The FCA Breathing Space Regulation
The Financial Conduct Authority’s consultation on The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Breathing Space Regulations) closed on 6 January. The consultation sets out minor changes to the Handbook that need to be made given the Regulations, which have been approved by Parliament and are due to come into force on 4 May 2021.
The Regulations form a scheme in England and Wales that give individuals in problem debt the right to certain legal protections from creditor action for up to 60 days while they receive debt advice and potentially enter into a debt solution. Consumers are only eligible for the ‘breathing space moratorium’ after they have been assessed as eligible by an FCA Authorised debt advice firm or a local authority, or by accessing a mental health crisis moratorium.
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The effect of the breathing space moratorium is that it will protect the customer from credit action in relation to most personal debts, including financial services debt, household bill arrears, and payment of mortgage arrears not capitalised and interest fees and charges on those arrears, but not for mortgage payments or interest on the principal.
As a result of the Regulations, the FCA is updating a number of parts of CONC to clarify how the FCA’s rules apply where the Regulations also apply, and to avoid duplicating the effects of the Regulations. For example, where CONC 7.3.11 states that a firm must suspend the active pursuit of recovery of a debt for a reasonable period where the customer has told the firm they are attempting to develop a repayment plan, the FCA proposes to clarify that where the customer’s debts are or have been in a moratorium, the firm may take that into account when they are determining what constitutes a reasonable period.
The FCA consultation clarifies that where a customer is benefitting from a moratorium, then the Regulator would consider the protections that the moratorium affords the customer is ‘equivalent or more favourable’ than its persistent debt rules relating to debt through credit cards and retail revolving credit agreements. The persistent debt rules would then continue to apply as normal at the end of the moratorium.
There will be a similar approach for the application of repeat overdraft use intervention rules, in that customers in a moratorium would be considered by the FCA to be receiving ‘appropriate forbearance’ and therefore the interventions would not need to be made. Firms should be aware that the FCA would consider interventions on top of a moratorium to be inappropriate, given that the rationale for the moratorium is to allow customers time and space to seek further advice to address debt problems after seeking initial debt advice.
In the case of CONC 6.7.2R, as customers in a moratorium will, by definition, have repayment difficulties, firms will be required to take ‘appropriate action’. Although CONC 6.7.3G considers appropriate action to include sending information about the risks of escalating debts and providing details of not-for-profit debt advice bodies, the FCA do not think this is relevant for a customer in a moratorium. The Regulator will add guidance to make clear that compliance with a moratorium is an appropriate action under this rule.
Under CONC 7.3.11R, firms must suspend active recovery of a debt for a ‘reasonable period’ while the customer develops a repayment plan. The FCA have clarified that firms may take into account the time period of the moratorium when calculating the ‘reasonable period’.
The Insolvency Service (IS) has published guidance for creditors and separately for money advisors about the Scheme.
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