The COVID-19 pandemic is causing an unprecedented period of disruption. This period of economic hardship will make it more difficult to recover unsecured debt. With Courts generally only processing urgent business, and Sheriff Officers following this line, there are issues in how to approach recovery and the process of continued recovery of unsecured debt. This is particularly the case in relation to consumer credit lending by firms which are regulated by the Financial Conduct Authority (FCA).
Financial Conduct Authority
The FCA issued draft guidance on 9 April 2020 to regulated firms in relation to personal loans, credit cards and other revolving credit products and overdrafts. After a very short consultation period, the new sets of temporary guidance came into force on 14 April 2020 and extend to firms which buy consumer debts of this type but does not apply to business loans. The FCA will review the guidance in the next 3 months in the light of developments regarding coronavirus and may revise it if appropriate.
The guidance sets out the FCA's expectation that firms provide, for a temporary period only, exceptional and immediate support to customers facing payment difficulties due to circumstances arising out of coronavirus. It is intended to provide help to those who might be having temporary difficulty in making their personal loan and/or credit card payments due to a loss of or reduction in their income.
The measures to be introduced will be an expected minimum level of support for customers who have payment difficulties due to circumstances arising out of coronavirus, and who had been financially stable previously. The FCA has advised that where customers can afford to do so, it would likely be in their long-term interest to continue making payments.
The new measures include offering a payment deferral on personal loans and credit cards, and an interest free overdraft, of up to £500 for a period of three months. Firms must ensure customers are fully informed of the consequences of the payment deferral, such as interest being charged over the period. Firms must also ensure there is no fee charged for this period and there is no negative impact on the debtor's credit file for the payment deferral period.
Where a three-month payment deferral is not considered appropriate, firms should offer other ways to provide temporary relief and forbearance to the customer in accordance with treating the customer fairly. This could include reduced payments or a rescheduled term. This could also include a payment deferral of fewer than 3 months if, for example, the expected loss of income is for a shorter period or accepting a sum below the normal payment due if, for example, the loss of income is partial.
Financial Ombudsman Service (FOS)
The FOS is in regular contact with firms and debtors. Its guidance for businesses and consumers, outlines the basis upon which it will continue to monitor complaints, and ensure businesses are being fair in their assessment of debtors and considerate of the needs of those affected financially by the COVID-19 pandemic.
The FOS will monitor over the period if providers of unsecured credit are adhering to the finalised guidance of the FCA, this will be in addition to the general guidance of the FOS in relation to complaints.
Consumer credit debt recovery over the coronavirus period is set to become a more collaborative process. This will involve a willingness on the part of both consumers and creditors to cooperate honestly and effectively, to maximise recovery for the creditor and affordability and fairness for the consumer. There will be an increased focus on the affordability of payment plans, forbearance, consideration of vulnerable customers and the effect of the pandemic on them. The FCA will continue to monitor and provide further guidance where appropriate.
If you have any issues or concerns about consumer credit debt recovery, we recommend speaking to our Business Disputes and Asset Recovery team who are experienced in these matters and will be able to assist.