RegulationMar 10 2021

FCA sets out expectations on repossessions

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FCA sets out expectations on repossessions

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Earlier this month, the FCA briefly consulted on draft guidance setting out its proposed approach to repossessions by lenders in the future.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 not enforce repossessions before April 1 2021, except in exceptional circumstances

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.

If a customer has failed to engage with a business that has made reasonable attempts to contact them, the business is permitted to take repossession action, regardless of whether a customer would have been eligible for a payment deferral.

Businesses must consider how repossession would impact vulnerable customers, taking both the wider and financial implications into account when deciding whether such repossession is appropriate.

These obligations would include considering whether the customer is at greater risk of harm due to coronavirus. The FCA intends to support companies to treat consumers fairly, and in enabling them to get back to a more stable financial position.

Support available for consumers

Customers experiencing financial difficulties because of coronavirus are still permitted to apply for a payment deferral or receive tailored support. Customers in that predicament and seeking a payment deferral have until March 31 2021 to make such an application for mortgages and certain consumer credit products.

A customer is permitted to request a payment deferral of up to six months in total, although businesses can only agree a payment deferral of up to three months at a time. This arrangement is designed to ensure that deferrals remain an appropriate solution for the customer. 

Next steps                                                                                       

The updated mortgages guidance and consumer credit guidance came into force on January 29 2021 and will remain in force until varied or revoked. Both pieces of guidance emphasise the FCA’s expectations it places on businesses when considering repossessions. The regulator has customer-centred outcomes at the core of its guidance.

Businesses must continue to ensure that a customer’s individual circumstances are considered when forbearance measures are adopted, protecting them from escalating debt once such forbearance arrangements have been put in place.

Businesses are also required to treat their customers fairly. This would include a requirement that a company has adopted appropriate measures to ensure customers are not placed under undue pressure to repay debt within an unreasonably short period of time.

Businesses are also required to implement other systems and processes; making sure staff are fully trained, for example, and with their incentives aligned around providing customers with appropriate assistance. Businesses must pay particular attention to vulnerability of customers to ensure their needs and concerns are addressed.

The FCA has stated that due to the ongoing uncertainties arising from the impact of coronavirus, it will continue to keep both pieces of guidance under review in case it needs to be updated or amended, providing new guidance if required. 

Bill McCaffrey is head of consumer credit at law firm CMS