FCA confirms COVID-19 guidelines to help high-cost auto finance and credit customers

Christopher Woolard, Acting CEO of FCA, said: “We have been working quickly to introduce temporary financial relief tailored to a range of specific credit products. Many companies are already working with their customers, but these measures ensure that all consumers affected by the coronavirus emergency can request a temporary freeze on their payments. ”

The FCA has confirmed the following measures:

Automotive finance

• Finance companies are planning a 3-month payment freeze to customers who are temporarily having difficulty meeting finance or lease payments due to the coronavirus. If customers are having temporary payment difficulties due to the coronavirus and need to use the vehicle, companies should not take action to end the agreement or repossess the vehicle.
• Finance companies should not modify Personal Contract Purchase (PCP) or Personal Contract Lease (PCH) agreements in an unfair manner. For example, companies should not try to recalculate PCP balloon payments based on temporary depreciation in car prices caused by the coronavirus situation. The FCA expects companies to act fairly when conditions are adjusted.
• When a customer wants to keep their vehicle at the end of their PCP contract, but does not have the cash to cover the lump sum payment due to payment difficulties related to the coronavirus, companies should work with the customer to find a solution. appropriate. Given the increased risk of disparity between lump sum payment and vehicle value in today’s climate, companies need to be careful that solutions do not lead to unfair results. For example, refinancing the lump sum payment might not be appropriate in the circumstances.

High cost short term credit (including payday loans)

• Finance companies are planning a month-long payment freeze to customers facing temporary payment difficulties due to the coronavirus pandemic. No additional interest should be charged to the customer as a result of the payment freeze. This shorter period reflects the much shorter term of most of these loans and the higher interest rates compared to other high cost credit products.
• The FCA expects businesses to use the deferral period to engage with their customers to understand if they are likely to be able to resume payments. When the customer continues to have payment difficulties, we expect companies to forbear in accordance with our rules. This could include a single payment after the end of the term or in several smaller installments.
• High-cost short-term lenders, like all lenders, are also reminded to consider whether immediate formal forbearance may be more appropriate if a customer was already in financial difficulty before the impact of the coronavirus. If the consumer expects their financial difficulties to last longer than a month, immediate forbearance may be more appropriate.

Other credit products

• Financing providers who enter into RTO, BNPL or pawnbroker agreements to offer a 3-month payment freeze to customers facing payment difficulties due to the coronavirus.
• Funding providers should take the following actions with respect to specific products:
  • pawn shops to extend the repayment period for the three month freeze period or, if the repayment period has already ended, to agree not to serve notice of sale of an item that has been pledged for this period. If the business has already informed the consumer of their intention to sell the item, they should suspend the sale while the payments are frozen.
  • if a BNPL customer is in a promotional period, companies extend it for three months
  • RTO companies are planning a three-month payment freeze. Additionally, if a customer needs the goods during the orientation period, repossession should not take place.
  • if social distancing means that pawn shops and RTO companies are unable to accept payment, collect or repossess goods, they should not pass on any additional fees or charges to the consumer

The FCA said businesses and consumers should take into account the amount of interest on overdue balances that may accumulate and compare it to the need for immediate temporary support.

If a payment freeze is not in the client’s best interest, finance providers should come up with an alternative solution, he said, potentially including waiving interest and fees or rescheduling the term of the loan. .

He added that if a customer is unable to resume making payments at the end of a deferred payment period, they should contact their lender.

The measures will be launched on Monday, April 27, 2020. Customers will be able to request a deferral of payment at any time after the entry into force of the directive for a period of 3 months.