Tue 09 Feb 2021

Pay as You Grow options

BBLS was launched by the UK Government in May 2020 to help smaller businesses impacted by coronavirus.  It allows businesses to borrow from £2,000 up to 25% of their turnover, subject to a maximum of £50,000.  The Government meets the first 12 months' interest payments through a Business Interruption Payment (BIP) to the lender, and also provide lenders with a 100% government-backed guarantee.  The business has nothing to pay for the first 12 months, with interest then running at a fixed rate of 2.5% over a repayment term fixed at six years.

"Pay as You Grow" - flexible measures for those struggling to repay their BBLS

Before the first BBLS loan repayment had become due, the Government introduced Pay as You Grow measures in October 2020.  These were aimed at borrowers with a BBLS loan who might struggle to repay or needed extra flexibility to repay when the time comes.

Businesses now have the option to: extend the loan term from six years to ten; make interest only payments for six months, which they can do up to three times during the loan term; or request a six-month repayment holiday, provided they have first made at least six payments.  These options are available in any combination as required.

There is always the option open to a business to pre-pay their BBLS loan early, in whole or in part, without incurring early repayment charges.

FCA issues Finalised Guidance for firms on use of Pay as You Grow options

This new guidance was issued by the Financial Conduct Authority on 26 January 2021 following a short consultation, and came into force the next day.  It is designed for firms collecting payments under BBLS loans where the collection of that debt is a regulated activity - so we are talking about loans of £25,000 and under to sole traders and small partnerships.  This will be relevant for both the lenders themselves and any debt collection agencies they employ to carry on these activities on their behalf.

The guidance aims to help firms understand how to operate the PAYG options in tandem with their obligations to exercise forbearance under CONC7 of the FCA's Handbook in relation to arrears, default and recovery, and their PRIN6 obligation to treat customers fairly.

The guidance acts as a reminder to firms that where customers seek to exercise any or all of the PAYG options (see above), firms need to support customers to choose between the PAYG options and allow them to opt out of any automated online journey if needed, and have an interactive conversation or engagement with the firm.  The context here is the potential for large numbers of customers who took out BBLS loans from May 2020 onwards who may still be in financial difficulties as a result of coronavirus and may need additional support.  Many firms will be looking to technology to help them cope with the anticipated demand, and the FCA acknowledge that automated online journeys will be the way forwards both for customers accessing PAYG options before they fall into arrears and appropriate forbearance when in arrears, which may include those PAYG options.

The FCA want firms to help customers make informed choices when selecting PAYG options.  Regardless of the delivery channel, firms are reminded that they should be informing customers of any changes in their monthly payments and the total amount to repay.  This can either be personalised for customers during an online journey, or customers can be directed to a repayment calculator if personalised information is not otherwise available.

The guidance reminds firms that, where CONC7 does not apply (where the collection of the BBLS payments is not an FCA regulated activity), they should nonetheless take account of the LSB Standards of Lending Practice for business customers - particularly the LSB's expectations around the treatment of customers approaching, and in, financial difficulty and those in vulnerable circumstances.

If you would like advice on your obligations under CONC7 or the FCA's new guidance, please contact John Lunn our head of Retail Banking and Consumer Finance.

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