Category: Consumer credit

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Policy Statement published on changes to FCA Handbook to reflect breathing space

On 26 February 2021, the FCA published Policy Statement 20/1: ‘Breathing Space Regulations – changes to our handbook’ (‘PS 20/1’) to make changes to the Consumer Credit Sourcebook (or ‘CONC’) to implement the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020 (which come into force on 4 May 2021).

The changes (which come into force on 4 May 2021) are:

– two new definitions will be introduced: ‘Debt Respite moratorium’ and ‘moratorium debt’;

– CONC 5D.3.3G(5) will be amended to say that if a Debt Respite moratorium is in effect for a customer’s overdraft and a firm is complying with its obligations under that moratorium, the firm is treating the customer with appropriate forbearance for the portion of the overdraft subject to the moratorium (and the firm is not required to take the steps under CONC 5D.3 during the moratorium);

– there will be changes to CONC 6.7 so that complying with a Debt Respite moratorium is considered to be compliance with a firm’s obligations under CONC 6.7 (in effect, a moratorium is equivalent or more favourable steps); and

– firms can take into account the period under a Debt Respite moratorium when considering a ‘reasonable period’ under CONC 7.3.11R.

The FCA does not consider any changes are necessary to CONC 8, or to MCOB.

PS21/1 makes it clear that “consumers ought to be able to benefit from the protections of both the Regulations and our rules” (see paragraph 1.14). The FCA’s view is that “advising a customer on eligibility for a moratorium clearly falls within the regulated activity of debt counselling”.

The FCA also says that any “communications required by our rules should continue to be made. The Regulations do not prevent a credit from contacting a customer where this is required under the Consumer Credit Act 1974 (CCA) or FCA rules (Regulation 11). Section 3.9 of the Insolvency Service’s guidance also explains the effect of the Regulations on communications with customers” (see paragraph 3.5).

The FCA says MCOB does “not require firms to inform customers about breathing space specifically, but a firm may choose to do so” (see paragraph 3.7).

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High Court finds no unfair relationship arising out of a commercial bridging loan agreement

On 2 March 2021, the High Court handed down judgment in Credit Capital Corporation Limited v Watson [2021] EWHC 466 (QB) where a borrower (who had entered into an exempt bridging loan agreement) alleged his relationship with the lender was unfair under Sections 140A to 140C of the Consumer Credit Act 1974 (the ‘unfair relationship provisions’).

The facts

In essence, the borrower, Mr Watson, had entered into two exempt bridging loan agreements: (a) one for a loan of £1,475,000 with Credit Capital Corporation Limited (‘CCL’) and (b) one for £47,500 with Market Financial Solutions Limited (‘MFS’). Both agreements contained a business use declaration and therefore fell outside of the definition of a regulated credit agreement or a regulated mortgage contract.

The allegations of unfairness

Mr Watson made a number of allegations to say that his relationship arising out of the agreements was unfair under the unfair relationship provisions. The allegations included the following claims:

– a commission was paid to the broker without Mr Watson’s consent;

– rolling up the first year’s interest and deducting it from the advance was unfair;

– pressure was put on Mr Watson and a property was sold because of a false representation over the buyer’s identity; and

– there was a sale at an undervalue for one of the properties.

The Court’s finding on unfairness

Whilst the Court was critical of the evidence put forward by all of the parties, and the lack of evidence from a director of the lenders (particularly where one of the directors was heavily involved), it decided there was no unfairness. The key findings were:

– Mr Watson knew a commission would be paid and there was sufficient disclosure of it;

– there was nothing unfair in rolling up interest for the first year and deducting it from the advance (a common practice in bridging loans);

– whilst pressure was put on Mr Watson, it was not enough to make the relationship unfair;

– whilst there had been a misrepresentation over the identity of the buyer of one of the properties, Mr Watson found out the true position before exchange of contracts so this did not, on its own, make the relationship unfair; and

– there was no clear evidence to show that the properties were sold at an undervalue.

Comment

This is another example of the Court being slow to find unfairness where the borrower is a commercial or business borrower. The Court correctly identified that earlier decisions have not found enforcement unfair unless it has been done in an arbitrary or exploitative way.

The Court also correctly found there was no unfairness where a misrepresentation was made but the true position was discovered before exchange of contracts. It is submitted that this should also be the position in unfair relationship provisions involving consumers. Whilst the unfair relationship provisions do not require an actionable legal wrong to have taken place, it must be the case that there can be no unfairness if the borrower finds out the correct position before entering into the agreement.

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HM Treasury publishes new amending regulations changing the form and content of default, enforcement and termination notices

On 11 November 2020, HM Treasury laid before Parliament the Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020 and published an explanatory memorandum.

These regulations amend the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983, which prescribe the form and content of:

– an enforcement notice under Section 76(1) of the Consumer Credit Act 1974;

– a default notice under Section 87(1) of the Consumer Credit Act 1974; and

– a termination notice under Section 98(1) of the Consumer Credit Act 1974.

