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CONC 5D.1 Purpose and application

Purpose

CONC 5D.1.1 R
  1. (1)

    1In this chapter, “repeat use” refers to a pattern of overdraft use where the frequency and depth of use may result in high cumulative charges that are harmful to the customer or indicate that the customer is experiencing or at risk of financial difficulties.

  2. (2)

    The expressions “arranged overdraft”, “excluded account”, “personal current account”, “private bank” and “unarranged overdraft” have the same meaning as set out at CONC 5C.

CONC 5D.1.2 G

1The purpose of this chapter is to require firms to:

  1. (1)

    monitor customers’ patterns of overdraft use;

  2. (2)

    identify customers with patterns of repeat use; and

  3. (3)

    take appropriate steps with the aim of changing such patterns of use.

Who and what?

CONC 5D.1.3 R
  1. (1)

    1Subject to (2), this chapter applies to a firm with respect to consumer credit lending and connected activities in relation to arranged overdrafts and unarranged overdrafts associated with personal current accounts.

  2. (2)

    This chapter does not apply to:

    1. (a)

      a firm if all personal current accounts provided or offered by the firm are excluded accounts;

    2. (b)

      a firm in respect of any personal current account which may be used for a currency other than a currency of the United Kingdom;

    3. (c)

      a private bank; or

    4. (d)

      a credit union.

Where?

CONC 5D.1.4 R

1This chapter applies to a firm with respect to activities carried on from an establishment maintained by it in the United Kingdom.

CONC 5D.2 Obligation to identify and monitor repeat use of overdrafts

CONC 5D.2.1 R

1A firm must establish, implement and maintain clear and effective policies, procedures and systems to:

  1. (1)

    monitor and review periodically the pattern of drawings and repayments of each of its customers under an arranged overdraft or an unarranged overdraft, and other relevant information held by the firm; and

  2. (2)

    identify, by reference to an appropriate collection of factors, any customers in respect of whom there is a pattern of repeat use, and then sub-divide those customers into the following two categories:

    1. (a)

      customers in respect of whom there are signs of actual or potential financial difficulties;

    2. (b)

      all other customers who show a pattern of repeat use (that is, all customers within CONC 5D.2.1R(2) who are not in category (a)).

CONC 5D.2.2 R

1The rules in CONC 5D.2.1R(1) and (2) do not apply where the firm is already in the process of intervening in respect of the customer’s overdraft use in accordance with CONC 5D.3.

CONC 5D.2.3 G
  1. (1)

    1The policies, procedures and systems referred to in CONC 5D.2.1R should, having regard to the nature, scale and complexity of the firms’ consumer credit lending activity in relation to overdrafts, enable the firm, at regular intervals, to pro-actively look back over an appropriate period at patterns of overdraft use.

  2. (2)

    A firm may decide the frequency with which it reviews previous overdraft use, and the length of the preceding period of overdraft use that it considers when doing so, provided that the firm can demonstrate that its policies, procedures and systems are effective in promptly identifying customers who are within CONC 5D.2.1R(2)(a) or (b).

  3. (3)

    CONC 5D.2.1R does not specify the frequency, duration or amount of drawings that may constitute repeat use. Firms have discretion, therefore, to tailor the policies, procedures and systems required by CONC 5D.2.1R to their specific business circumstances. If a customer has become or remained overdrawn in every month over the preceding 12-month period, it is likely that the customer will be within CONC 5D.2.1R(2)(a) or (b). It is also likely, however, that there will be other patterns of drawings in fewer numbers of months that are caught by CONC 5D.2.1R(2)(a) or (b). There need not necessarily be drawings under an overdraft in consecutive months in order for use to be properly treated as repeat use. Conversely, there may be small and temporary drawings, even in consecutive months, that are neither indicative of actual or potential financial difficulties nor the cause of high cumulative charges.

  4. (4)

    When determining whether there is a high cumulative charge for overdraft use which may be harmful, the firm should consider the total amount of the combined charges both in absolute terms and relative to the customer’s financial circumstances, where known.

  5. (5)

    Where there is a pattern of repeat use of an overdraft associated with a personal current account, features of that use and other factors which may be a sign of actual or potential financial difficulties include:

    1. (a)

      one or more of the matters set out in CONC 1.3.1G(1) to (7) of which the firm is aware or ought reasonably to be aware from information in its possession;

    2. (b)

      an upward trend in a customer’s use of the overdraft over time, having regard to one or both of the following:

      1. (i)

        the number of days of use per month; and

      2. (ii)

        the value of the customer’s borrowing.

