Premium finance - customers in temporary financial difficulty

The Financial Conduct Authority (FCA) has set out expectations for dealing with customers who are experiencing temporary financial difficulty as a result of Covid-19. The aim is to help these customers to minimise the impact of temporary financial distress whilst continuing to provide products that meet their demands and needs.

Premium finance can be defined as: ?credit that is provided when there is a regulated credit agreement with the customer, specifically for the purpose of enabling the customer to pay their insurance premium in instalments?, although other arrangements which facilitate the payment of insurance premiums in instalments are within scope.

How does the guidance apply in banking?

The extent the guidance is relevant to a firm depends on its role and customer relationship. In banking, it captures intermediaries (including appointed representatives) as well as premium finance lenders or brokers. It's not strictly for insurance or consumer credit firms.

Firms will need to work with others in the distribution chain to ensure the best outcomes are achieved for customers.

Whilst the measures are purely guidance, the FCA is not expected to look favourably upon any firm that is found to be non-compliant.

When should you act?

There are circumstances where firms should support customers who may be in financial distress as a result of Covid-19. The focus is on situations where a customer contacts the firm because they:

  • are having difficulty making repayments
  • wish to reduce cover
  • made enquiries about their insurance cover due to Covid-19
  • missed payments during the crisis.

What actions do you need to take?

Firms should consider how to meet their FCA obligations, what options can be provided to customers and what steps to take to achieve fair outcomes. The firm may:

  • re-assess the risk profile of the customer
  • consider whether another product offered would better meet the customer's needs and revise cover accordingly
  • give options such as payment deferrals to avoid cancellation of necessary cover
  • waive cancellation fees or any other fees associated with adjusting the policy in line with the other options set out above.

The guidance leads us to conclude that all applicable firms should be considering offering payment deferrals as an option to their relevant customers. It essentially means the customer is allowed to make no payments for a specified period, without being in arrears, and without the firm (or another in the chain) cancelling due to non-payment.

The FCA also says firms may need to review interest rates associated with instalments to ascertain whether they are still fair, in light of the exceptional circumstances caused by Covid-19.

The different solutions available should be made clear in communications, encouraging customers to make contact if they are experiencing financial difficulty as a result of Covid-19.

The FCA will review the measures three months? after they came into effect on 18 May 2020.

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