The Financial Conduct Authority (FCA) has announced proposals that would provide continued support for users of motor finance and high-cost credit products, who continue to face payment difficulties due to the pandemic.
The proposals outline the options firms will provide motor finance, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking customers who are coming to the end of a payment freeze, as well as those who are yet to request one. For customers yet to request a payment freeze, the time to apply for one would be extended until 31st October 2020.
For motor finance, BNPL, RTO and pawnbroking customers that have already taken up support, and who are still experiencing payment difficulties, firms would continue to offer support with options including a further payment deferral or reducing payments to an amount the customer can afford for a further three months.
The proposals include:
- At the end of a first payment freeze, firms should contact their customers to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid. If customers can afford to return to making regular repayments it is in their best interest to do so.
- Anyone who continues to need help gets help – for customers still facing temporary payment difficulties as a result of coronavirus:
- Firms should provide them with support by freezing or reducing payments to a level they can afford, on their motor finance, BNPL or RTO agreements for a further three months.
- For BNPL customers, where a loan is within the promotional period, this would mean offering customers an additional extension to that period.
- For pawnbroking agreements, where the loan is within the redemption period, this would mean firms extending that period for three months or agreeing not to sell or suspending the sale of an item for three months if the redemption period has already finished.
- For HCSTC customers who have had a payment freeze and are still experiencing payment difficulties, firms should be providing a range of support – including formal forbearance – in accordance with the FCA Handbook.
- Extending the time the scheme is available to people who may be impacted at a later date – customers that have not yet had a payment freeze, would be able to request one up until 31 October 2020.
- The ban on repossessions should continue until 31 October 2020 – this applies to motor finance and RTO customers still facing temporary payment difficulties as a result of coronavirus and who need their vehicles or goods.
- Where a customer needs further temporary support to bridge the crisis, any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.
The FCA says when implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and should consider how they engage with them. Firms should also help customers understand the types of debt help and money guidance that are available and assist them to access the resources that can help them.
Christopher Woolard, Interim Chief Executive at the FCA, said “It is vital that people facing temporary payment difficulties because of the impact of coronavirus get the assistance they need. For those who have already taken a payment freeze and can afford to start making payments, even partially, it is in their best interest to do so, but for those that need help it will be there.”
Commenting on the FCA’s draft guidance for motor finance lenders, Adrian Dally, Head of Motor Finance at the FLA said “The breadth of today’s guidance from the FCA recognises the variety of different situations that customers will be in at this point. With more parts of the economy reopening, many customers will be returning to work and will be able to resume full payments. For those returning to part time work, partial payments are an option.”
“Customers who still need ongoing help will of course be supported. Motor finance lenders have been providing unprecedented levels of forbearance to customers since the start of the crisis, but it is now time for the Government to support the industry so that it is able to continue to offer finance to consumers and businesses at affordable rates during the recovery.”
Richard Lane, Director of External Affairs at StepChange said “This announcement will bring welcome relief to people across the country struggling with reduced incomes. However financial pressure continues to build for many households and we need to start thinking about the help people will need when the payment holiday periods end.”
“With over 4m people borrowing to make ends meet since the start of the pandemic, the FCA needs to start thinking about how to prevent long term consequences for those forced into debt due to coronavirus. We need to see long term measures put in place that minimise the impact on credit histories and prevent people falling into persistent debt.”
Joanna Elson OBE, Chief Executive said “The FCA was quick to act at the start of the Covid-19 outbreak, and has made the right call in extending its temporary relief measures for customers with mortgages, personal loans, credit cards and now other forms of consumer credit too.”
“However, high cost short term credit customers have again received a lower level of protection than people with other forms of borrowing – they can only access a one month payment deferral, rather than three months, and today’s measures do not include any requirement for high cost short term credit firms to extend this deferral where needed.”
“Now that the FCA has extended its relief measures, the next major crunch point for households will come at the end of August, when the government’s bans on evictions and bailiff visits come to an end. The government must take steps to protect renters beyond August, and urgently reform the way council tax is collected before bailiff visits are allowed to resume.”
Andrew Johnson, money expert at the Money and Pensions Service said “The extension of support measures confirmed today, including for motor finance and high cost credit customers, could be helpful for people who are experiencing temporary payment difficulties, as we know that Covid-19 is continuing to affect people’s finances. It’s really important that people speak to firms to find out what options are available and appropriate for them, and consider what this will mean for their repayments in the long term.”
Dame Gillian Guy, Chief Executive of Citizens Advice, said “The extension of protections until the end of October for motor finance and high cost credit customers is good news for people struggling financially during the coronavirus outbreak.”
“But it once again throws into sharp relief the chasm between the protections for consumer credit and the protections on household bills like rent or council tax which end in August. This means people could still be getting a payment holiday on their car or sofa, while being thrown out of their home or having their possessions seized for council tax arrears.”
“The government took bold action at the start of the pandemic to protect people struggling to pay essential household bills. They still have time to help the millions who’ve fallen behind on their council tax or their rent.”