Lenders provide support to borrowers in payment difficulty by assessing their individual circumstances and tailoring a forbearance solution that is aimed at helping that borrower to return to making their full payments on time, once the cause of their payment difficulty is resolved.

Borrowers do not need to miss a payment on their mortgage, credit card or personal loan to seek and receive this help. This pro-active support by lenders meets the expectations of the FCA in what is known as their Tailored Support Guidance (TSG).

This consultation seeks to adopt relevant elements of the guidance into the FCA Rulebook. However, it is also seeking to introduce new rule changes which alter the scope and outcomes from the TSG.   
 

1. Payment difficulty scope for mortgages

The FCA proposes amending the scope of MCOB 13.3.1R(1)(A) to require firms to consider that anyone in a payment shortfall (i.e. with one pence missed on their mortgage payment) or at risk of shortfall is in financial difficulty. This is a significant change to the existing Guidance which allows firms to consider the borrower’s circumstances to understand if they are at risk of payment difficulty.

2. Expanding forbearance options for mortgages

The FCA proposes that firms consider the options of “waiving or deferring payment of capital”, “reducing the interest rate” or “applying simple interest” as forbearance options.

The regulator also advocates for the list of forbearance options to be published and widely advertised on the firm website.

The purpose of forbearance is to help borrowers deal with the root cause of their financial difficulty. Simply writing off capital or interest does not allow borrowers to recover.

3. Additional communications

To achieve more timely disclosure of information, the FCA proposes to amend communication requirements to send information earlier to customers - i.e. once a customer is in payment shortfall rather than waiting until at least two months down. However, the industry believes earlier communication is not necessarily timely, as this has the potential to generate a volume of unnecessary and confusing messages to consumers that risks the longer-term effectiveness of customer-lender engagement.

4. Capitalisation of mortgage arrears

The FCA proposes to amend the existing, prescriptive requirements on capitalisation of mortgage arrears. These amendments are greatly welcomed, giving firms more tools to support borrowers who are on the path to recovery after a period of financial difficulty.

5. Repeat overdraft use

Lenders recognise the need to ensure that their customers understand that help is available if they are worried about their finances, and that a greater range of options are often available to the customer the earlier that they contact their lender.

The FCA proposals are for firms to monitor individual transactions through the current account (such as new credit payments) and communicate with customers even where there is not a pattern of repeat overdraft use.

Overdrafts are a convenient way for customers to smooth temporary fluctuations in income and expenditure. The industry believes that the proposal is conflating an identified pattern of repeat overdraft use with other potential future indicators that a customer might be at risk of financial difficulty.

This has the potential to generate a volume of unnecessary communications where timely and targeted communications appropriate to the customers’ individual circumstances are acknowledged as being most effective.

Our full response can be found on our website. We look forward to continuing our engagement with the FCA to ensure that borrowers receive the best outcomes.

UK Finance urges borrowers who are/ may be struggling to reach out to their lender at the earliest stage possible.  Find out more in our #ReachOut campaign.