FCA sets out guidance for lenders using Covid-19 loan scheme

The scheme supports lending to small and medium-sized enterprises (SMEs) impacted by coronavirus of up to £5m. However, loans of up to £25,000 to sole traders and unincorporated enterprises can fall within the scope of FCA regulation.

The FCA has issued guidance on the information and circumstances that are relevant when assessing the affordability of such loans. The fact that the customer may, at the time of the application, be temporarily experiencing exceptional financial pressures does not mean that the firm is prevented from making the loan.

The guidance says that:

• Lenders may take into account appropriate evidence, including historic trading figures as well as future forecasts;
• If a forecast income does not materialise, lenders should consider deferring repayments until it does.

Where mortgages are concerned, the guidance makes clear that firms should:

• Grant customers a payment holiday for an initial period of three months, where they may experience payment difficulties as a result of coronavirus (Covid-19) and where they have indicated they wish to receive one.
• Ensure that there is no additional fee or charge (other than additional interest) as a result of the payment holiday.

The guidance also sets out the steps firms should take to ensure that the payment holiday does not have a negative impact on the customer’s credit score.

The FCA has also made it clear that in the current circumstances, it does not consider that repossession will be in the best interests of the customer. As a result, repossession should not be commenced or continued with unless the firm can demonstrate clearly that the customer has agreed it is in their best interest.

The regulator said it will continue to review these measures as the situation develops and update the guidance appropriately.