How lenders must treat you when you fall behind

When you cannot keep up with payments on a loan, credit card or mortgage, the lender is not free to do whatever it likes. Rules set by the Financial Conduct Authority (FCA), and in some cases by law, require lenders to treat customers in arrears fairly, to consider a range of options before enforcement, and in defined situations to freeze interest and charges so the debt stops growing. These rules are known collectively as forbearance: the lender must forbear, or hold back, rather than push straight to default notices, collection pressure or repossession.

The core duties are broad. Lenders must treat you fairly and send you regular statements to keep you informed about your current arrears position¹. A firm must not take steps to repossess your home, goods or vehicles other than as a last resort, having explored all other possible options². If you miss a repayment on a regulated buy now, pay later agreement, firms need to contact you to let you know and explain what this means, and to provide support if you are struggling³. And when a lender asks you for information to work out what you can afford, there are limits on what it can demand⁴.

These rules sit alongside the wider options for dealing with problem debt, covered in the debt guide, and the free, independent advice services that can help you negotiate, described in free debt advice.

What lenders must do when you cannot keep up with payments

The starting point is that a lender who knows a customer is in difficulty, or may be, must engage rather than simply escalate. For mortgages, the law says lenders must treat you fairly and take your circumstances into account, and there are also rules covering what the lender must do if it intends to repossess your home¹. The FCA's consumer credit rulebook, CONC 7, governs how firms handle arrears and collections on credit agreements, and its mortgage equivalent, MCOB 13, does the same for home loans.

Forbearance is not a favour a lender may grant or refuse at whim. Where a customer cannot afford the contractual payments, the firm must treat the customer with forbearance and due consideration⁸. What that means in practice depends on the type of debt, but the direction of travel is always the same: the lender should work out what you can actually afford, consider options that fit that, and not take enforcement steps while a fair process is under way.

A lender's right to information is also limited. When taking reasonable steps to ascertain missing information and when contacting a consumer, a lender must not request more information than is sufficient to determine the outstanding matters, must exercise sensitivity, must ensure the consumer understands what is being asked and in what format, must only ask for readily accessible information, and must make clear why the information is being asked for and the consequence if it is not provided⁴. In other words, a lender cannot bury you in demands for documents as a condition of considering a payment plan.

Some products carry extra duties at the outset that matter later. Guarantor lenders must make sure the borrower can afford the repayments without too much trouble, and must be able to show what checks they did if the loan is later complained about as unaffordable⁹. Payday lenders must satisfy themselves that you can afford the repayments¹⁰. If a loan was unaffordable from the start, that is a separate complaint in its own right, and the Financial Ombudsman Service can look at it.

One point on who polices all this: the FCA is the regulator responsible for ensuring fair practice in consumer credit, and it is also the go-to contact if you want to check whether a firm is legitimate or report a possible scam⁷. But the FCA does not sort out individual disputes. That is the role of the Financial Ombudsman Service, covered in the final section of this page.

Payment plans, reduced payments and paused payments

Forbearance in practice usually means changing how the debt is repaid. For mortgages and home purchase plans, the FCA's rules list the options a firm should consider when a customer has, or may have, payment difficulties, with the customer's agreement. A firm may extend the term of the mortgage, change its type, waive or defer payment of capital or interest, reduce the interest rate or apply simple interest instead of compound interest, treat a payment shortfall as if it was part of the original amount provided, or make use of any Government forbearance initiatives¹¹.

For unsecured credit, the equivalent options are negotiated payment arrangements: reduced monthly payments over a longer period, short payment holidays, or token payments where affordability is very low. These informal arrangements are covered in detail in payment arrangements with creditors, and a debt management plan is the structured version of the same idea.

Some specific rights are worth knowing:

• A lender must consider a reasonable request from the borrower to change the date of the regular payment, within the same payment period, or the method of payment, and either agree or give a written explanation of refusal within a reasonable period¹².
• When you make a part payment, the firm must set the order of priority, which bit of the debt the money clears first, in a way that will minimise the amount of the payment shortfall once the payment has been allocated¹³.
• If you are behind on a Help to Buy mortgage guarantee, the lender may arrange a forbearance agreement with you, which allows you to repay any missed payments¹⁴.
• If you cannot meet the extra payments that come with arrears on a mortgage, you may be able to delay them for a while or add them to your loan, depending on your track record¹.

