The Financial Conduct Authority (FCA) has announced a package of measures covering motor finance and high cost credit agreements to directly support consumers facing payment difficulties due to coronavirus
The move, which follows on from earlier FCA intervention to introduce a three month loan and credit card payments freeze during the pandemic, will cover car financing such as personal contract purchase (PCP), and a range of high-cost short-term credit arrangements, including payday loans, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking.
Christopher Woolard, FCA interim chief executive, said: ‘We are very aware of the continued struggle people are facing as a result of the pandemic. These measures build on the interventions we announced last week, and will provide much needed relief to consumers during these difficult times.
'We have tailored our measures to specific products. For most of these proposals, firms and consumers should consider the amount of interest which may build up, and balance this against the need for immediate temporary support.
‘If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.'
The FCA expects motor finance firms to provide a three-month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus, and says firms should not take steps to end the agreement or repossess the vehicle.
The regulator has also made clear that firms should not change customer contracts in a way that is unfair. For example, firms should not try to use temporary depreciation of car prices caused by the coronavirus situation to recalculate PCP balloon payments at the end of the term.
Where a customer wishes to keep their vehicle at the end of their PCP agreement, but does not have the cash to cover the balloon payment due to coronavirus-related financial difficulties, firms should work with the customer to find an appropriate solution.
Adrian Dally, head of motor finance at the Finance & Leasing Association, said: ‘The proposals announced by the FCA broadly mirror the forbearance measures that motor finance lenders have been providing to their customers over recent weeks.
‘During this unprecedented period, every lender has recognised that forbearance is a vital bridge for customers whose income has been disrupted, and the industry has committed significant resource, human and financial, to meeting requests for support.
‘To enable this level of support to be maintained for customers, the industry will need some help from government, and those discussions need to begin in earnest, with decisions reached rapidly.’
Pay day lending firms will be expected to provide a one month interest-free payment freeze to customers facing payment difficulties due to the coronavirus pandemic. The FCA says this shorter period reflects both the much shorter length of most loans and, given interest rates tend to be higher than for other high cost credit products, prevents firms from accruing additional interest during the freeze period.
After the end of the freeze, the firm should allow the consumer to pay the deferred payment in an affordable way – whether for example, by one single payment after the end of the term or by a number of smaller instalments.
The FCA is also reminding high-cost-short-term-lenders to consider whether immediate formal forbearance may be more suitable if a customer was already in financial difficulty before the impact of coronavirus.
Firms that enter into RTO, BNPL, or pawnbroking agreements will be expected to provide a three-month payment freeze to customers facing payment difficulties due to coronavirus.
Pawnbrokers should extend the redemption period for the three-month freeze period or, if the redemption period has already ended, agree not to serve notice to sell an item that has been pawned for that period. If the firm has already informed the consumer they intend to sell the item, they should suspend the sale during the payment freeze.
If a BNPL customer is within the promotional period, firms should extend this by the length of the payment freeze.
RTO firms should provide a three-month payment freeze. In addition, if a customer needs the goods during the guidance period, repossession should not take place.
If social distancing means that pawnbrokers and RTO firms are unable to redeem, collect or repossess goods, they should not pass on any additional charges or fees to the consumer.
As for most of the FCA’s other loan freeze arrangements, firms will be able to continue to charge interest during the payment freeze (except in the case of high-cost short-term credit).
However, in the event that a customer requires full forbearance that interest should be waived. If a customer was already in financial difficulty, the FCA has existing forbearance rules which apply. These will include for example the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time.
The FCA measures do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate.
The FCA has held a short consultation on the proposals, and expects to finalise proposals by 24 April 2020, with them coming into force shortly afterwards.
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