    3. (c)

      changes to the regular credits or debits to the personal current account, which may indicate a fall in disposable income or increased expenditure;

    4. (d)

      use of other products which may indicate a fall in disposable income or growing indebtedness (for example, a reduction in the balance of a savings account, or an increase in the outstanding balance on another credit product) of which the firm is aware or ought reasonably to be aware from information in its possession;

    5. (e)

      the use of an unarranged overdraft associated with the personal current account, especially if becoming larger, more sustained or more frequent over time;

    6. (f)

      the incidence of refused payments in relation to the personal current account, especially if there is a rise in the number or frequency of refused payments over time;

    7. (g)

      information provided by the customer that indicates the customer is in, or is likely to experience, financial difficulties.

  6. (6)

    A customer may in fact be in actual or potential financial difficulties even if none of the factors described above is present, so the customer’s response to the firm’s initial intervention will be important for determining the appropriate next steps.

  7. (7)

    When a firm is first implementing policies, procedures and systems to identify customers in respect of whom there is a pattern of repeat use, the firm should give priority to identifying those customers who are vulnerable and experiencing, or at risk of, financial difficulties, in circumstances where prioritisation is appropriate in the light of the scale and complexity of the firm’s consumer credit lending activity in relation to overdrafts.

CONC 5D.3 Interventions to be taken in the case of repeat users

CONC 5D.3.1 R
  1. (1)

    1This rule applies where a firm:

    1. (a)

      identifies that a customer has a pattern of repeat use within the meaning of CONC 5D.2.1R(2)(b);

    2. (b)

      assesses that the customer is likely to continue that pattern of use; and

    3. (c)

      does not consider, acting reasonably, that the customer is one in respect of whom there are signs of actual or potential financial difficulties.

  2. (2)

    The firm must communicate with the customer (“the first communication”) in an appropriate medium (taking into account any preferences expressed by the customer about the medium of communication between the firm and the customer) highlighting the customer’s pattern of overdraft use and indicating that the customer should consider whether it is resulting or may result in high avoidable costs.

  3. (3)

    The firm must continue to monitor and review the customer’s pattern of overdraft use after the first communication, and if after a reasonable period the pattern of use continues to be within CONC 5D.2.1R(2)(b), the firm must further communicate with the customer (“the second communication”), reminding the customer of the content of the first communication or reiterating that content.

  4. (4)

    The firm must continue to monitor and review the customer’s pattern of overdraft use after the second communication, and if the pattern of use continues to be within CONC 5D.2.1R(2)(b), the firm must continue to communicate with the customer in similar terms or for a similar purpose at least annually until such time as the pattern of use ceases to be within CONC 5D.2.1R(2)(b).

CONC 5D.3.2 R
  1. (1)

    1This rule applies where a firm identifies that a customer:

    1. (a)

      has a pattern of repeat use within the meaning of CONC 5D.2.1R(2)(a); and

    2. (b)

      is one in respect of whom there are signs of actual or potential financial difficulties.

  2. (2)

    The firm must communicate with the customer in an appropriate medium (taking into account any preferences expressed by the customer about the medium of communication between the firm and the customer) highlighting the customer’s pattern of overdraft use and indicating that the customer should consider whether it is resulting or may result in high avoidable costs. The firm must encourage the customer to contact the firm to discuss their situation and explain that doing nothing could make things worse. The firm must also provide contact details for not-for-profit debt advice bodies.

  3. (3)

    If after a reasonable period the customer has not contacted the firm and the customer’s pattern of use continues to be within CONC 5D.3.2R(1), the firm must take reasonable steps to contact the customer to discuss their situation.

  4. (4)

    In discussions under (2) or (3) (which need not be on a single occasion), the firm must seek to explore the reasons for the customer’s pattern of overdraft use, as well as the reasons for the customer’s actual or potential financial difficulties, and what (if anything) the customer is doing, or intends to do, to address those issues.

  5. (5)

    If appropriate, in the light of the information gathered under (4), the firm must:

    1. (a)

      identify and set out suitable options designed to help the customer:

      1. (i)

        to reduce their overdraft use over a reasonable period of time; and

      2. (ii)

        to address their actual or potential financial difficulties,

      in such a way that does not adversely affect the customer’s financial situation; and

    2. (b)

      explain that, if the customer fails to engage in the discussion or fails to take appropriate action to address the situation, one of the possible consequences is that the firm may need to consider the suspension or removal of the overdraft facility or a reduction in the credit limit.

  6. (6)

    If the customer declines to contact the firm in response to the communication in (2) and to respond to attempts by the firm to contact them under (3), or to take reasonable steps to take forward an appropriate option under (5) or to otherwise address the situation, the firm must after a reasonable period consider whether to continue to offer the overdraft facility and whether to reduce the credit limit.

