Consumer credit and Covid-19 – repayment plans
For landlords and service providers with customers who are struggling to pay as a result of the Covid-19 pandemic and a resulting reduction in work, there may be a temptation to put alternative payment arrangements in place.
These could be for tenants with arrears or leaseholders obliged to pay service charges, people struggling to pay care home fees or domiciliary care fees or indeed anyone paying as a consumer for services. While looking to help people experiencing financial difficulty is natural and to be encouraged, care needs to be taken before putting any deferred payment arrangements in place. Such arrangements are classed as a form of credit, and provision of credit to consumers is something that is often subject to FCA regulation. If an activity is subject to FCA regulation, authorisation must be obtained from the FCA before it can be engaged in.
There are though some exemptions from regulation that could be helpful. FCA authorisation is not required if:
- the repayment is an informal arrangement under which the payer is given additional time to pay and does not pay interest or other charges. The FCA regards this as the person entitled to payment exercising unilateral forbearance, which does not require regulation by them. The difficulty with this option is that it is often not entirely clear where informal arrangements end and formal arrangements that may require regulation begin.. If a customer is being asked to enter into a written agreement then the arrangements are likely to be regarded as formal;
- the repayment plan lasts for no longer than 12 months, involves no more than 12 repayments and involves no interest or other charges; or
- the repayment plan is imposed by a Court order.
In order to enter into repayment arrangements that do not fall into the above categories, landlords and service providers are very likely to need authorisations from the FCA to (a) enter into regulated credit agreements; and (b) exercise their rights under those agreements.
As noted above, these requirements will apply equally to arrears of rent and service charge under a lease, including if a repayment plan is to enable a leaseholder to meet their share of the cost of major works. An additional unregulated option in the leasehold context is that service charge arrears secured by a charge do not require FCA authorisation, provided again that no interest or other fees are charged.
This will also apply in the commercial property context if the tenant is an individual rather than a body corporate, although there may be exemptions we could look to use if the repayment plan is considered to be to an individual for business purposes, but that would need to be considered on its merits.
Entering into any arrangement which does not qualify for an exemption without FCA authorisation can ultimately risk criminal liability and such arrangements are potentially unenforceable.
Please contact Tom Wainwright or Suzanne Benson for further advice, including advice on proposals to enter into arrangements that do not fall squarely into the unregulated options described above.