The Financial Conduct Authority (FCA) is to update its guidance on mortgages and consumer credit repossessions during the pandemic, easing some of its previous recommended restrictions
In November, the regulator extended support for mortgage and consumer credit borrowers experiencing payment difficulties as a result of coronavirus.
Current guidance on mortgage repossessions means firms should not enforce repossessions before 31 January 2021 except in exceptional circumstances, such as a customer requesting that proceedings continue.
The FCA said it now proposes extending this guidance so that firms should not enforce repossessions before 1 April 2021.
The regulator said this approach takes account of the worsening coronavirus situation and the government’s tighter coronavirus-related restrictions which mean that consumers could experience significant harm if forced to move home at this time as a result of repossession proceedings. There are also government bans on evictions in some nations, which could also prevent firms from enforcing home repossessions.
Currently, consumer credit guidance also means that before 31 January 2021 firms should not terminate a regulated agreement or repossess goods or vehicles under the agreement that the customer needs, except in exceptional circumstances.
However, the FCA now proposes to change this so that consumer credit firms will be able to repossess goods and vehicles from the end of this month.
It said this should only be as a last resort, and subject to complying with relevant government public health guidelines and regulations, for example on social distancing and shielding.
Critically, firms will also be expected to consider the impact on customers who may be vulnerable, including because of the pandemic, when deciding whether repossession of goods or vehicles is appropriate.
The FCA said the difference in the proposed approach reflects the different risks and harms that customers with goods or vehicles on credit are likely to face compared to those who are at risk of losing their home.
For customers who remain in payment difficulties under a relevant consumer credit agreement, continuing to restrict repossessions may not be in their interests, the FCA said. The shorter terms and higher interest rates on these agreements, combined with the depreciating value of the goods or vehicles, means that they could end up owing more in the long term if repossessions are prevented.
The FCA stated: ‘Our approach, therefore, takes appropriate account of the risks to customers of further asset depreciation, whilst providing appropriate protections by ensuring that firms repossess only as a last resort and also consider the impact of repossession action on those who are vulnerable, as well as following relevant government public health guidelines and regulations when undertaking repossession action.’
Peter Tutton, head of policy at debt advice charity StepChange, said: ‘We called last week for mortgage repossessions to be halted until after the pandemic lockdown has ended, so we’re pleased to see today’s proposal from the FCA to implement this until April.
‘However, we’re concerned about the potential impact of the FCA’s proposal to allow repossession of goods and vehicles in some circumstances after 31 January – customers affected tend to be more vulnerable and some creditors have historically pursued repossession prematurely, which may not square entirely with the FCA urging firms to treat this as a last resort.’
Tutton also said the FCA should monitor creditors’ response and use its supervision powers to enforce the guidance.
‘It’s particularly important that there is a strong referral system to debt advice organisations for people who are at risk of serious consequences from debt, and we would like to see the FCA strengthen its requirements of firms to refer people to debt advice organisations who can help people plan a way to address all their debt in the round,’ he said.
The FCA draft guidance is open for comment until 18 January.
Separately, the government has extended the moratorium on the use of statutory demands or winding up petitions in the context of commercial property leases where tenants cannot afford to pay their rent due to Covid-19, until 31 March 31.
As a result, commercial tenants currently cannot be threatened with eviction or winding up petitions if they cannot afford to make rental payments for reasons causally related to the pandemic situation.
Julie Palmer, regional managing partner at Begbies Traynor, said: ‘The government has made clear that businesses that can still afford to pay their rent on commercial properties should carry on doing so as normal.
‘However, the relevant legislation means that landlords will need to provide convincing evidence if they hope to successfully pursue their tenants through the courts on the basis that they could afford to pay their rent but are not doing so for reasons unrelated to the pandemic.’