20 Apr 2020

FCA to extend payment freezes to car finance

FCA to extend payment freezes to car finance

Car finance providers, pawnbrokers, payday lenders and other high-cost credit firms should offer payment holidays to customers affected by Covid-19, under new FCA proposals issued today.

The Financial Conduct Authority’s (FCA’s) latest proposed package of measures include more temporary measures for impacted customers, and they cover motor finance, high-cost short-term credit (including payday loans), buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking.

The proposals are intended to complement measures already announced to support consumers during the pandemic. Mortgage lenders, credit card companies, guarantor lenders, home credit firms and overdraft providers are already offering payment holidays.

The FCA said it is open to receiving comments on proposals – stakeholders have until 5pm on Monday 20 April to respond to the consultation. The regulator said the short timescale recognises "the significant impact coronavirus is having on consumers’ finances right now".

Motor finance

The FCA expects car finance firms to provide a three-month payment freeze to customers having temporary difficulties meeting finance or leasing payments due to coronavirus. 

If customers are experiencing temporary financial difficulties due to coronavirus, the FCA said “firms shouldn’t take steps to end the agreement or repossess the vehicle”.

The FCA has also proposed that:

  • Firms shouldn’t change customer contracts unfairly. For example, firms should not try to use temporary depreciation of car prices caused by coronavirus 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.”
  • Where a customer wishes to keep their vehicle at the end of a PCP agreement, but doesn’t 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.

High-cost short-term credit

Payday lenders and instalment loan providers will be expected to provide a one-month interest-free payment freeze to customers facing payment difficulties due to coronavirus.

The FCA said 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 freeze ends, firms should allow consumers 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 also reminded 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.

Solutions

Christopher Woolard, interim chief executive at the FCA, 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.”


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