INSIGHTS ¦ PS24/2 Strengthening protections for borrowers in financial difficulty: Consumer credit and mortgages

FCA

Summary

The policy statement PS24/2 issued in April 2024 by the UK Financial Conduct Authority (FCA) addresses the augmentation of protections for borrowers experiencing financial hardships. It elaborates on feedback from previous consultations and finalizes rules designed to help those with consumer credit, mortgages, and overdrafts.

Key Points

  1. The FCA has finalized rules integrating aspects of the coronavirus Tailored Support Guidance into the FCA Handbook, enhancing protections for borrowers in financial difficulty.
  2. These rules are primarily aimed at a wide array of financial institutions, including consumer credit lenders, mortgage lenders, and home purchase providers.
  3. The new rules emphasize the necessity for firms to support consumers facing increased financial challenges due to the rising cost of living post-pandemic.
  4. The rules expect firms to consider customers’ individual circumstances and provide appropriate forbearance options.
  5. There is an expectation for enhanced engagement with customers, providing clear information about financial options and access to debt advice.
  6. Amendments made to the proposed rules address stakeholder feedback and clarify guidelines on reporting to credit files and prioritizing customer debts.
  7. The rules are set to come into force on November 4, 2024, giving firms over six months to implement necessary changes.
  8. The FCA plans to monitor the implementation and impact of these rules as part of its ongoing supervision of financial practices.
  9. There are specific provisions and expectations laid out for different sectors within financial services, including amendments tailored to the needs of consumer credit and mortgage sectors.
  10. The changes also take into consideration equality and diversity impacts, ensuring that the rules do not negatively affect individuals with protected characteristics under the Equality Act 2010.
  11. The new framework includes provisions to aid firms in identifying customers who may soon experience payment difficulties.
  12. The FCA has also updated its cost-benefit analysis figures to reflect additional findings, emphasizing the proportionality of the anticipated benefits compared to the implementation costs.
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Key Statistics

  • The rules will primarily affect an extensive list of financial entities including those involved with consumer credit, mortgages, and specific types of financial contracts.
  • Feedback from 39 stakeholders influenced the final rule adjustments.
  • A 12-month industry consultation highlighted the necessity for an extended implementation period for the new rules, which was adjusted to just over six months.

Key Takeaways

  • Enhanced Protections: The finalized rules strengthen protections for borrowers, emphasizing the need for firms to actively support customers in financial difficulty.
  • Incorporation of COVID-19 Support Measures: The new regulations integrate aspects of the pandemic-related support into permanent guidelines.
  • Stakeholder Engagement: Feedback from various stakeholders has been critical in shaping the final rules, ensuring they are balanced and practical.
  • Implementation Timeline: Firms are given a reasonable timeframe until November 2024 to comply with the new regulations, facilitating a smoother transition.
  • Monitoring and Review: The FCA commits to monitoring the effectiveness of these rules and will undertake further actions if the desired outcomes are not met.
  • Consideration of Vulnerable Customers: The rules ensure that the needs of vulnerable individuals are specifically addressed, minimizing potential harm.
  • Transparency in Reporting: Clarity on how payment arrangements will be reported to credit files is enhanced to avoid misinformation.
  • Guidance for Firms: Detailed guidance supports firms in implementing the rules, including how to approach customer interactions and forbearance options.
  • Equity and Inclusivity: The regulatory changes are designed to not adversely impact protected groups, aligning with broader equality objectives.
  • Economic Considerations: A revised cost-benefit analysis supports the economic viability of the new rules for the affected sectors.

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