The Financial Conduct Authority (FCA) will be introducing the package of measures outlined last week to support consumer credit customers facing payment difficulties due to coronavirus (Covid-19).
The targeted temporary measures being implemented are a 3-month payment freeze for motor finance, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking agreements. For high-cost short term credit (including payday loans) payments will be frozen for one month with no additional interest to be charged.
Christopher Woolard, interim Chief Executive at the FCA, said:
“We have worked at pace to introduce temporary financial relief tailored for a range of specific credit products. Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments.”
The FCA has confirmed the following measures:
- Firms to provide a three-month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus. If customers are experiencing temporary payment difficulties due to coronavirus and need use of the vehicle, firms should not take steps to end the agreement or repossess the vehicle.
- Firms should not alter Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is unfair. For example, firms should not try to recalculate PCP balloon payments based on a temporary depreciation of car prices caused by the coronavirus situation. The FCA expect firms to act fairly where terms are adjusted.
- 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 payment difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.
Firms and consumers should consider the amount of interest on outstanding balances which may build up, and balance this against the need for immediate temporary support. If a payment freeze isn’t in the customer’s best interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.
If a customer is unable to start making payments again at the end of a payment deferral period, they should contact their lender. The firm should work with the customer to resolve these difficulties in advance of payments being missed.
The measures announced by the FCA over the last few weeks do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate. The FCA welcomes the initiatives already announced by firms, with some going further than required.
Today’s measures will be in force on Monday 27 April 2020. Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of 3 months.