A.2.2R. Such costs should continue to be calculated as though there had been no payment deferral. Firms should also not charge missed payment or other similar fees in respect of the payment deferral.

The firm should allow the customer to repay the deferred payment over such period and in such amount as the customer can reasonably afford, including over a period that extends beyond the original period of the loan. For example, in some circumstances the payment could be repaid in a single amount one month after the end of the term or in others, over an extended period by smaller amounts.

There is no expectation under this guidance that the firm makes enquiries with each customer to determine the circumstances surrounding a request for a payment deferral, (or whether this is not in the customer’s interests). We have disapplied CONC 6.7.18R, 6.7.19R and CONC 6.7.21G to give effect to this. We have also disapplied CONC 6.7.23R to remove a restriction to enable consumers to benefit from these measures.

This guidance does not prevent firms from providing more favourable forms of assistance to the customer if they choose to do so, in line with Principle 6, for example by extending the temporary measures for a period longer than one month.   

Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of 3 months. This means that a payment deferral could go beyond the point where the 3-month window for requesting a payment deferral expires. The application for a payment deferral under the agreement can only be made once under this guidance, although firms will need to consider forbearance under our rules where these apply.

Firms should make clear in their communications, including on their websites, that the payment deferral is available as set out in the circumstances described above. Firms should make it as easy as possible for their customers to contact them both online and by phone. In addition, if, during an interaction between the firm and the customer, the customer provides information suggesting that the customer may be experiencing or could reasonably expect to experience temporary payment difficulties as a result of circumstances relating to coronavirus, the firm should ask whether the customer wishes it to consider granting a payment deferral. Firms should also make customers aware, when contacting them about missed payments of the availability of a payment deferral if their payment difficulties relate to circumstances relating to coronavirus.   

A firm should give customers adequate information to enable them to understand the implications of a payment deferral. Firms are also reminded of their obligations to provide the customer with an information sheet, where this is required, pursuant to CONC 6.7.20R.

A customer should have no liability to pay any charge or fee in connection with the permitting of a payment deferral under this guidance.

We expect firms to use the deferral period to engage with their customers to understand the likelihood of their being able to resume payments at the end of the deferral period. Where a customer continues, or reasonably expects to continue, to face payment difficulties, as a result of circumstances relating to coronavirus, the firm should apply CONC 7.3 regardless of whether or not a customer is in default or arrears.  Firms will need to assess the customer’s needs and ability to pay, and provide appropriate forbearance. Examples of forbearance set out in CONC 7.3.5 include considering suspending, reducing, waiving or cancelling any further interest or charges, allowing deferment of payment of arrears or accepting token payments for a reasonable period of time (in order to allow a customer to recover from an unexpected income shock).

Firms should also comply with the other provisions of CONC 7.3. In particular, CONC 7.3.10R provides that a firm must not pressurise a customer:

  • to pay a debt in one single or very few repayments or in unreasonably large amounts, when to do so would have an adverse impact on the customer's financial circumstances;
  • to pay a debt within an unreasonably short period of time; or
  • to raise funds to repay the debt by selling their property, borrowing money or increasing existing borrowing.

Where firms do not take reasonable steps to engage with their customers individually, this should not result in the customer being worse off. In these circumstances, the firm should provide a payment deferral, on the basis set out above, until it has taken such steps.

The payment deferrals, in relation to which interest is to be treated in the way described above, should be regarded as being offered in exceptional circumstances outside of the customer’s control. In accordance with the relevant Coronavirus Data Reporting Guidance published by the Credit Reference Agencies in consultation with SCOR, firms should not report a worsening arrears status on the customer’s credit file during the payment deferral period. However, where additional forbearance is required, for example in the form of waived interest and charges, we would expect this to be reflected in the usual manner.

Where customers have been unable to reach timely agreement with firms for a payment deferral because of firms’ operational difficulties and subsequently miss a payment which is reported to their credit file, we would expect firms to work with customers and Credit Reference Agencies to ensure that any necessary rectifications are made to credit files to ensure no worsening arrears status is recorded during the payment deferral period. Firms should also ensure no default or arrears charges are levied in relation to payments missed in these circumstances.

Process and next steps

The measures in this guidance should be brought into effect on 27 April 2020. The changes to the CONC rules come into effect on 27 April 2020.

If you have any questions or concerns about this guidance, contact us.

The FCA’s objectives and regulatory principles

The proposals in this guidance support our consumer protection objective and are designed to protect consumers by providing them with temporary support in the light of the current exceptional circumstances arising out of coronavirus.

Equality and Diversity

We are required under the Equality Act 2010 to ‘have due regard’ to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by or under the Act, advance equality of opportunity between persons who share a relevant protected characteristic and those who do not, and to foster good relations between people who share a protected characteristic and those who do not.

As part of this, we ensure the equality and diversity implications of any new policy proposals are considered. We do not consider this guidance will adversely affect consumers with protected characteristics.