  7. (7)

    Sub-paragraph (6) does not apply if the suspension or removal of the overdraft facility or a reduction in the credit limit would cause financial hardship to the customer.

CONC 5D.3.3 G
  1. (1)

    1The purpose of CONC 5D.3 is to require a firm to intervene in an appropriate and proportionate manner where it detects repeat use of an overdraft with the aim of reducing that use and improving the customer’s financial situation. A firm should keep in mind, when doing so, the principle that an overdraft is not generally suitable for long-term use that results in a high total cost burden, as well as the need to pay due regard to the interests of its customers and treat them fairly in accordance with Principle 6.

  2. (2)

    CONC 5D.3 does not specify a particular form of words to be used in communications with repeat overdraft users, and firms have discretion to tailor the language and tone of those communications to the circumstances of the individual customer.

  3. (3)

    For the purposes of CONC 5D.3.2R(3), “reasonable period” is unlikely to be longer than one month.

  4. (4)

    Options that a firm could identify for the purposes of CONC 5D.3.2R(5)(a) may include, where assessed as appropriate for the customer:

    1. (a)

      advice on budgeting and money management, for example adjusting payment dates or setting up alerts;

    2. (b)

      providing contact details for not-for-profit debt advice bodies and other relevant bodies (for example, one providing advice on budgeting or money management), and encouraging the customer to contact one of them;

    3. (c)

      the provision by the firm to the customer of alternative credit on more favourable terms (for example a fixed-sum loan repayable by instalments), provided that, if this would be accompanied by suspension or removal of an existing credit facility, this would not cause financial hardship to the customer;

    4. (d)

      forbearance, such as reducing or waiving interest and other charges or (where applicable) allowing additional time to pay, where this does not unduly delay further help to the customer or permit further deterioration of the customer’s financial position; or

    5. (e)

      a reduction in the credit limit or the suspension or removal of the overdraft facility (or reminding the customer that they can ask the firm to take these steps) provided that such reduction, suspension or removal would not cause financial hardship to the customer.

  5. (5)

    If an overdraft customer has already been identified by a firm as being in financial difficulties, and is already being treated with appropriate forbearance by the firm, the rules in this section do not require the firm to do anything which is inconsistent with the treatment that it has already adopted in respect of that customer.

  6. (6)

    Firms are reminded that they should not consider the suspension or removal of the overdraft facility, or a reduction in the credit limit, under CONC 5D.3.2R(6) if this would cause financial hardship to a customer (CONC 5D.3.2R(7)). A firm should give careful thought to the potential effect of suspension, removal or reduction on the customer and consider these steps as part of a response to repeat use only where the firm is confident, on the basis of sufficient information and enquiry, that they would not cause financial hardship in the individual circumstances of the case.

CONC 5D.4 Monitoring repeat use strategies

CONC 5D.4.1 R

1A firm must monitor and periodically review the effectiveness of its policies, procedures and systems under CONC 5D.2.1R, and update or adjust them as appropriate.

CONC 5D.4.2 G

1In assessing and periodically reviewing the effectiveness of its policies, procedures and systems under CONC 5D.2.1R, a firm should have regard, amongst other matters, to the number of repeat users and size of their overdraft balances before putting in place the procedures required by these rules, compared with the number and size following implementation of those procedures. More generally, a firm should assess the extent to which it has been able to assist those customers who were showing a pattern of repeat use and who could benefit from assistance.

CONC 5D.5 Reporting on repeat use of overdrafts

CONC 5D.5.1 R
  1. (1)

    1A firm must submit a document to the FCA by electronic mail to overdrafts@fca.org.uk, containing a detailed description of the policies, procedures and systems it establishes to comply with:

    1. (a)

      CONC 5D.2.1R;

    2. (b)

      CONC 5D.3.2R; and

    3. (c)

      CONC 5D.4.1R

    no later than the date on which the firm becomes subject to CONC 5D.

  2. (2)

    A firm must prepare two reports for the FCA describing the results of the monitoring required by CONC 5D.4.1R. The first report must be in respect of the six-month reporting period beginning on the date on which the firm becomes subject to CONC 5D. The second report must be in respect of the six-month reporting period that begins immediately after the end of the reporting period covered by the first report. Each report must be submitted to the FCA by electronic mail to overdrafts@fca.org.uk within one month following the end of the relevant six-month reporting period and must include the following information:

    1. (a)

      the number of repeat users and total size of their overdraft balances at the start of the reporting period;

    2. (b)

      the number of repeat users and total size of their overdraft balances at the end of the reporting period; and

    3. (c)

      any explanation, commentary or background on the figures in (a) and (b).

  3. (3)

    Where a firm proposes to update its policies, procedures and systems, it must submit a report to the FCA containing a description of any substantial changes.