New FCA guidance
Following the announcement of a second national lockdown, the FCA has announced a reprise of the payment deferral forbearance guidance for mortgage borrowers and consumer credit borrowers impacted by Covid-19. This sits alongside the extension, by HM Treasury, of the various government-backed loan schemes and the furlough programme.
Richard Fletcher and George Silber wrote in detail on the initial FCA guidance in April.
The further forbearance will operate in a similar way to the first implementation in March of this year, extending (in most cases) payment deferrals by up to a further three months, as follows:
- "those who have not yet had a payment deferral will be eligible for 2 payment deferrals of up to 6 months in total
- those who currently have an initial payment deferral, will be eligible for another payment deferral of up to 3 months
- those who have resumed repayments after an initial payment deferral will be eligible for another payment deferral of up to 3 months."
In relation to high-cost short-term credit, such as payday loans, the period is truncated to allow a deferral of one month, if the relevant borrower has not previously had a payment deferral.
As with the first round, payment deferrals are only available to borrowers whose ability to keep up with payments has been affected by Covid-19 and lenders should not be extending forbearance to those borrowers who can afford to make repayments. Borrowers will be given until 31 January 2021 to apply for a deferral.
Asset backed financings
The first guidance published in March resulted in a wave of amendments across financings supported by mortgage and consumer credit assets, with lenders in those transactions being required to grant appropriate accommodation under the documentation. This principally focussed on carving payment deferrals out of arrears and default covenants, but had a broader impact for some transactions, particularly the more bespoke and complex deals. As such it required a careful examination of the underlying documentation and in some cases gave rise to involved negotiation to ensure that sufficient headroom was given to borrowers to allow compliance with both the specifics and the spirit of the FCA guidance and the consequential updated internal policies, whilst protecting lenders against this being used as an opportunity to re-trade original terms. Most often the outcome was specific, bespoke drafting limited to payment deferrals granted directly as a result of the FCA guidance.
The new FCA guidance will likely lead to a second wave of amendments to reflect the extended availability of payment deferrals. This should, however, be more straightforward than over the summer given the repeat nature of the process and the previous agreement on approach between respective lenders and borrowers.