Interest can continue, but it is not unrestricted
Whether interest continues during arrears depends on the applicable agreement, product law, statutory restrictions and any forbearance arrangement. A missed payment does not by itself prove that all future interest must stop; equally, a contract clause is not sufficient to override consumer protection rules. The creditor should distinguish ordinary contractual borrowing interest, any default rate, late-payment charges and interest on overdue amounts. Each item requires a legal basis and accurate calculation. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
Ordinary interest and default charges
The original loan may accrue interest on outstanding principal during an arrears period. A separately charged default rate or fee may be subject to distinct restrictions under national law, unfair terms controls and specific consumer-credit legislation. Avoid describing a late fee as interest without checking its nature. Maintain clear accounting fields for principal, ordinary interest, arrears interest, fees and payments. If a customer disputes a balance, reconcile transactions before issuing a demand or applying an adjustment. A single workflow will not fit a borrower who disputes the debt, one facing short-lived income loss and one whose circumstances have permanently changed. Staff should have authority to flag mistakes, seek specialist review and pause inappropriate automated messages. Document the consumer's explanations using proportionate information, distinguish an adjustment from forgiveness of principal and check the next scheduled payment. These safeguards help avoid presenting a servicing option as a promise of any particular personal financial outcome.
The UK forbearance rule on rising debt
FCA CONC 7.3.5GR applies where the firm has put in place a repayment arrangement as a forbearance measure and the customer is meeting its terms. In that situation the firm must reduce, waive or cancel further interest or charges as necessary so that the level of debt does not rise during the arrangement. The rule is conditional and does not require an automatic universal interest freeze whenever an instalment is late. CONC 7.3.5HG explains that the extent of reduction can change with the customer's circumstances. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
Assessing what the customer can afford
A firm should consider the actual repayment amounts the consumer can sustainably make where the relevant rules require forbearance. A token payment that is entirely consumed by continuing charges may not reduce the debt. UK CONC 7.3.5BR addresses sustainability of agreed repayment arrangements and CONC 7.3.5DR requires an objective assessment where income and expenditure is assessed. Record why an interest reduction, waiver or alternative schedule was considered and how it affected the balance. A single workflow will not fit a borrower who disputes the debt, one facing short-lived income loss and one whose circumstances have permanently changed. Staff should have authority to flag mistakes, seek specialist review and pause inappropriate automated messages. Document the consumer's explanations using proportionate information, distinguish an adjustment from forgiveness of principal and check the next scheduled payment. These safeguards help avoid presenting a servicing option as a promise of any particular personal financial outcome.
Explain calculations and ledger impacts
Consumers should be able to see the applied interest rate, principal outstanding, calculation period, payments received, waived charges and revised balance in relevant communications. A ledger should separately identify accrued interest and sums capitalised or otherwise added to the debt, where allowed. Avoid adding fees twice through a servicing migration or continuing an elevated rate after its legal basis has ended. Sample test cases should include partial repayments, a corrected failed debit, a deferral, a rate change and a repayment arrangement honoured by the borrower. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
The EU CCD2 framework is not the UK FCA Handbook
Directive (EU) 2023/2225 Article 35 covers reasonable forbearance before enforcement and identifies possible measures that may include changes to the borrowing rate. The implementing national rules generally apply from 20 November 2026. It should not be cited as creating the precise UK CONC 7.3.5GR no-rising-debt rule in every Member State. Existing local laws, contractual limits and consumer protections must be checked for each jurisdiction. Distinguish the operative rules from regulator guidance and future national requirements. A single workflow will not fit a borrower who disputes the debt, one facing short-lived income loss and one whose circumstances have permanently changed. Staff should have authority to flag mistakes, seek specialist review and pause inappropriate automated messages. Document the consumer's explanations using proportionate information, distinguish an adjustment from forgiveness of principal and check the next scheduled payment. These safeguards help avoid presenting a servicing option as a promise of any particular personal financial outcome.
Audit the interest control through the full arrangement
A quality check should compare the agreement's rate terms, arrears history, hardship decision, forbearance plan and successive balance movements. Confirm whether the consumer is meeting the arrangement, whether the conditional UK interest or charges requirement has been triggered, and whether the system gives the expected result. Review the customer's situation when new evidence arrives and log any change to treatment. Retain calculations and customer communications so that disputed interest can be reconstructed rather than justified solely by a generic system description. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
Frequently asked questions
Is every customer entitled to the same repayment concession?
No. The applicable law and the consumer's individual circumstances determine which measure may be appropriate.
Does interest always stop after one missed payment?
No. Applicable contractual and regulatory limits must be checked, including the conditional UK CONC 7.3.5GR rule.
When do national CCD2 measures generally apply?
20 November 2026, subject to applicable national and transitional provisions.
Primary sources
FCA CONC 7.3 ↗Directive (EU) 2023/2225 ↗Read the source in its current version. National implementing measures and product-specific applicability may require additional research.