2A customer is likely to experience financial hardship if they are unable to pay priority debts or essential living expenses.

1The purpose of this chapter is to require firms to:

1. (1)

   monitor customers’ patterns of overdraft use;

2. (2)

   identify customers with patterns of repeat use; and

3. (3)

   take appropriate steps with the aim of changing such patterns of use.

1. (1)

   1The policies, procedures and systems referred to in CONC 5D.2.1R should, having regard to the nature, scale and complexity of the firms’ consumer credit lending activity in relation to overdrafts, enable the firm, at regular intervals, to pro-actively look back over an appropriate period at patterns of overdraft use.

2. (2)

   A firm may decide the frequency with which it reviews previous overdraft use, and the length of the preceding period of overdraft use that it considers when doing so, provided that the firm can demonstrate that its policies, procedures and systems are effective in promptly identifying customers who are within CONC 5D.2.1R(2)(a) or (b).

3. (3)

   CONC 5D.2.1R does not specify the frequency, duration or amount of drawings that may constitute repeat use. Firms have discretion, therefore, to tailor the policies, procedures and systems required by CONC 5D.2.1R to their specific business circumstances. If a customer has become or remained overdrawn in every month over the preceding 12-month period, it is likely that the customer will be within CONC 5D.2.1R(2)(a) or (b). It is also likely, however, that there will be other patterns of drawings in fewer numbers of months that are caught by CONC 5D.2.1R(2)(a) or (b). There need not necessarily be drawings under an overdraft in consecutive months in order for use to be properly treated as repeat use. Conversely, there may be small and temporary drawings, even in consecutive months, that are neither indicative of actual or potential financial difficulties nor the cause of high cumulative charges.

4. (4)

   When determining whether there is a high cumulative charge for overdraft use which may be harmful, the firm should consider the total amount of the combined charges both in absolute terms and relative to the customer’s financial circumstances, where known.

5. (5)

   Where there is a pattern of repeat use of an overdraft associated with a personal current account, features of that use and other factors which may be a sign of actual or potential financial difficulties include:

   1. (a)

      one or more of the matters set out in CONC 1.3.1G(1) to (7) of which the firm is aware or ought reasonably to be aware from information in its possession;

   2. (b)

      an upward trend in a customer’s use of the overdraft over time, having regard to one or both of the following:

      1. (i)

         the number of days of use per month; and

      2. (ii)

         the value of the customer’s borrowing.

   3. (c)

      changes to the regular credits or debits to the personal current account, which may indicate a fall in disposable income or increased expenditure;

   4. (d)

      use of other products which may indicate a fall in disposable income or growing indebtedness (for example, a reduction in the balance of a savings account, or an increase in the outstanding balance on another credit product) of which the firm is aware or ought reasonably to be aware from information in its possession;

   5. (e)

      the use of an unarranged overdraft associated with the personal current account, especially if becoming larger, more sustained or more frequent over time;

   6. (f)

      the incidence of refused payments in relation to the personal current account, especially if there is a rise in the number or frequency of refused payments over time;

   7. (g)

      information provided by the customer that indicates the customer is in, or is likely to experience, financial difficulties.

6. (6)

   A customer may in fact be in actual or potential financial difficulties even if none of the factors described above is present, so the customer’s response to the firm’s initial intervention will be important for determining the appropriate next steps.

7. (7)

   When a firm is first implementing policies, procedures and systems to identify customers in respect of whom there is a pattern of repeat use, the firm should give priority to identifying those customers who are vulnerable and experiencing, or at risk of, financial difficulties, in circumstances where prioritisation is appropriate in the light of the scale and complexity of the firm’s consumer credit lending activity in relation to overdrafts.

1. (1)

   1The purpose of CONC 5D.3 is to require a firm to intervene in an appropriate and proportionate manner where it detects repeat use of an overdraft with the aim of reducing that use and improving the customer’s financial situation. A firm should keep in mind, when doing so, the principle that an overdraft is not generally suitable for long-term use that results in a high total cost burden, as well as the need to pay due regard to the interests of its customers and treat them fairly in accordance with Principle 6.

2. (1A)

   When a firm identifies that CONC 5D.3.2R(1)(a) and (b) apply to a customer, it should:3

   1. (a)

      promptly take the action specified in CONC 7.3.7AG(1)(a) to (b) (provision of information to the customer); and3

   2. (b)

      where appropriate to the customer’s circumstances, follow the guidance set out in CONC 7.3.7AG(2) to (6) (further communication with the customer). 3

3. (2)

   CONC 5D.3 does not specify a particular form of words to be used in communications with repeat overdraft users, and firms have discretion to tailor the language and tone of those communications to the circumstances of the individual customer.