Paused payments have appeared in recent years through temporary schemes. During the coronavirus period, the FCA gave guidance under which overdraft providers should consider, at the end of a support period, whether customers who had benefited were in financial difficulty, and if so provide forbearance under normal policies and processes¹⁵. Similar guidance for credit cards allowed payment deferrals, and suspended the persistent debt remedies for customers granted a deferral, for the duration of the deferral period¹⁶. Those specific schemes have ended, but they illustrate the principle: a payment pause is a recognised form of forbearance, not a sign of special treatment.

In Scotland, formal payment breaks exist within the Debt Arrangement Scheme: a debtor in a short term financial crisis can have a payment break approved, but approval of the variation must not result in more than two such deferments, whether consecutive or otherwise, in any period of 12 months¹⁷. The Debt Arrangement Scheme page explains how that scheme works.

Interest, fees and charges should be frozen or cut

The clearest single rule in the FCA's consumer credit rulebook concerns what happens once a repayment arrangement is in place. Where a repayment arrangement is in place as forbearance and the customer is meeting its terms, the firm must reduce, waive or cancel any further interest or charges to the extent necessary to ensure that the level of the debt does not rise for the period of the arrangement². The point of the arrangement is that the debt shrinks, not that it keeps growing while you pay what you can.

The rulebook spells out that forbearance steps may include reducing, waiving or cancelling any interest, fees or charges⁸. For credit card customers in persistent debt who cannot afford to repay more quickly, the FCA's policy is that the firm must show forbearance, for example by reducing, waiving or cancelling interest or charges¹⁸. The consumer-facing version of the same message is blunt: if you cannot afford to increase your payments, your provider must take steps to make sure your fees do not mount up¹⁹.

Where a complaint about unaffordable lending is upheld and there is still an outstanding balance, the Financial Ombudsman Service describes its usual redress approach: it will usually tell the lender to remove all the interest and charges applied from the start, so that a new starting balance consisting of only the amount lent is left, and then deduct any payments already made²⁰. That is the remedy when the lending should not have happened at all, which is a stronger position than ordinary forbearance.

The practical implication is that a lender who accepts reduced payments but keeps adding interest and default charges is not behaving as the rules require. Keep a note of the balance at the start of any arrangement, and check statements against it. The narrower question of when creditors must freeze interest, and how to ask, is covered in do creditors have to freeze interest and charges?.

Persistent debt: what happens after 18 months of minimum payments

Credit cards and retail revolving credit have a specific regime for customers who keep paying but never get anywhere. The persistent debt rule applies if the amount you have paid towards the balance over the immediately preceding 18-month period comprises a lower amount in principal than in interest, fees and charges. It does not apply where the balance was below £200 at any point in that 18-month period²¹.

The FCA's policy statement set out a staged response. At 18 months, firms need to prompt customers in persistent debt to change their repayment behaviour if they can afford to. At 36 months, firms need to intervene again if a customer remained in persistent debt, proposing ways of repaying more quickly over a reasonable period, usually between 3 and 4 years, with forbearance where the customer is unable to repay more quickly¹⁸. And firms must treat customers who cannot afford to increase their repayments with forbearance⁵.

The FCA also expected that cards of customers shown forbearance, and those who do not respond, would be suspended¹⁸. So if you are in persistent debt and either cannot or do not engage, expect the card to stop working for new spending. That is not a penalty in the ordinary sense: it is the mechanism that stops the balance growing while the arrangement runs.

If you receive one of these letters, it is worth acting rather than ignoring it. Responding gives you the chance to set a payment level you can sustain, and triggers the forbearance duties described above. Free debt advice, described in where to get help, can help you work out what that level is using a standard financial statement.

Stopping a lender taking money by continuous payment authority

Many credit agreements, especially payday loans, guarantor loans and buy now, pay later, take payment by continuous payment authority (CPA): a recurring permission on your debit or credit card that lets the firm take money when a payment falls due. CPAs are not direct debits, and the way you stop them is different.