These changes make significant changes to the form and content of such notices. The changes come into force on 2 December 2020.

By Regulation 9 of the Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020, there is a transitional period of six months from 2 December 2020 during which time a notice under Sections 76(1), 87(1) or 98(1) of the Consumer Credit Act 1974 will be compliant if it complies with the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 immediately before its amendment on 2 December 2020.

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FCA announces further proposals to support consumer credit customers impacted by COVID-19

Earlier today, on 4 November 2020, the UK Financial Conduct Authority published a press release setting out its further proposals to support consumer credit customers impacted by COVID-19.

There is:

– a draft updated guidance for consumer credit firms;

– a draft further updated temporary guidance for personal loans;

– a draft further updated temporary guidance for credit cards (including retail revolving credit cards);

– a draft further updated temporary guidance for motor finance;

– a draft further updated temporary guidance for high-cost short-term credit;

– a draft further updated temporary guidance for rent-to-own, buy-now pay-later and pawnbroking agreements; and

– a draft Consumer Credit Instrument updating provisions in CONC 6.7 and 7.3.

The FCA proposes:

– those who have not yet had a payment deferral will be eligible for two payment deferrals of up to six months in total;

– those who have had one payment deferral, will be eligible for another payment deferral of up to three months;

– those with high-cost short-term credit agreements, who have not yet had a deferral, can ask for a one month deferral but no more;

– to allow customers until 31 January 2021 to ask for a payment deferral;

– if a customer has restarted payments after a deferral, they are not entitled to another deferral but should receive tailored support if they are experiencing payment difficulties.

– if customers can afford to make repayments then they should continue to do so;

– borrowers should hold off contacting their lender until the enhanced measures are in place;

– lenders should hold off repossessions of goods, unless there are exceptional circumstances, until 31 January 2021; and

The FCA also proposes to maintain the existing position on overdrafts and premium finance.

The FCA has invited comments by 10am on 6 November 2020.

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HM Treasury publishes revised draft statutory instrument: the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020

Earlier today, on 10 September 2020, HM Treasury published a revised statutory instrument: the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.  This replaces the draft published on 15 July 2020.

You can view the draft revised statutory instrument by clicking here, and view the explanatory memorandum by clicking here and the impact assessment by clicking here.

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Issue 63 of Goode: Consumer Credit Law and Practice published with new chapter on ancillary credit business and credit reporting

Issue 63 of Goode: Consumer Credit Law and Practice has now been published. This includes a new chapter 48, written by me, on ancillary credit business and credit reporting. It was rather humbling when Professor Sir Roy Goode QC invited me to join the editorial team a few years ago and it’s great to see my first chapter being published.

I’ve also written four new case reports: these appear in Goode: Consumer Credit Reports.

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FCA publishes updated temporary guidance to motor finance and high cost credit firms dealing with customers needing COVID-19 related payment deferrals

Earlier today, on 15 July 2020, the UK Financial Conduct Authority published updated temporary guidance to motor finance and high-cost credit firms dealing with customers needing COVID-19 related payment deferrals.

There’s updated guidance for motor finance, for high-cost short-term credit and for rent-to-own, buy-now pay-later and pawnbroking agreements. There’s also a short feedback statement.

My one page summary is (and you can see a bigger version if you click on it):

If you want a pdf copy, please get in touch: russell.kelsall@TLTsolicitors.com.

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FCA consults on draft updated temporary guidance to motor finance and high cost credit firms dealing with customers needing COVID-19 related payment deferrals

Earlier today, on 3 July 2020, the UK Financial Conduct Authority issued a consultation on draft updated temporary guidance to motor finance and high-cost credit firms dealing with customers needing COVID-19 related payment deferrals.

There’s draft guidance for motor finance, for high-cost short-term credit and for rent-to-own, buy-now pay-later and pawnbroking agreements. There’s also a draft handbook instrument.

My one page summary is (and you can see a bigger version if you click on it):

If you want a pdf copy, please get in touch: russell.kelsall@TLTsolicitors.com.

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FCA publishes updated temporary guidance to credit card, overdraft and personal loan consumer credit firms dealing with customers needing COVID-19 related payment holidays

Earlier today, on 1 July 2020, the UK Financial Conduct Authority issued its finalised and updated temporary guidance to credit card, overdraft and personal loan consumer credit firms dealing with customers needing COVID-19 related payment holidays.

There’s finalised updated guidance for credit cards (including retail revolving credit), for overdrafts and for personal loans. There’s also a feedback statement and a press release on banks’ overdraft pricing decisions and plans to support consumers.

My one page summary is (and you can see a bigger version if you click on it):

If you want a pdf copy, please get in touch: russell.kelsall@TLTsolicitors.com.