FCA consults on rules to strengthen protections for borrowers in financial difficulty (CP23/13)

The Financial Conduct Authority (FCA) published final rules on 10 April 2024 to strengthen protections for borrowers in financial difficulty, following a consultation that opened on 25/05/2023 and closed on 13/07/2023¹. The rules cover consumer credit, mortgages and overdrafts, and come into force on 4 November 2024, when the FCA will withdraw its Tailored Support Guidance (TSG)¹.

The FCA said it is incorporating relevant aspects of its pandemic-era TSG into its Handbook, alongside further targeted changes¹. The TSG was introduced in 2020 to set out how firms could support customers in financial difficulty during the pandemic¹. The FCA received 39 responses to the consultation from firms, trade bodies and consumer groups².

The rules primarily affect consumer credit lenders, premium finance firms, mortgage lenders and administrators, home purchase providers and administrators, firms involved in consumer hiring, peer-to-peer lending or debt collecting, lenders in supervised run-off under the financial services contracts regime, and Gibraltar-based lenders passporting into the UK¹.

Among the changes, the FCA is finalising rules to add to the list of forbearance options in MCOB 13.3.4AR and CONC 7 and CONC 5, with the list not intended to be exhaustive². For mortgages, firms will be required to send regular statements to all customers in arrears, regardless of whether the payment shortfall is attracting charges². For credit including overdrafts, guidance on priority debts and essential living expenses will include, but not be limited to, payments for mortgages, rent, council tax, food and utility bills². The FCA is not progressing proposed guidance on the publication of eligibility criteria and interest rates for refinance loans on firms' websites².

The FCA said it is giving firms just over six months to implement the changes, after some industry respondents asked for a 12-month implementation period². The updated non-Handbook guidance FG24/2 will replace FG23/2 with effect from 4 November 2024¹.

Why it matters for households

From 4 November 2024, borrowers in financial difficulty across consumer credit, mortgages and overdrafts will be covered by Handbook rules rather than the temporary TSG¹. The FCA said the changes broaden the scope of relevant consumer credit and mortgage chapters so that support should be provided to customers in or at risk of payment difficulty, not only those who have already missed a payment². The FCA also said it is not requiring firms to proactively identify whether customers are at risk of falling into a payment shortfall, and the rules do not introduce new requirements for firms to take additional steps or create new processes to identify customers who may be in financial difficulty².

The FCA's consultation estimated that up to 5 million consumers were in arrears from credit reference agency data for 2021, and that the additional number of customers expected to speak with firms would be around 1.7 million³. It estimated the additional total industry cost of signposting 1.7 million customers to debt advice at £2.7 million per annum³. For mortgages, based on regulatory reporting data for H2 2021, there were 207,000 customers in shortfall³. The FCA estimated the total industry cost for providing mortgage shortfall statements at £431,000 per year³.

The FCA said it will monitor market and regulatory data, complaints and information from the Financial Ombudsman Service regarding the treatment of customers in financial difficulty².

What happens next

The rules come into force on 4 November 2024, when the TSG is withdrawn and FG24/2 replaces FG23/2¹. The FCA said it will engage with stakeholders about the impact of the intervention and will consider further action if problems persist².