What a temporary reduction changes
A temporary payment reduction allows a consumer to pay less than the scheduled instalment for a defined period, subject to the creditor's agreement and applicable law. It need not cancel the unpaid amount or change the interest rate. Firms must distinguish an informal collection arrangement from a legally effective contract variation. The borrower should understand the revised amount, start date, end date, treatment of unpaid sums and what happens when the period ends. 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.
When reduction may be appropriate
In UK regulated credit, FCA CONC 7.3.4R requires forbearance and due consideration for customers in or approaching arrears or default. CONC 7.3.4BR requires individual circumstances to be taken into account. CONC 7.3.5G gives examples, including reduced or token payments for a reasonable period in appropriate cases. These examples are contextual, not a duty to grant every requested reduction. An accurate income and expenditure assessment where undertaken must be objective. 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.
Affordability and duration
Review the customer's essential expenditure, priority debts, resources and expected change in circumstances when relevant. If repayment difficulty is prolonged, a short reduction could merely defer an unsustainable obligation. CONC 7.3.5BR requires reasonable steps to ensure a repayment arrangement is sustainable. Consider whether the reduction allows the customer to meet necessary commitments and whether a scheduled return to the original payment is realistic. Record the evidence used without collecting unnecessary personal information. 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.
What happens to unpaid balances
A reduced instalment can leave an unpaid portion of contractual payments. Explain whether amounts are deferred, rearranged, remain overdue, or result in an agreed revised schedule. Interest may continue under relevant contract and law, but UK CONC 7.3.5GR requires a firm to reduce, waive or cancel further interest or charges as necessary to prevent the debt level rising while the customer meets a forbearance repayment arrangement. This is a conditional rule, not a blanket prohibition of all interest in arrears. 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.
Communications and operational settings
Confirmation should state the amounts, dates, payment channel, expected balance effects, credit reporting implications where relevant, and whom to contact if circumstances worsen. Adjust collection automation to reflect the agreement so a consumer making the reduced payment is not sent inappropriate demands for the original amount. Ensure notices that remain mandatory under the relevant law are not suppressed indiscriminately. Record the account version, consent or agreement where required, and the team that authorised the change. 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.
EU law and future transition
The EU's revised Directive (EU) 2023/2225 Article 35 addresses appropriate reasonable forbearance before enforcement, taking account of individual circumstances. It lists possible measures, which include changes to contractual terms, but does not compel lenders to offer identical reductions in every case. Member State implementing measures generally apply from 20 November 2026. Until then the applicable existing national law remains central. The FCA regime is specific to the UK and should never be represented as the harmonised EU rule. 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.
Testing and review
Test cases should cover a temporary income loss, irregular employment, a borrower who can make only a token payment, an early recovery and a plan that proves unaffordable. Review how payments are allocated, the interest and charge calculations, reminder suppression, correspondence and the agreed end date. UK CONC 7.3.5IR requires reasonable steps to ensure forbearance remains appropriate. A dated decision log should allow an auditor to reconstruct the actual assistance offered, the consumer's situation at the time and the reason for later modification. 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.