Arrears & forbearance
Connect early difficulty indicators to appropriate review, records and servicing actions.
Credit Arrears, Forbearance and Financial-Difficulty Compliance
Consumer credit arrears and financial difficulty call for account accuracy, appropriate communication, assessment of consumer circumstances and legally grounded forbearance. Requirements vary by jurisdiction and product.
What Are Credit Arrears?
Arrears arise when an amount contractually due under a credit agreement remains unpaid at its due date. Establish whether the instalment was genuinely due, what payments arrived, whether a lawful deferral changed the schedule and whether a charge is disputed.
What Must Lenders Do After a Missed Payment?
After an instalment appears unpaid, verify the agreement, amount due, actual receipts, payment dates and any authorised schedule change. A declined card request or rejected direct debit may require follow-up but does not independently settle the legal balance if another payment method succeeded.
When Should a Lender Contact a Borrower in Arrears?
There is no single mandatory day after a missed payment on which every consumer lender in every jurisdiction must telephone the borrower. A creditor may choose an early reminder after verifying the shortfall, but internal scheduling is not automatically a legal deadline.
Forbearance Requirements in Consumer Lending
Forbearance means considering a proportionate change or accommodation for a consumer in or approaching repayment difficulty rather than treating escalation as inevitable. In the UK, FCA CONC 7.3.4R requires regulated firms within its scope to treat customers in or approaching arrears or in default with forbearance and due consideration.
Assessing a Borrower's Financial Circumstances
Assessing financial circumstances in arrears means gathering enough reliable information to identify repayment difficulty and consider a sustainable response. It is not the same exercise as the original creditworthiness assessment, and the evidence needed depends on the consumer's circumstances, product and applicable legal duties.
Payment Plans for Borrowers in Financial Difficulty
A payment plan for a consumer experiencing financial difficulty is an agreed way of handling overdue payments or future instalments. A plan should follow an accurate account reconciliation and a realistic assessment of the consumer's ability to maintain payments, not simply divide arrears by a fixed number of months.
Temporary Payment Reductions
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.
Payment Holidays and Consumer Credit
A payment holiday normally means an agreed pause in scheduled payments for a defined period. Depending on the agreement, interest, charges or the contract term may be affected.
Interest During Credit Arrears
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.
Debt Collection During Financial Difficulty
Debt Collection During Financial Difficulty concerns debt collection and the position of consumers experiencing difficulty and must be assessed against the applicable agreement and national law.
Default Notices for Consumer Credit
Default Notices for Consumer Credit concerns formal notices before particular consumer credit remedies and must be assessed against the applicable agreement and national law.
Escalation Before Credit Enforcement
Escalation Before Credit Enforcement concerns decision controls before taking legally significant recovery steps and must be assessed against the applicable agreement and national law.
Supporting Vulnerable Borrowers in Arrears
Vulnerability may arise from illness, bereavement, disability, language barriers, changes in income or limited access to digital channels. Its relevance depends on what the consumer is experiencing and how this affects their ability to understand or manage the debt. Do not infer inability to pay solely from membership of a category. Listen to the customer's explanation and record support needs proportionately.
Debt Advice Referrals for Borrowers in Difficulty
Independent debt advice can help a consumer with several obligations assess essential expenditure, priority debts and sustainable choices. A lender's own collections employee is not automatically an independent adviser. A referral should identify a genuine service that can assist in the appropriate jurisdiction. A referral does not mean that the borrower is insolvent or automatically cancels their repayment duties.
Handling Arrears Complaints and Disputes
Arrears complaints can challenge an unallocated payment, an incorrect balance, a late fee, debt collection conduct or an unaffordable payment arrangement. Identify the exact issue rather than treating the complaint as a refusal to pay. A complaint about accuracy and a request for hardship support may coexist. The creditor should confirm account identity, relevant contract and chronology before deciding what the evidence shows.
Credit Reporting When Borrowers Fall Into Arrears
Treat the reportable arrears status as a conclusion derived from accurate repayments, not as a substitute for reconciliation. Credit reference entries and statutory default notices are distinct. Confirm which reported fields reflect the relevant product, payment schedule and agreement.
Debt Sales and Transfers During Arrears
Distinguish assignment of a debt to a purchaser from appointment of a servicer while the original creditor retains ownership. The customer's payment recipient, legal creditor and complaint contact may differ. Verify them from source documents.
Arrears Servicing Controls and Audit Evidence
A control map should list duties, accountable teams, legal triggers and evidence for payment reconciliation, notices, contact, forbearance, reporting and enforcement. Generic policy wording cannot show what occurred on a particular account.
Put the topic in context.
Choose a jurisdiction before applying a rule. Use the sources attached to each guide and record unresolved product questions.