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Watchdog grilled over late disclosure of payment holiday impact on future lending decisions

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Written by: Owain Thomas
05/11/2020
The Financial Conduct Authority (FCA) failed to explain why borrowers who took payment holidays at the start of the Covid pandemic were not told until months later that doing so would impact future lending decisions.

In a session with the Treasury Select Committee, neither FCA chief executive Nikhil Rathi or chairman Charles Randell explained why it took so long for consumers to be told about the impact of taking a payment holiday.

Rathi and Randell were being grilled on the subject by Labour MP for Mitcham and Morden, Siobhain McDonagh.

McDonagh set out the timeline of the details being published compared to statements from ministers and the FCA.

“On 18 March the business secretary reassured those seeking a three-month payment break that it would not impact their credit record. On 20 March the FCA confirmed this,” she said.

“However, the FCA did not tell borrowers at this point that the mortgage payment holiday or deferrals could still influence banks’ willingness to lend to them, even if their credit scores or ratings were unchanged.

“Why was it not until the 22 May that the FCA added these warnings to the mortgage advice page and until 1 July for similar warnings to be put on the FCA’s loans, credit cards and overdraft webpage?” she asked.

Agencies or lenders

Randell said there were two different elements being considered in the situation – credit files maintained by credit reference agencies, and lenders making decisions about customers requiring the full detail of the borrower’s position.

However, he did not explain why there was a delay in being clear about the situation.

Rathi said of the latest measures first announced Saturday: “We’ve been clear that the credit file masking is there for three months.”

He added that the FCA had been clear over the last week, that the credit score break did not mean lenders would ignore the additional indebtedness when making affordability decisions.

“It is important that when a lender makes a future lending decision they have an understanding of the overall indebtedness of a consumer,” he said.

‘We’re being straight now’

McDonagh responded sharply: “That’s not answering my question.

“To the lay person with a mortgage, they were told in March that if they took a payment holiday it would not affect them in the future.

“It took the FCA three months to put onto the website that indeed it would be taken into account.”

Rathi, who joined the FCA as chief executive in October concluded: “I wasn’t there in March, but we are being straight with borrowers now.”

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