The Financial Conduct Authority (FCA) has confirmed today (Friday, April 24) that it will be introducing a package of measures to support motor finance customers during COVID-19.
The targeted temporary measures being implemented, first proposed a few days ago, include a three-month payment freeze for motor finance.
Christopher Woolard, interim chief executive at the FCA, said: “We have worked at pace to introduce temporary financial relief tailored for a range of specific credit products.
“Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments.”
The FCA has confirmed the following measures for motor finance:
- Firms to provide a three-month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus. If customers are experiencing temporary payment difficulties due to coronavirus and need use of the vehicle, firms should not take steps to end the agreement or repossess the vehicle.
- Firms should not alter Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is unfair. For example, firms should not try to recalculate PCP balloon payments based on a temporary depreciation of car prices caused by the coronavirus situation. The FCA expect firms to act fairly where terms are adjusted.
- Where a customer wishes to keep their vehicle at the end of their PCP agreement, but does not have the cash to cover the balloon payment due to coronavirus-related payment difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.
Firms and consumers should also consider the amount of interest on outstanding balances which may build up, and balance this against the need for immediate temporary support, says FCA.
If a payment freeze isn’t in the customer’s best interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.
Furthermore, the FCA says that if a customer is unable to start making payments again at the end of a payment deferral period, they should contact their lender. The firm should work with the customer to resolve these difficulties in advance of payments being missed.
Mark Turner, managing director of Duff and Phelps compliance and regulatory consulting practice, said: “The payment holidays will come as a great relief as many customers are facing an unexpected change in circumstances.
“However, shifting debt from consumer to businesses has the ability to create further pressure in these volatile times. As such, appropriate Government support might be needed to protect consumers and businesses, to prevent creating a knock-on effect for the auto industry.”
The measures announced by the FCA do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate.
The FCA added that it welcomed the initiatives already announced by firms, with some going further than required.
The measures announced today will be in force from Monday (April 27). Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of three-months.
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Gareth has more than 20 years’ experience as a journalist having started his career in local newspapers in the 1990s. Prior to joining Fleet News in 2008, he worked in the public sector as a media advisor and is currently news editor at Fleet News.
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