Review of Policy Statement PS24/2

The Financial Conduct Authority (FCA) released Policy Statement PS24/2 (PS24/2) on 10 April 2024, confirming final guidelines to reinforce protections for borrowers facing financial difficulties and outlining and addressing input on CP23/13.

The FCA conducted a consultation in May 2023 on regulations to enhance protections for mortgage, consumer credit, and overdraft consumers experiencing financial difficulties through CP23/13. This was done in response to the UK households' reduced financial resilience after the coronavirus epidemic and rising living expenses. Proposals were made during the consultation process to add specific modifications to assist customers experiencing financial difficulties as well as to introduce elements of the coronavirus Tailored Support Guidance (TSG) into the Handbook. After consultation, PS24/2 affirms the FCA's final regulations.

This PS24/2 will primarily affect:

• consumer credit lenders (including MCD article 3(1)(b) lenders)
• premium finance firms
• mortgage lenders and administrators
• home purchase providers and administrators
• firms who carry out activities in relation to consumer hiring, operating an electronic system in relation to lending (in relation to a borrower under a P2P agreement) or debt collecting
• consumer credit and mortgage lenders in supervised run-off under the financial services contracts regime
• Gibraltar-based consumer credit and mortgage lenders passporting into the UK.

Whilst this effects a wide range of lenders, this summary highlights the changes regarding Consumer Credit only.

FCA amendments:

• Clarifying that information given to customers to help them understand the implications of any proposed arrangement must include how it will be reported to their credit file in factual terms.
• For credit, placing more emphasis on supporting customers to engage through appropriate accessible channels. We have amended our provision in CONC 7.3.13AG(3) to reflect this.
• For credit, the FCA are finalising escalating balances provision with an amendment to remove suspend from the provision to provide additional clarity on expectations.
• For credit, The FCA are not introducing the guidance proposed under CONC 7.7.6G (2) and (3) on charges. They are introducing the guidance originally proposed under CONC 7.7.6G(1) with amendments relating to the frequency and nature of events to which the charges relate.
• For credit, amending the proposed guidance at CONC 7.3.7AG(4) that where possible, firms should make available to the customer a record of any income and expenditure assessment that the firm has made to enable the customer to share the record with other lenders and debt advice providers.

New rule proposal in CONC 7:

• To require firms to ensure the effectiveness of any policies and procedures put in place for customers in or at risk of payment difficulty, and that the firm’s ongoing compliance with them is reviewed at appropriate intervals.

Customers in vulnerable circumstances:

• The FCA propose to update CONC to incorporate reference to their Guidance for firms on the fair treatment of vulnerable customers (FG21/1). The Guidance sets out that firms should understand the vulnerable characteristics likely to be present in their target market or customer base and take practical action in their product and service design, staff skills and capability, customer service and communications.

For consumer credit:

• these consequential changes include amendments to CONC 5 reflecting the references to our Vulnerable Customer Guidance and changes to CONC 6.7 which expand the scope of certain post-contract requirements to customers approaching arrears and links the reference to ‘priority debts’ in CONC 6.7.3BG(2) to the Glossary definition in the Handbook.

Application to Consumer Hire & SME Lending

CONC 7 applies to the lending of consumer credit, which encompasses lending to individuals as well as "relevant recipients of credit" as defined in the Regulated Activities Order. This category includes certain SMEs, such as partnerships consisting of 2 to 3 individuals, not all of whom are corporate entities, and unincorporated groups of individuals that are not partnerships and do not solely consist of corporate bodies. Therefore, the proposed amendments are applicable to any lending to SMEs falling within this classification. SME customers play a crucial role in the UK economy and should also benefit from improved provisions, which are applicable to regulated lending. However, the FCA acknowledge the necessity of emphasizing that firms may need to consider different factors when offering forbearance to SME customers. For instance, CONC 7 applies to firms when they engage in regulated debt collection under the Bounce Back Loan Scheme (BBLS). The collection of debts under BBLS may be considered a regulated activity if the borrower is a sole trader or a small partnership.

The FCA clarification of administration costs

The FCA has confirmed that they will not be implementing the proposed guidance outlined in CONC 7.7.6G (2) and (3). Instead, they will emphasise the expectations set out in the Consumer Duty, which requires firms to evaluate whether their fees or charges are unreasonably high or unjustifiable. For instance, firms should take into account the potential decrease in costs resulting from the increased use of electronic communications, and the FCA expects them to adjust their fees and charges accordingly. On the other hand, the FCA will introduce the previously proposed guidance from CONC 7.7.6G(1) with some modifications to clarify that firms can consider the frequency and nature of events related to the costs, as well as whether they directly stem from the customer's default or arrears difficulties.

