Upcoming Breathing Space Regulations
Firms for which the Consumer Credit Sourcebook (CONC) applies are reminded that updates to the Handbook will come into force on 4 May 2021. The changes clarify how FCA rules apply where The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020 also apply.
The FCA have confirmed that there will be no changes to rules or guidance within the Mortgages and Home Finance Conduct of Business Sourcebook (MCOB) or to CONC 8 (Debt Advice).
In short, the Breathing Space Regulations are designed to ensure that people in problem debt have the right to legal protections from creditor action for a specified period of time, to allow them to get advice on their debt and begin a debt management scheme if appropriate.
Firms to which CONC applies must now assess their systems and processes to determine if any changes are needed in light of the new rules.
To be able to access the 60-day halt to creditor action (the moratorium), the consumer must be assessed as eligible by an FCA Authorised debt advice firm or a local authority.
There is also a second route – where an individual has been receiving mental health crisis treatment and has been certified by an Approved Mental Health Professional, and then confirmed as eligible by a debt adviser – this is known as the ‘mental health crisis moratorium. In this case, the 60-day limit does not apply, but the moratorium period is expected to end 30 days after mental health crisis treatment has finished.
The Regulations also mean that debt advice firms will now be obliged to assess applications for moratorium and make decisions. Although there will be no updates to CONC 8 to clarify how these assessments and decisions are to be made in practice, the Policy publication makes clear that CONC 8.3.2R (1) (c) already requires that all advice and action should be based on a ‘sufficiently full assessment of the financial circumstances of the customer’, and that CONC 8.3.7R (2) requires a ‘reasonable’ assessment of the customer’s finances and personal circumstances – debt advisers already have some flexibility in deciding an appropriate level of assessment and whether this should involve a full income and expenditure assessment and this does not change with the Regulations. The Policy also confirms that the FCA consider it is already clear that the Handbook definition of debt solution does not include a moratorium.
While the FCA states that detailed questions about the Regulations are under the remit of the Government, and reminds readers that there is Insolvency Service guidance on the Regulations for creditors and for debt advisors, it does clarify some questions on the interaction of the Regulations with the temporary guidance for consumer credit consumers in financial difficulty due to the coronavirus. The FCA think that while the temporary guidance and the Regulations may overlap, they do not conflict – a customer can have a payment deferral under temporary guidance and then enter a moratorium. Where deferred payment amounts form part of a moratorium debt, both the temporary guidance prohibition on the charging of interest and the Regulations prohibition on interest charges can apply.
Firms should continue to send out communications that are required under the Consumer Credit Act 1974 or FCA rules. The Insolvency Service guidance further explains that the moratorium means that the customer should not be contacted about collection or enforcement action, including asking the customer to pay. Firms can, however, contact the customer’s debt adviser about the debt or to discuss a debt solution. Contact with customers should be limited to anything not related to the debt covered by the Breathing Space moratorium, in response if the customer asks to discuss the debt or a debt solution, about any legal proceedings the court or tribunal have allowed, or as required under the FCA’s rules. Firms should bear in mind that the aim in restrictions is to stop adding to the customer’s worries, but communications that could be helpful should not be stopped, and so the Insolvency Service suggests contacting the customer at the start of a breathing space to tell them they do not need to worry about normal communications that are sent to them. Firms should be careful about drafting communications that are sent out – particularly if the contact could be read by the customer as asking them to pay.
The consultation also clarifies that firms should offer appropriate support to customers who may be waiting for debt advice, particularly given that the pandemic has added to difficulties in accessing debt advice. The FCA have made clear that firms should not consider a referral to a debt advice provider to be a substitute for working with the customer to come to an appropriate arrangement, for example, a forbearance arrangement. Firms should also help the customer to understand the different types of advice available.
Finally, the FCA noted that while they do not have powers to enforce the Breathing Space Regulations, they would consider systematic non-compliance to be of concern and this would likely breach one of the Principles, or call into question whether the firm was meeting the Handbook requirements. For debt advisers concerned about creditor non-compliance with the Breathing Space Regulations, the Insolvency Guidance offers some steps, including contacting the creditor, and using their electronic service to notify the Insolvency Service.