The FCA has announced supportive measures for motor finance and high-cost credit customers that are intended to complement the measures already announced by the government as a response to the Covid-19 pandemic. The FCA is open to receive feedback on the proposed measures by stakeholders until 20th April 2020 and expects to finalise proposals by 24th April 2020, which will then shortly come into force.
Motor Finance
The FCA advises firms to allow a 3-months payment freeze to customers that are facing financial difficulties in meeting their finance or leasing payments due to coronavirus and suggests firms not to end any agreements or repossess vehicles.
Furthermore, the FCA proposes that firms should:
- Fairly adjust the terms of a contract affected by coronavirus if needed. Firms should not use temporary depreciation of car prices to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term.
- Offer to the affected customer appropriate solutions in case they wish to keep their vehicle at the end of their PCP agreement but cannot cover the balloon payment due to financial difficulties caused by the coronavirus.
High-cost short-term credit (including Payday loans)
The FCA proposes that high-cost short-term credit firms should provide a 1-month interest-free payment freeze to customers that are adversely affected by the coronavirus. This shorter period reflects both the short length of most loans and prevents firms from acquiring additional interest during the freeze period. At the end of the freeze period firms are encouraged to allow customers to pay the deferred payment affordably, either as one single payment or multiple smaller instalments.
High-cost short-term credit firms should also consider whether formal forbearance may be more suitable in the case where a customer has been suffering from financial problems before the coronavirus.
Other credit products (RTO, BNPL, or pawnbroking agreements)
Firms that enter into rent-to-own (“RTO”), buy-now-pay-later (“BNPL”) or pawnbroking agreements should provide a 3-month payment freeze to customers facing payment difficulties due to coronavirus.
The FCA suggests that:
- Pawnbrokers should give a 3-month payment freeze to their customers and, if the redemption period has already ended, they should not issue a sell notice for items that have been pawned. If the pawnbrokers have expressed their intention to sell an item, they should postpone the sale for the period of the payment freeze.
- Firms should extent the promotional period of a BNPL customer for the period of the payment freeze.
- RTO firms should allow a 3-month payment freeze and, in the case where a customer requires the goods during that period, repossession should not be permitted.
- If pawnbrokers or RTO firms are not allowed to redeem, collect, or repossess their goods due to social distancing, they should not pass on to their customers any additional fees incurred as a consequence.
The FCA advises that in most other loan freeze arrangements, firms will be able to charge interest rates during the payment freeze period but, for those customers who require full forbearance, their interest rates should be waived. The current forbearance arrangements, such as suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments, will still be applicable for customers with pre-existing financial problems.
The measures proposed by the FCA do not limit firms from providing more favourable terms to their customers if needed.
How we can help: Should you need any guidance or assistance in dealing with issues related to Coronavirus (COVID-19) or matters relating to compliance with FCA or related regulatory matters, please contact:
- Jan Hagen – jan.hagen@complyport.co.uk
