FCA propose to remove repossession restrictions

Under the Financial Conduct Authority’s (FCA) current guidance on consumer credit repossessions, first published in April 2020 as a result of the ongoing Coronavirus pandemic, firms are not able to terminate regulated agreements or repossess goods or vehicles except in exceptional circumstances.

Doing so would be a contravention of Principal 6 of the FCA Handbook (“A firm must pay due regard to the interests of its customers and treat them fairly”). However, in a recent announcement, the FCA have proposed updated guidance permitting firms to recommence termination and repossession activity from 31 January 2021.

Is placing a freeze on terminations and repossessions in the customer’s best interests?

The FCA initially felt that placing a freeze on terminations and repossessions was in the customer’s best interests but has subsequently reconsidered its position. 

The FCA now considers that when compared to regulated mortgage contracts, the shorter terms and higher interest rates on consumer credit agreements, combined with the depreciating values of the goods or vehicles hired, could result in customers owing more in the long term if repossessions continue to be prevented.

Firms are required to consider the impact on vulnerable customers

The FCA’s draft updated guidance requires firms to consider the impact on vulnerable customers when deciding on the appropriate course of action and urges repossession to be used only as a “last resort”.  Firms should also ensure they comply with social distancing and shielding in accordance with government guidelines.

Further rules to come

Following the close of the consultation period on 18 January 2021 further final rules will be published shortly.