4. (3)

   For the purposes of CONC 5D.3.2R(3), “reasonable period” is unlikely to be longer than one month.

5. (4)

   Options that a firm could identify for the purposes of CONC 5D.3.2R(5)(a) may include, where assessed as appropriate for the customer:

   1. (a)

      advice on budgeting and money management, for example adjusting payment dates or setting up alerts;

   2. (b)

      [deleted]3

   3. (c)

      [deleted]3

   4. (d)

      forbearance and other support, including doing one or more of the following:3

      1. (i)

         reducing or waiving interest and other charges or (where applicable) allowing additional time to pay, where this does not unduly delay further help to the customer, or permit further deterioration of the customer’s financial position;3

      2. (ii)

         transferring the overdraft debt to an alternative credit agreement on more favourable terms (refinancing), provided that this would not cause financial hardship to the customer; or3

      3. (iii)

         agreeing staged reductions in the overdraft limit and balance (agreeing a repayment plan).3

   5. (e)

      a reduction in the credit limit or the suspension or removal of the overdraft facility (or reminding the customer that they can ask the firm to take these steps) provided that such reduction, suspension or removal would not cause financial hardship to the customer.

6. (5)
   1. (a)

      2If an overdraft customer has already been identified by a firm as being in financial difficulties, and is already being treated with appropriate forbearance by the firm, the rules in this section do not require the firm to do anything which is inconsistent with the treatment that it has already adopted in respect of that customer.

   2. (b)

      2Where a Debt Respite moratorium is in effect for a customer’s overdraft and a firm is complying with its obligations pursuant to that moratorium, the firm is treating the customer with appropriate forbearance with respect to the portion of the overdraft that is subject to the moratorium. The firm is not required to take the steps in relation to that moratorium debt under this section during the moratorium, as these steps would be inconsistent with the treatment currently being adopted in respect of that customer.

7. (6)

   Firms are reminded that they should not consider the suspension or removal of the overdraft facility, or a reduction in the credit limit, under CONC 5D.3.2R(6) if this would cause financial hardship to a customer (CONC 5D.3.2R(7)). A firm should give careful thought to the potential effect of suspension, removal or reduction on the customer and consider these steps as part of a response to repeat use only where the firm is confident, on the basis of sufficient information and enquiry, that they would not cause financial hardship in the individual circumstances of the case.

1. (1)

   3A measure is unlikely to be sustainable if it has the result that the customer cannot meet their priority debts and essential living expenses.

2. (2)

   Priority debts and essential living expenses include, but are not limited to, payments for mortgage, rent, council tax, food and utility bills.

3What is reasonable in any given case will depend on the customer’s circumstances and the nature of the measure provided, but may include reviewing the terms of the measure at appropriate intervals and responding as necessary. It will also involve reacting appropriately to any relevant information the firm is otherwise made aware of, such as correspondence from a debt adviser.

3When complying with CONC 5D.3.8R:

1. (1)

   the assessment should be informed by sufficiently detailed information; and

2. (2)

   a firm may have regard to the spending guidelines in the Standard Financial Statement or an equivalent tool.

3A firm should have clear written policies setting out how and in what circumstances it conducts income and expenditure assessments.

3When a firm identifies that CONC 5D.3.2R(1)(a) and (b) apply to a customer:

1. (1)

   when engaging with customers, firms are reminded of their obligations to communicate with customers in accordance with Principle 12 and PRIN 2A, or Principle 7, as applicable;

2. (2)

   a firm should make available to customers timely, clear and understandable information which:

   1. (a)

      takes into account the individual circumstances of the customer;

   2. (b)

      is sufficient to enable the customer to understand their financial position in relation to their debt, including how it is reported to the customer’s credit file; and

   3. (c)

      is sufficient to enable the customer to understand their options in relation to their debt, including the potential impact of any forbearance or other support on their overall balance and how it will be reported to the customer’s credit file.

3. (3)

   A firm should consider the most appropriate way to engage and communicate with a customer, and support customers to engage through appropriate channels, changing the channel if necessary to enable the customer to engage with the firm effectively.

1In assessing and periodically reviewing the effectiveness of its policies, procedures and systems under CONC 5D.2.1R, a firm should have regard, amongst other matters, to the number of repeat users and size of their overdraft balances before putting in place the procedures required by these rules, compared with the number and size following implementation of those procedures. More generally, a firm should assess the extent to which it has been able to assist those customers who were showing a pattern of repeat use and who could benefit from assistance.