In November of last year, the Financial Conduct Authority announced support measures for mortgage and consumer credit borrowers who were experiencing payment difficulties because of the coronavirus pandemic.
Generally, the guidance stated businesses should not enforce mortgage repossessions or terminate regulated credit agreements and repossess goods or vehicles before January 31 2021.
Earlier this month, the FCA briefly consulted on draft guidance setting out its proposed approach to repossessions by lenders in the future.
The FCA has now published finalised guidance in respect of both mortgages and consumer credit, which largely follows the proposed approach to repossessions. Both the mortgages and the consumer credit guidance came into force and effect on January 29 2021.
The mortgages guidance
The FCA is extending the mortgages guidance so that businesses should not enforce repossessions before April 1 2021, except in exceptional circumstances.
Lenders are able, if in a customer’s interests, to offer assisted voluntary sales and customers can voluntarily agree to earlier repossession.
Businesses should ensure customers are kept fully informed and should discuss with them the possible consequences of suspending any steps to enforce repossession.
Businesses are required to explain to customers the effect of remaining in the property on the customer’s remaining equity if the amount owed is increasing or if the value of the property subsequently falls.
The mortgages guidance also says that businesses must emphasise to customers that although it would be entitled to possession of the property, it will not take further steps before April 1 2021.
The FCA also sets out, in line with previous guidance, that if support has been exhausted under the payment deferral scheme, businesses should provide bespoke support to customers – that is to say, they should take their customers’ individual circumstances into account.
These circumstances could include the uncertainties and challenges a customer is facing as a result of coronavirus. In this context, providing a customer with short-term support may be preferable now, but with longer-term solutions offered once a clearer picture emerges for the customer.
Short-term solutions could include no or reduced payments for a specified period, thereby allowing customers to get back on track.
The consumer credit guidance
Under the consumer credit guidance, businesses are permitted to repossess goods and vehicles from January 31 2021.
The FCA goes on to state that under the consumer credit guidance, continuing to defer repossession proceedings may not be in a customer’s best interests, given increasing debt and potential financial impact on asset depreciation.
However, repossession proceedings should not be started or continued if a customer is already in an agreed forbearance plan. Lastly, within the consumer credit guidance, the FCA makes it clear that repossession should be used only as a last resort, with businesses required to demonstrate – and provide evidence of – the options it has considered before deciding repossession is appropriate.
If a company wishes to continue or begin repossession proceedings after considering the consumer credit guidance, it must ensure that any repossession carried out complies with relevant government public health guidelines and regulations, for example social distancing and shielding.