The key right is simple: your bank or card provider must cancel the payment authority when you ask it to⁶. You do not have to ask the lender first, and the bank cannot refuse or insist you deal with the firm. Cancelling the CPA stops the money leaving your account; it does not stop the debt existing, so it is best done alongside a plan for the debt itself, whether that is a payment arrangement, a formal debt solution or Breathing Space.

There are also limits on how a lender can use a CPA once it exists. A firm must not amend the terms of a continuous payment authority without first obtaining the customer's consent, after having fully explained the reason for the amendment²¹. So a lender cannot quietly change the amount or timing of what it takes.

On the banking side, the Payment Services Regulations give your payment provider a limited power to delay a payment while it checks: the payer's payment service provider may delay crediting the amount of the payment transaction to the payee's provider in order to contact the payer or another relevant third party and establish whether it should execute the payment order²². This is the mechanism behind banks' ability to hold a suspicious or disputed CPA payment rather than pass it straight on.

Warnings before a default is registered

Before a lender takes formal action, it must warn you and give you time to act. On credit reference files, industry guidance reported in the Financial Ombudsman Service's payday lending work is that lenders should notify consumers of their intention to register a default against them at least 28 days before doing so²³. That gives you a window to pay, agree a plan, or dispute the entry.

Specific schemes have their own notice periods. Under Help to Buy: Wales, the default notice provides 28 days' notice to the customer to make good the arrears²⁴. Under the FCA's motor finance redress scheme rules, a lender must not take certain scheme steps before the end of the implementation period unless it has provided the FCA with at least 15 working days' prior notice, and where a lender intends to pause processing of a dual track case, a case where court proceedings have not been stayed or withdrawn, it must issue a notice in a durable medium to the consumer at least 14 days before it intends to pause the process²⁵.

The common thread is that enforcement steps should not arrive unannounced. If a default appears on your credit file with no warning, or a lender moves to court action while a complaint or arrangement is unresolved, those are both things the Financial Ombudsman Service can look at. A default has real consequences: it stays visible to other lenders and can affect your ability to get credit, so the warning period matters. The credit scores guide explains how defaults appear on your file and for how long.

Repossession of your home or car only as a last resort

The FCA's rulebook is explicit about repossession. Firms must not take steps to repossess a customer's home, goods or vehicles other than as a last resort, having explored all other possible options². The consumer credit sourcebook gives the same principle as an example of behaviour likely to contravene the regulator's principles and the Consumer Duty: taking steps to repossess a customer's home, other than as a last resort²⁶.

For homes, there are practical steps a lender should offer before court action. Independent guidance from Housing Rights in Northern Ireland describes what a lender should do: it should give you the chance to sell your home to pay off the debt, and you must be able to show that you are taking active steps to sell²⁷. The same guidance describes forbearance in mortgage terms as the lender putting you into a fixed rate²⁷. nidirect's guidance adds that there are rules covering what the lender must do if it intends to repossess your home¹.

If you have complained to the Financial Ombudsman Service and the lender decides to continue with repossession action while the complaint is being dealt with, it must give you five working days' notice of its plans²⁸. That notice gives you time to seek urgent advice, or to apply to suspend the action, which is covered in suspending a warrant of possession.

For secured debts on cars, such as logbook loans and hire purchase, the same last resort principle applies to vehicles². For unsecured debts, a lender cannot simply seize property at all: it needs a court judgment first, and then enforcement, and there are strict rules about what bailiffs can take. Homeowners in mortgage arrears should also check the help for homeowners schemes that exist across the UK.

Which debts the Consumer Credit Act and lender forbearance do not cover

The Consumer Credit Act 1974 sits behind much of what this page describes, but its coverage is not total, and it has been changing. Buy now, pay later agreements were brought into regulation as deferred payment credit. The FCA now requires lenders offering these agreements to check whether you can afford to repay before you take one out, to give you important information before you sign, including the amount you will borrow, when repayments are due, how much they will be, and how much any late fee will be, and to provide support if you miss a repayment³. Section 75 protection is available on these agreements, so you may be able to get a refund from the lender if something goes wrong with what you have bought³.

