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Law360, London (August 12, 2020, 12:26 PM BST ) The Bank of England has told lenders to reflect their losses from granting "payment holidays" in the so-called exceptional items list in their profit and loss statements, to reflect the damage caused by the COVID-19 pandemic in their books.
Lenders should record the money they have lost through offering assistance to struggling customers in a separate disclosure in their accounts, the central bank said on Tuesday, so it can understand the full impact of the measures.
Exceptional items can be included in the profit and loss statements that lenders submit to the central bank when they disclose details of their financial performance. The interest that customers incur during the payment break must be reflected as interest receivable in the profit and loss form, the central bank said, but losses should be included as negative amounts in the exceptional items sections.
"This approach most effectively allows us to distinguish between the banking services which have been provided by [lenders] on an ongoing basis during this period — including where payment holidays have been granted — and the exceptional [profit and loss] impact of the pandemic," the Bank of England said in guidance published Tuesday.
The Financial Conduct Authority introduced payment freezes in April as it sought to provide temporary relief measures for consumers facing default as the lockdown began to bite. But account-holders will still accrue interest on the three-month breaks, meaning they will owe more money once they do start repaying again.
A group of MPs have called on the FCA to scrap the interest payments for up to six months. They say that the capital element is usually a relatively small part of the monthly repayment, with interest usually making up the bulk.
The watchdog extended the freezes for high-cost credit products in July. This gave borrowers until the end of October to apply for a payment freeze if they fall ill, lose their jobs or are in financial hardship during the crisis. This followed a similar extension for people struggling with loan and credit card debt in June.
--Editing by Ed Harris.
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