CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions): lenders, owners and debt collectors

1. (1)

   In relation to debt collecting and debt administration, the definition of customer refers to an individual from whom the payment of a debt is sought; this would include where a firm mistakenly treats an individual as the borrower under an agreement and mistakenly or wrongly pursues the individual for a debt.

   [Note: paragraph 1.12 of DCG]

2. (2)

   In relation to debt collecting and debt administration, the definitions of customer and borrower are given extended meanings to include, as well as those other people they generally include, a person1 providing a guarantee or indemnity under a credit agreement and also a person1 to whom rights and duties under the agreement are passed by assignment or operation of law. This reflects article 39M of the Regulated Activities Order.

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3. (3)

   7However, in accordance with CONC 7.1.4R(4), with respect to debt collecting, the definitions of customer and borrower do not include the guarantor under a credit agreement that is an exempt agreement by virtue of article 60C(4A) of the Regulated Activities Order.

When dealing with customers in or approaching arrears or in default,12 a firm should pay due regard to its obligations under Principle 12 (Consumer Duty) and PRIN 2A, or12 Principle 6 (Customers’ interests), as applicable12.

[Note: paragraphs 7.12 of ILG and 2.2 of DCG]

Where a customer under a regulated credit agreement fails to make an occasional payment when it becomes due, a firm should, in accordance with Principle 12 and PRIN 2A, or Principle 6, as applicable,12 allow for such unmade payments to be made within the original term of the agreement unless:

1. (1)

   the firm reasonably believes that it is appropriate to allow a longer period for repayment and has no reason to believe that doing so will increase the total amount payable to be unsustainable or otherwise cause a customer to be in financial difficulties; or

   [Note: paragraph 4.7 of ILG]

2. (2)

   the firm reasonably believes that terminating the agreement will mitigate such adverse consequences for the customer and before terminating the agreement it explains this to the customer.

12A firm should regard a customer as approaching arrears when the customer indicates to the firm that they are at risk of not meeting one or more repayments when they fall due.

Examples of treating a customer with forbearance and due consideration12 would include the firm doing one or more of the following, as may be appropriate to the customer12 in the circumstances:

1. (1)

   12suspending, reducing, waiving or cancelling any further interest or charges (for example, when a customer provides evidence of financial difficulties and is unable to meet repayments as they fall due or is only able to make token repayments, where in either case the level of debt would continue to rise if interest and charges continue to be applied);

   [Note: paragraph 7.4 (box) of ILG]

2. (2)

   allowing deferment of payment of arrears:

   1. (a)

      where immediate payment of arrears may increase the customer's repayments to an unsustainable level; or

   2. (b)

      provided that doing so does not make the term for the repayments unreasonably excessive;

3. (3)

   accepting no payments, reduced payments or12 token payments for a reasonable period of time 12from a customer who demonstrates that meeting the customer's existing debts would mean not being able to meet the customer's priority debts12 or other essential living expenses;12

4. (4)

   agreeing a repayment arrangement with the customer that allows the customer a reasonable period of time to repay the debt;12

5. (5)

   transferring the debt to an alternative credit agreement (refinancing) to help the customer reduce the debt over a reasonable period of time in such a way that does not adversely affect the customer’s financial situation;12

6. (6)

   in relation to a firm that takes any article in pawn under a regulated credit agreement:12

   1. (a)

      where the redemption period has not ended, extending the redemption period; or12

   2. (b)

      where the redemption period has ended, refraining from giving the customer notice of intention to sell an item of pawn for a reasonable further period, or if notice of intention to sell has been given, suspending the sale for a reasonable further period.12

12A firm should only take the steps in CONC 7.3.5G(6) where it is in the customer’s interests. In considering whether it is in the customer’s interests, a firm should consider the realistic prospects of a customer recovering the item of pawn and the equity in the item.

12The examples in CONC 7.3.5G are not exhaustive.

1. (1)

   12A repayment arrangement 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.

12When complying with CONC 7.3.5DR:

1. (1)

   the assessment should be informed by sufficiently detailed information;

2. (2)

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

3. (3)

   where the customer is borrowing for business purposes, a firm may take into account information relating to the customer’s business, including its cash flow.

12A firm should have clear written policies setting out how and in what circumstances it conducts income and expenditure assessments.

12The extent to which the firm is required to reduce, waive or cancel any further interest or charges may vary over the term of the arrangement. If a customer’s circumstances change so that they can pay larger amounts under the repayment arrangement, the firm will not be required to waive as much interest, fees or charges to prevent the balance from escalating.

12What is reasonable in any given case will depend on the customer’s circumstances and the nature of the forbearance or due consideration provided, but may include reviews 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.

Where a customer is in default or in arrears difficulties, a firm should allow the customer reasonable time and opportunity to repay the debt.

[Note: paragraph 2.2 of DCG]

1. (1)

   3If a customer is in or approaching arrears or in default12, the firm should, where appropriate:

   1. (a)

      inform the customer that free and impartial money guidance and12 debt advice is available from not-for-profit debt advice bodies and can be accessed through a range of delivery channels, including digital tools;12

   2. (aa)

      effectively communicate to the customer the potential benefits of accessing money guidance or free and impartial debt advice from not-for-profit debt advice bodies; and12

   3. (b)

      refer the customer to a not-for-profit debt advice body.