However, the legislation that brought deferred payment credit within regulation disapplies a set of Consumer Credit Act protections for these agreements. Sections 55 (disclosure of information), 60 (form and contents of agreements), 76 (duty to give notice before taking certain action), 86B (duty to give notice of sums in arrears under fixed-sum credit agreements), 86E (failure to give notice of sums in arrears) and 87 (need for a default notice) will not apply to regulated deferred payment credit agreements²⁹. In practice, that means some of the notice-based protections described elsewhere on this page work differently for buy now, pay later than for older forms of credit, even though FCA rules on affordability, information and arrears support do apply.

Other exclusions are longer standing. Section 75 does not include cases where the goods or services were bought with a debit card, charge card or prepaid card³⁰. And under Section 83 of the Act, the debtor under a regulated consumer credit agreement is not liable to the creditor for any loss arising from use of the credit facility by another person not acting, or not to be treated as acting, as the debtor's agent³¹: in plain terms, you are not liable for losses caused by someone else misusing your credit facility.

Some debts sit outside consumer credit regulation altogether: council tax arrears, rent arrears, energy and water arrears, benefit overpayments and tax debts are collected under their own regimes, each with their own rules, covered in council tax arrears, rent arrears, energy and water arrears, benefit overpayments and owing money to HMRC. The FCA forbearance rules in this page apply to regulated credit agreements, not to those debts.

Formal help when forbearance is not enough

Forbearance from a lender is an informal, discretionary process. Sometimes it is not enough, or the debts are too large for any realistic payment plan. At that point the formal options come into play, and they carry their own legal protections that informal arrangements do not.

In England and Wales, these include debt relief orders, IVAs and bankruptcy, each with different eligibility and costs, compared in what debt solutions cost. In Scotland, the equivalents are the Debt Arrangement Scheme, protected trust deeds and sequestration. Northern Ireland has its own bankruptcy process and IVA variant³².

Two protections are worth flagging early. Breathing Space gives protection from creditor action while you get advice, with a mental health crisis version that has no time limit³². And if a lender refuses a reasonable offer, what to do when a creditor refuses your repayment offer explains the next steps, including complaining. Deciding which debts to deal with first, because priority debts like rent and council tax carry faster and harsher consequences, is covered in which bills to pay first.

Free, impartial advice is available and there is no need to pay for it: free debt advice lists the services, and how to tell if a debt adviser is legitimate helps you avoid fee-charging imitations.

How to complain if a lender treats you unfairly

If a lender breaks the rules described on this page, refusing forbearance, adding charges it should have frozen, taking money by CPA after cancellation, or moving to repossession without exploring options, you can complain, and the process is free.

The first step is to complain to the lender itself. Explain to your lender what you are unhappy about, and the reasons why. If you are not happy with their response, you can bring the complaint to the Ombudsman with as much information as possible³³. A credit broker that receives a complaint about the subject matter of the scheme must forward the complaint to the lender and inform the consumer that it has been forwarded³⁴.

On timing, the Financial Ombudsman Service's guidance for firms says that if a firm receives a complaint involving a logbook loan, it should reply to its customer within eight weeks³⁵. If the lender's final response does not resolve the complaint, or the eight weeks pass without one, the Ombudsman can take the case on.

The Ombudsman's powers are real. Depending on the type of complaint, it may tell the lender to adjust the amount you owe, to set up a fair repayment arrangement based on your current money situation, or in some cases to stop seeking repayment from you entirely³⁶. For buy now, pay later complaints, if the Ombudsman thinks you have lost money, it will tell the lender to put things right, and it may also tell them to pay compensation for distress or inconvenience³². For mortgage interest complaints, it may tell the lender to pay compensation for any distress or inconvenience where the lender has not done enough to help³⁷. In unaffordable lending cases, it may ask the lender to pay compensation if it thinks you experienced distress or inconvenience³⁸.

The Ombudsman also looks at specific behaviours. For guarantor loans, lenders need to make sure the borrower can afford the repayments without too much trouble, and must show what checks they did if the loan is complained about as unaffordable³⁹. In the motor finance redress scheme, the FCA asks customers to wait until they hear from their lender before bringing a complaint to it, and says it will only be able to look at whether the lender followed the scheme rules⁴⁰.

If the complaint is about harassment or pressure from a collector rather than the lender's arrears handling, the rules on debt collectors and sold debts and collector harassment set out where the lines are.