Jonathan Newman

What do the recovery embargo and payment holidays mean for lenders?

The FCA has published its initial guidance for mortgage lenders and administrators in connection with the enforcement of loans and mortgages. It will be reviewed and updated as and when.

It is targeted at “home finance providers” and the wording consistently references “consumers”.

So, it is arguable whether action against corporate and business entities, where much of alternative finance is placed, is included. It would not appear to be directed at companies, businesses and commercial premises. However, the overall sense and tone of government action does not differentiate between corporate and consumer outcome. Likely further clarification will follow as the situation develops.

There is a lack of detail and the guidance is broadly a statement of principle, specifically:

  • Principle 6 – treating customers fairly 

  • MCOB 2.5A IR – acting honestly, fairly and professionally in accordance with the best interests of the customers

Notably, warning is given to authorised individuals, not firms, that findings of behaviours inconsistent with the principles, may have an adverse effect on their continuing status. The indication being that individuals will face sanction even if the lending is completely unregulated.

Firms are told that they must not commence or continue repossession proceedings against customers at this time, irrespective of the status of the proceedings. They say, in doing so, that would “very likely” breach these principles.

It is unclear whether the appointment of receivers, who might collect property income but where no formal litigation is taken, is included within the moratorium. It certainly is not mentioned. In most cases, the appointment of a receiver may be viewed as an act of enforcement, but appointment on limited terms, contractual powers permitting, is clearly not equivalent, in legal terms at least, to commencing or issuing repossession proceedings.

In my experience, most cases are resolved between issue of demand and the court steps — for example, payment arrangements, extensions, consensual sale and delivery agreements — and then simply endorsed and sealed by the court. That engagement, and that preparatory work can still take place. And agreements reached and properly documented will have contractual force, if not the force of court order. But with contractual force, future enforcement, only if necessary and when allowed, becomes a far swifter and more certain litigation piece.

Lenders must consider the extreme sensitivities of the coronavirus crisis and should look proportionately at each account on a fact-sensitive basis. Reputational risk is always a consideration, whatever the environment.

But that all said, every business, including lending businesses, has a parallel duty to itself and its own shareholders. And that would require a proportionate and designed approach for consumers and businesses, based on their own factual matrix.

So, sitting back and doing nothing where default (which may have existed before the current crisis hit) exists is not a realistic option.

Taking a proactive, engaged view now, allows both lender and borrower, to know exactly where they are, the impact of any payment holiday, and the litigation moratorium. This sits very comfortably with acting honestly, fairly and professionally, in accordance with the best interests of the customers.

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