The UK's Financial Conduct Authority has today promised to offer the customers of financial institutions some temporary help with some of the most commonly-used consumer-credit products. Rule changes have come into force today and the full range of measures will apply by Tuesday next week.

Christopher Woolard, the quango's stopgap chief executive, is warning customers to think carefully before making use of these measures and only to do so if they require immediate 'help,' i.e. if they cannot afford to make payments at the moment. It is not beyond the bounds of possibility that various HNWs are experiencing problems with liquidity and therefore need to avail themselves of such measures.

The FCA expects financial firms to:

• offer a temporary payment freeze on loans and credit cards for up to three months to consumers whom the present 'lockdown' emergency has hurt financially;
• allow every customer of this kind who has already arranged an overdraft on his main personal current account £500 charged at zero interest for three months;
• make sure that all "overdraft customers" (presumably these are customers with arranged overdrafts) are "no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force;" and
• ensure that the credit files of consumers who use these temporary payment freezes will not be affected.

The FCA is hoping that consumers will check social media posts or the websites of the financial firms that service them for more information. Whenever possible, they should use online services to ask for help so as to ease the pressure on firms' call centres which are having trouble answering all calls as a result of the financial turmoil of the pandemic. The FCA wants consumers to put off calling until after the Easter weekend, even if their lenders are offering help sooner than 14 April.

Overdrafts

Today's "temporary guidance for firms" to do with overdrafts asks deposit takers to offer interest-free overdrafts to needy people in the following ways.

• No interest should be payable in respect of up to £500 of the balance of the arranged overdraft.
• If an arranged overdraft has a limit of more than £500, the firm in question should not charge interest on the first £500, irrespective of whether the balance exceeds that amount.
• In the case of an arranged overdraft with a limit of £500 or below, the entire balance should be free of interest.

There should be a period of three months, beginning with 14 April, at any point during which eligible customers can request this assistance. The help should last three months from the time when the customer asks for it.

When a firm chooses instead to extend an interest-free amount to every customer with an arranged overdraft on his primary current account without the need for a request, this may be for a fixed period in the calendar that is the same for all customers. To be consistent with this pronouncement, the interest-free amount that the firm extends must be at least that required by the FCA and the measures must be of at least three months duration, starting no later than 14 April.

The FCA is claiming, rather spuriously, that this guidance has something to do with Principle for Business (PRIN) 6, which states that a firm must pay due regard to the interests of its customers and treat them fairly.

An "overdraft interest rate pricing" measure comes into force on 14 April for at least three months.

Normal FCA rules say that if a firm makes a change or has made a change to its charging structure in response to the rules set out in PS19/16, which came out in June last year, it must consider the effect of that change on existing customers and, where appropriate, treat them with forbearance.  

Some firms have recently increased their overdraft prices but the FCA wants them to review them "to ensure they are set at a level that is consistent with the obligation to treat customers fairly in the light of the exceptional circumstances arising out of coronavirus." In this manner it is trying to suggest that a regulatory obligation, namely TCF, obliges firms to offer temporary help. The FCA wants firms to ensure that customers are not worse off "when compared to" the prices that those firms charged before PS19/16 came out. The FCA adds that all firms will 'need' to show it that the rates that they charge are consistent with this guidance. Some commentators might detect some bluster in this statement, although others may disagree.

At the end of the 3 month period, providers should consider whether customers who have benefited from these guidelines are in financial difficulties. If they are, forbearance should be the watchword.

Credit cards

The FCA has made the Covid-19 Credit Cards and Personal Loans Instrument 2020 by exercising ss137A and 137T Financial Services and Markets Act 2000, which allow it to make rules and grant it supplementary powers. It came into force today.

6.7.5 R(1) states that a firm must set the minimum required repayment under a regulated credit agreement for a credit card or store card at an amount equal to at least that amount which repays the interest, fees and charges that have been applied to the customer’s account, plus one percentage of the amount outstanding. This does not, however, apply in circumstances where the firm, in order to allow the customer to defer (in whole or part) the making of repayments under the regulated credit agreement if they choose to do so in the circumstances and for the duration set out in the guidance entitled "Credit cards (including retail revolving credit) and coronavirus: temporary guidance for firms," varies the regulated credit agreement so as not to oblige the customer to make minimum required repayments for that duration.

According to 6.7.26AR, rules CONC 6.7.27R to 6.7.40G do not apply to a firm in respect of a customer whom the firm has allowed to defer (in whole or part) the making of repayments under a regulated credit agreement for a credit card or retail revolving credit in the circumstances and for the duration set out in the guidance entitled "Credit cards (including retail revolving credit) and coronavirus: temporary guidance for firms," for the period of the deferment.

Personal loans

A personal loan might, for these purposes, be a regulated credit agreement, secured (other than on land) or unsecured, including a guarantor loan, a logbook loan (secured by a bill of sale), home-collected credit or a loan issued by a Community Development Finance Institution. It can only be a credit union loan if it is a regulated credit agreement. In addition, the FCA's guidance on this subject applies to firms that have acquired such loans.

It does not apply to a high-cost short-term credit agreement, a buy-now-pay-later agreement, a hire purchase agreement (including motor finance), a peer-to-peer agreement, a pawnbroking agreement, premium finance, a credit card, an overdraft or a business loan. It simply applies when customers are already experiencing (or reasonably expect to experience) temporary difficulties in paying as a result of the Coronavirus.

Here the FCA writes: "Where a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to [the] Coronavirus and wishes to receive a payment deferral, a firm should grant the customer a payment deferral for three months unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so. We have disapplied CONC 6.7.18R and 6.7.19R to give effect to this."

Help for firms

The FCA has already extended a major piece of "regulatory relief" (rule relaxation) to the firms that it regulates in the shape of its suspension of the 10% drop-letter rule, which obliges discretionary fund managers to inform investors when the values of their portfolios or "leveraged positions" fall by 10% or more compared with their value in their last periodic statements and for each subsequent 10% fall in value.

Compliance Matters spoke today to Martin Lovick of ACA Compliance, asking him what he thought of it. He replied: "It's a strange one. The FCA snuck out the announcement. They put it into a 'Dear CEO' letter.

"It's not primarily a wholesale protection. It's retail investors who need the most protection so that they don't wake up one morning and see that their provider lost them a lot of money two months ago.

"It's hard-written into MiFID II [the European Union's second Markets in Financial Instruments Directive]. This [promise not to take action against firms that break the rule] is the closest that the FCA can get to providing relief.

"The concession for wholesale firms is a blanket one - the FCA says 'we shall take no action at all,' but with retail there are some conditions. The firm in question must have issued one alert in each period and must subsequently provide general updates on its website."

Lovick is not aware of any European directive/regulation other than MiFID II that calls for 10% drop letters as "there is nothing like it in UCITS or the AIFMD."