2. (2)

   A firm may refer the customer to a not-for-profit debt advice body by, for example, providing the customer with a copy of the current arrears information sheet under section 86 of the CCA, or with the name and contact details of a not-for-profit debt advice body or MoneyHelper11; or directly transferring the customer’s call to a not-for-profit debt advice body.

3. (3)

   In addition, the firm may provide the customer with the name and contact details of another authorised person who has permission for debt counselling, provided that to do so is consistent with the firm’s obligations under the regulatory system.

4. (4)

   Where possible, a firm 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.12

5. (5)

   A firm should consider whether the customer would benefit from a specialist source of debt advice. For example, a self-employed customer may benefit from being made aware of business debt advice providers.12

6. (6)

   When considering how to provide appropriate help and support to customers, a firm may have regard to the Money and Pensions Service Strategic toolkit for creditors.12

An example of where a firm is likely to contravene Principle 12 and PRIN 2A, or Principle 6, as applicable,12 and CONC 7.3.4 R is where the firm does not allow for alternative, affordable payment amounts to repay the debt due in full, where the customer is in or approaching arrears or in default12 and the customer makes a reasonable proposal for repaying the debt or a debt counsellor or another person acting on the customer's behalf makes such a proposal.

[Note: paragraphs 7.16 of ILG and 3.7j of DCG]

1. (1)

   4An example of behaviour by or on behalf of a firm which is likely to contravene CONC 7.3.10R and Principle 12 and PRIN 2A, or Principle 6, as applicable,12 is pressurising a customer to raise funds to repay a debt by arranging the receipt of a lump sum from the customer’s12 pension scheme.

2. (2)

   Firms are also reminded of PERG 12.6G which contains guidance on the regulated activity of advising on conversion or transfer of pension benefits.

A “reasonable period” in CONC 7.3.11 R should generally be for thirty days where there is evidence of a genuine intention to develop a plan and the firm should consider extending the period for a further thirty days where there is reasonable evidence demonstrating progress to agreeing a plan. Where appropriate, a firm can take into account the period of time that the debt was subject to a Debt Respite moratorium when determining what is a reasonable period.10

[Note: paragraphs 7.12 (box) ILG and 3.7m of DCG

A firm seeking to recover debts should have regard, where appropriate, to the provisions in the Common Financial Statement or equivalent guidance.

[Note: paragraphs 7.16 (box) of ILG and 3.7k of DCG]

1. (1)

   12When engaging with customers in or approaching arrears or in default, 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 in or approaching arrears or in default, 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.

A firm should not make undue, excessive or otherwise unfair use of statutory demands (within the meaning of section 268 of the Insolvency Act 1986) when seeking to recover a debt from a customer.

[Note: paragraphs 7.10 of ILG and 3.7n of DCG]

A firm should not take steps to enforce a debt if it is aware that the customer is subject to a bankruptcy order (or in Scotland where sequestration is awarded in relation to the customer), a debt relief order or an individual voluntary arrangement (or, in Scotland, a protected trust deed or a Debt Arrangement Scheme).

[Note: paragraph 3.9h of DCG]

Firms seeking to recover debts under regulated credit agreements secured on land in England and Wales should have regard to the requirements of the relevant pre-action protocol (PAP) issued by the Civil Justice Council. The aims of the PAP are to ensure that a firm and a customer act fairly and reasonably with each other in resolving any matter concerning arrears, and to encourage more pre-action contact in an effort to seek agreement between the parties on alternatives to repossession. The Pre-action Protocol on Possession Proceedings applies to all mortgage repossession cases in Northern Ireland. The Home Owner and Debtor Protection (Scotland) Act 2010 provides for pre-action requirements to be placed on secured lenders in Scotland.2

[Note: paragraphs 7.14 of ILG and 3.7s of DCG]

1. (1)

   12Where a customer has informed the firm that they intend to access debt help or money guidance, the firm should allow the customer reasonable time to access it before considering whether to commence repossession action.

2. (2)

   A firm may take action to repossess goods or vehicles as a last resort – for example, when the firm has made reasonable attempts to engage with the customer and the customer has not engaged.

3. (3)

   When considering whether repossession is an appropriate course of action, a firm should have regard to all aspects of the financial impact on the customer, including asset depreciation if repossession is delayed.

4. (4)

   A firm should inform the customer of the impact of the firm suspending any repossession actions, including on the value of goods or vehicles.

5. (5)

   A firm taking or considering taking enforcement action should have regard to the FCA’s Guidance for firms on the fair treatment of vulnerable customers (FG21/1) (https://www.fca.org.uk/publication/finalised-guidance/fg21-1.pdf).

12Where it may be in the customer’s interests to exercise their right to terminate a hire purchase agreement or conditional sale agreement under section 99 or section 100 of the CCA, a firm should make the customer aware of that right in good time, providing the information in a way that is clear, fair and not misleading to help the customer decide how to proceed.

12Where a customer intends to exercise their rights under section 99 or section 100 of the CCA, a firm should consider deferring legal liabilities associated with voluntary termination.