Coronavirus (COVID-19)—FCA proposes measures for motor finance and high cost credit customers

Coronavirus (COVID-19)—FCA proposes measures for motor finance and high cost credit customers

The Financial Conduct Authority (FCA) has announced an additional proposed package of measures aimed at supporting consumers encountering payment issues following the coronavirus (COVID-19) pandemic. The measures are intended to be temporary and cover motor finance and high cost credit agreements, including high-cost short-term credit (including payday loans), buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking. The FCA is seeking comments on its proposals by 5pm on 20th April 2020 and expects to finalise proposals by 24 April 2020. The short timescale for this work is in recognition of the significant impact coronavirus is having on consumers' finances right now.

The proposals aim to operate alongside measures announced by the government to support consumers during the pandemic. 

Regarding motor finance:

• the FCA expects firms to provide a three-month payment freeze to customers facing temporary issues meeting finance or leasing payments due to COVID-19.  If customers are experiencing temporary financial difficulties due to coronavirus,  firms should not end the agreement or repossess the vehicle

• firms should not alter consumer contracts in an unfair way, such as by trying to use temporary depreciation of car prices caused by COVID-19 to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term. The FCA will expect firms to act fairly where terms are adjusted

• in cases where a customer wishes to keep their vehicle at the end of a PCP agreement but does not have the cash to cover the balloon payment due to COVID-19 financial issues, firms should cooperate with the customer to find a solution

The FCA is proposing that high-cost short-term credit (payday lending) firms be expected to provide a one-month interest-free payment freeze to customers facing payment issues due to COVID-19. 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. At the end of this period, the consumer should be allowed 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. High-cost-short-term-lenders are also reminded to consider whether immediate formal forbearance may be more suitable if a customer was already in financial difficulty before the impact of the pandemic.

The FCA is also proposing that 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 COVID-19. Concerning specific products, the FCA is proposing that:

• pawnbrokers should extend the redemption period for a three-month freeze period or if the redemption period has 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

• firms should extend the promotional period for BNPL customers within the period, by the length of the payment freeze

• RTO firms should provide a three-month payment freeze and if customers require 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

Firms will be able to continue to charge interest during the payment freeze (except in the case of high-cost short-term credit). However, if 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 proposed measures do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate. 

Source: FCA proposes help for motor finance and high cost credit customers

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