Sustainable repayment arrangements:

• Firms must take all reasonable steps to ensure that any repayment arrangements agreed with customers are sustainable.

The FCA is in the final stages of completing the proposed supporting guidance in CONC 7 and CONC 5D. There is one amendment being made to update the definition of 'priority debts and living expenses' to include, but not limited to, payments for mortgage, rent, council tax, food, and utility bills. This amendment is being made to acknowledge that customers may have various priority debts and living expenses in practice. For more information on 'priority debt', please refer to the FCA Handbook glossary.

Additionally, the FCA has updated CONC 7 and CONC 5D to ensure that all references to 'priority debts' now align with this definition. The new guidance in CONC 7.3.5G(4) from the FCA emphasises that a sustainable repayment arrangement, which allows customers a reasonable period of time to repay their debt, is considered an example of a forbearance option.

The primary focus of the FCA is to highlight the importance of firms treating customers who are in or nearing arrears or in default with compassion and careful consideration. In order to achieve this, firms must actively communicate with customers to identify the most suitable resolution.

Reviewing forbearance measures

The FCA is in the process of finalising the regulation regarding the implementation of necessary measures to ensure the continued suitability of forbearance measures. Additionally, they are introducing updated guidance in CONC 7 and CONC 5D, which includes an amendment allowing firms to conduct reviews at appropriate intervals instead of using the term 'likely to include'.

Income and expenditure assessments

Although firms are not obligated to carry out income and expenditure assessments, if they opt to do so, it must be done objectively. Furthermore, they are also in the process of finalising their guidance on income and expenditure assessments with two adjustments.

Firstly, the FCA acknowledges that firms might refer to similar guidance as the Standard Finance Statement (SFS), hence they are amending CONC 7.3.5E G(2) and CONC 5D.3.9 G(2) to state 'a firm may consider the spending guidelines in the or a comparable tool'. Additionally, the guidance does not impose new obligations on firms to establish systems for sharing income and expenditure records with clients. Nevertheless, if firms can provide records, they are encouraged to do so. Therefore, the FCA is providing further clarification to the proposed guidance at CONC 7.3.7AG(4) that 'where feasible, firms should provide customers with a record of any income and expenditure assessment conducted by the firm to allow the customer to share it with other creditors and debt advisors.'

While firms are not mandated to rely on data gathered by third parties, they should assist and motivate customers to reuse updated income and expenditure information previously obtained whenever possible. For instance, a firm may opt to utilise an income and expenditure assessment carried out by another creditor if deemed appropriate.

Repossessions and Voluntary Terminations

The FCA put forward suggestions to expand the regulation stated in CONC 7.3.17R to cover goods and vehicles, in addition to the current provision for the customer's residence. Furthermore, they have recommended the implementation of a new regulation, accompanied by helpful guidance, which mandates that firms refrain from initiating or pursuing repossession proceedings as long as the customer is adhering to the agreed terms of a forbearance arrangement.

The FCA want to make it clear there is no universal approach to determining the duration of forbearance before initiating repossession as a last resort, nor is there a set timeframe for customers to access financial guidance or debt advice.

However,

• repossession should only be considered after all reasonable attempts to resolve the situation have been exhausted. Firms must be able to demonstrate that they have thoroughly considered forbearance and due consideration before resorting to repossession. The rules and guidance provided by the FCA do not unreasonably restrict repossession actions, as they recognise that there may be circumstances where early repossession is in the best interest of the customer. In cases where the goods are owned by the creditor, the FCA acknowledges that depreciation may have financial implications for both the firm and the customer.

Voluntary Termination

In order to enhance customer awareness of their rights under the Consumer Credit Act, where applicable, Firms are required to:

• provide information regarding the right to terminate at opportune moments, taking into account the customer's specific circumstances, so that they can make an informed decision about whether to proceed with termination or explore alternative options. Additionally, if relevant, the FCA expects firms to provide transparent details to customers regarding how voluntary termination will impact their credit file.
• assess the customer's circumstances and determine a reasonable timeframe within which any legal obligations associated with voluntary termination can be deferred.

Revision to CONC App 1.2

This is in relation to the assumptions that should be applied when calculating the Annual Percentage rate (APR) in relation to an open-end credit agreement.

Lenders must:

• factor in situations where they have the right to use a continuous payment authority (CPA) to recover the entire outstanding balance owed by the customer when calculating the APR. This will help to prevent potentially misleading APRs being presented by firms.

Next steps

The rules come into force on 4 November 2024. The FCA will withdraw the TSG at the same time.

How we can help…

If you would like further support in bringing your policies and procedures up to date in line with these changes and in generally, please do get in touch with Joanne Davis or Daksha Mistry .