Industry bodies have said the Financial Conduct Authority (FCA) should leave it up to the courts to decide guidance on guarantor lending.
The FCA announced it did not cover all possible scenarios in the last draft of its guarantor lending paper, which proposed new guidance for this type of lending in February, and said it could have been worded more precisely.
After receiving a total of 17 comments in March from a range of trade associations, lenders and consumer organisations, the FCA said it is working on updating the paper.
It said that many industry respondents felt the regulator should withdraw the proposed guidance and either issue alternative guidance or “leave the matter to the courts to decide”.
There were also disagreements over the interpretation of ‘enforcement of security’ as it relates to guaranteed loan debt.
The Consumer Credit Act defines ‘security’ as including a guarantee or indemnity.
The regulator said it did not agree that in the context of guarantor lending, ‘enforcement of security’ is limited to obtaining a court judgment.
It said enforcement can include exercising some forms of ‘self-help’ remedies, relating to security (the guarantee), if the remedy is sufficiently coercive.
In the FCA’s view a guarantee is enforced if the lender demands payment by the guarantor or takes payment from the guarantor without prior notification to the guarantor.
The regulator said a guarantee is not enforced if a payment is made voluntary by the guarantor following notification of the borrower’s default.
The FCA will create a final statement of guidance once it has received any further comments from the industry by November 25.
In the previous draft the FCA said a default notice is required if a lender wishes to request or take payment from a guarantor following non-payment by the borrower.
It said trade bodies were largely opposed to this guidance and had concerns about potential implications for consumers.
You can read the guidance consultation here.