The Financial Conduct Authority (FCA) has told firms to extend payment freezes due to end this month until 31st October meaning customers unable to keep up with high-cost credit payments amid the coronavirus crisis do not have to pay anything until November.
Firms must offer payment deferrals or reduce payments, with people yet to request a payment holiday. The extension covers all aspects of high-cost short term credit including motor finance and rent-to own (RTO), buy-now pay-later (BNPL), schemes and pawnbrokers.
The measures include:
- If customers can afford to return to regular repayment, or make partial payments, it is in their best interest to do so.
- Firms should contact customers coming to the end of a first payment freeze to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid.
- For customers still facing temporary payment difficulties as a result of coronavirus:
- Firms will 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 will mean offering customers an additional extension to that period.
- For pawnbroking agreements, where a loan is within the redemption period (irrespective of when the redemption period is due to end) this will mean firms offering a further extension to the redemption period. If the redemption period has already ended, this will mean agreeing not to sell the item during the payment deferral period.
- Customers that have not yet had a payment freeze or requested an extension of an existing payment freeze can request this up until 31 October 2020.
- HCSTC customers can only apply for a payment freeze under this guidance once up to 31 October 2020 in respect of each HCSTC agreement. For those customers who have had a payment freeze and are still experiencing payment difficulties, firms will provide a range of support – including formal forbearance – in accordance with the FCA Handbook.
- The ban on repossessions will 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.
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 encourage them to access the resources that can help them.
Christopher Woolard, Interim Chief Executive at the FCA, said “Our measures will ensure that people who are still facing temporary payment difficulties because of this pandemic, continue to have access to the help they need. However, if you can afford to start making repayments, you should.”
The guidance comes into force on 17th July 2020.
Commenting on the announcement Adrian Dally, Head of Motor Finance at the FLA said “We welcome the fact that the FCA has given greater prominence and emphasis to the message that those customers who can resume full or partial payments should do so.”
“This is particularly important to prevent customers accruing unsustainable levels of debt, but also to allow further support to be given to those most in need.”
Nick Hill, 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.”