Motor finance is one of the credit products included in the latest FCA proposals Getty
The Financial Conduct Authority is asking lenders to provide continued support for users of motor finance and high cost credit products who continue to face financial difficulties due to coronavirus (Covid-19).
It has already confirmed extended support for credit card, personal loan, overdraft and others. It has previously confirmed ongoing support for mortgage borrowers (see below).
As with its previous consultations, lenders are expected to agree to the proposals without demur. Responses to the FCA must be submitted by close of business on Monday 6 July, with the measures expected to come into force by the middle of the month.
The new proposals cover motor finance, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking customers who are either coming to the end of a payment freeze or who have yet to request one.
For customers yet to request a payment freeze (or ‘holiday’), the FCA is proposing that the time to apply for one would be extended until 31 October 2020.
For motor finance, BNPL, RTO and pawnbroking customers who have already taken up support, either in the form of a payment freeze or a reduction in payments, and who are still experiencing payment difficulties, the FCA is proposing that firms would continue to offer support.
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Options would include a further payment deferral or a reduction in payments to an amount the customer could afford for a further 3 months.
Christopher Woolard 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.”
The proposals include:
At the end of a first payment freeze, firms should contact their customers to find out if they can resume payments If they can, firms should agree a plan on how the missed payments could be repaid. The FCA says that, 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 should get help This applies to 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 3 months or agreeing not to sell or suspending the sale of an item for three months if the redemption period has already finished.
For customers who have had a payment freeze and are still experiencing payment difficulties, firms should be providing a range of support, including formal forbearance.
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.
Protected credit files
As with mortgages, loans and other credit products, the FCA says that motor finance and high cost credit customers needing further temporary support to bridge the crisis should not see any negative impact on their credit files.
However, the regulator is also warning consumers to remember that credit files are not the only source of information which lenders can use to assess creditworthiness – this is in response to some lenders suggesting that evidence of a payment freeze (or ‘holiday’) may be taken into account when assessing eligibility for a credit-based product or loan in future.
Similarly, the FCA is telling credit providers to be particularly aware of the needs of their vulnerable customers. It says 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, such as debt charities
Credit cards, loans and overdrafts
The FCA confirmed earlier this week that lenders will extend support to customers with personal loans and overdrafts, credit cards, store cards and catalogue credit who have suffered a financial impact due to coronavirus.
At the start of the pandemic and the associated lockdown, lenders were instructed to offer those with personal loans and credit products the opportunity to take a three-month payment freeze (or ‘holiday’) to help them through the crisis.
Any payments not made during the freeze, plus associated interest, are added to the outstanding debt total. That initial three-month period is now drawing to a close.
The FCA has confirmed that customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500 will be able to apply for one until 31 October 2020.
Additionally, those who have already opted for a payment freeze or interest-free overdraft and who are still experiencing temporary payment difficulties due to coronavirus, will be able to request payment deferral for a further three months.
Another option would be to agree with the lender a reduction in payments to an amount the customer can afford without penalty.
According to UK Finance, which represents financial services companies, its members have to date offered 27 million interest-free overdrafts, provided 992,400 payment deferrals on credit cards and 686,500 payment deferrals on personal loans.
Customers are urged to agree any changes with their lender before stopping payments. They are also being reminded that a payment freeze should be seen as a last resort as the debt will still need to be settled.
The FCA said: “Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”
How support will be provided:
if you’re currently on a payment freeze, your lender will contact you to find out if you can resume payments. If you can, they’ll work with you to agree a plan on how the missed payments could be repaid
if you can’t resume payments, you’ll be given the option to reduce payments to an affordable level for a further three months (including a payment freeze).
if you already have an arranged interest-free overdraft on your main personal current account, you’ll be able to request up to £500 interest-free for a further three months.
if you’ve not yet had a payment freeze or an arranged interest-free overdraft of up to £500 but are now experiencing temporary financial difficulty due to coronavirus, you’ll be able to request one up until 31 October 2020.
The FCA has reiterated that, when a customer takes a full or partial payment freeze, it should not be recorded as a ‘missed payment’ and therefore should not have a negative impact on their credit file.
Claudia Nicholls at MoneySuperMarket, welcomed the FCA announcement but said the measures don’t solve the longer term challenges: “The further measures of support confirmed this morning by the FCA for consumer credit customers are welcome. But it’s important to stress that all these measures are temporary and don’t solve the longer term challenges faced by many borrowers.
“Borrowers should think carefully before requesting further interest freezes or renegotiating their payment rates.
“In particular they should make sure they have a clear understanding of the impact this will have on their interest payments down the line.”
Nicholls says an effective long-term strategy would be to move to products with more favourable terms: “If you’re struggling, you should consider whether you can consolidate or transfer your debts into products with better, more manageable rates. Some balance transfer credit cards are currently offering 0% interest on transferred balances for up to two years.”
The FCA confirmed last month that mortgage borrowers taking a three-month repayment break as a result of the financial impact of coronavirus should be able to extend the holiday by a further three months.
First-time applications for a three-month repayment holiday will now be possible until 31 October 2020. The scheme was originally slated to end in June.
The FCA said: “The measures will mean anyone who needs to can get help from their lender, if they are still struggling to pay their mortgage due to coronavirus.
“If a consumer can afford to re-start mortgage payments, it is in their best interests to do so. Customers should talk to their firm about the best option available for them.”
The FCA confirmed:
lenders will continue to support customers who have already had a payment holiday where they need further help. Firms should contact their customers to find out what they can re-pay and, for those who remain in temporary financial difficulty, offer further support, which will include the option of a further three-month full or part payment holiday
customers that have not yet had a payment holiday and who experience financial difficulty have until 31 October 2020 to request one
the current ban on lender repossessions of homes will be continued to 31 October 2020. This will ensure people are able to comply with the government’s policy to self-isolate if they need to
firms will communicate with customers regarding what happens when their payment holiday ends. They should offer a range of options for how the missed payments will be repaid, if they are able to resume payments.
Firms are also free to provide more favourable forms of assistance to the customer, such as reducing or waiving interest.