The Financial Conduct Authority (FCA) has outlined further proposals to extend the support on offer for car finance customers struggling to make their monthly payments as a result of the coronavirus pandemic, with lenders given only a few days to provide feedback before the measures are implemented.
The new proposals follow on from guidance issued in April for lenders to offer customers a three-month payment deferral (aka payment holiday) or other support if they had been affected by Covid-19 and the widespread lockdown across the UK. More than 600,000 car finance customers applied for support from lenders in the first month, with about 90% of those being granted.
The latest measures are aimed at both customers who have already taken a three-month payment deferral, as well as those who have yet to take up any form of payment support.
The new FCA guidance places the onus on lenders to contact customers before the end of their payment freeze and see if they are able to resume making payments. If so, they should agree a plan on how the missed payments (plus any interest) should be repaid.
If a customer tells the finance company that they are not able to resume payments, the lender should offer either a further three-month payment deferral or reduced payments for three months at a level the customer can afford. Alternatively, the lender is encouraged to offer any other means of support, such as waiving interest, to assist customers.
The FCA has also reiterated that any additional payment freezes or partial payment freezes offered under this latest guidance should not have a negative impact on a customer’s credit files. It has also extended the ban on repossessions until the end of October.
If a customer has not yet availed themselves of a payment freeze under the original FCA guidance, the period to do so has been extended to 31 October.
Christopher Woolard, Interim Chief Executive 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 industry has welcomed the latest proposals from the FCA, in particular the more nuanced approach that replaces the original blanket approach presented in April. Adrian Dally, head of motor finance at the Finance and Leasing Association (FLA), which represents the lenders, said: “The breadth of today’s guidance from the FCA recognises the variety of different situations that customers will be in at this point.
“With more parts of the economy reopening, many customers will be returning to work and will be able to resume full payments. For those returning to part time work, partial payments are an option.
“Customers who still need ongoing help will, of course, be supported. Motor finance lenders have been providing unprecedented levels of forbearance to customers since the start of the crisis, but it is now time for the Government to support the industry so that it is able to continue to offer finance to consumers and businesses at affordable rates during the recovery.”
The FLA has reported to The Car Expert that, for the 12 weeks up until the end of May, about 613,000 car finance customers had made a request for Covid-19-related support (data for June should be available soon). Of these requests, about 90% had been granted. Specific details about how many of these were for the full three months of payment holiday are not provided, but the very high percentage of approvals suggests that the lenders have been supportive to date.
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A more tailored approach to coronavirus support
Although the economic situation has certainly not improved since the FCA published its initial directives on coronavirus support measures in late April, the general sense of panic has subsided as everyone has started coming to terms with our new reality.
Back in April, the headline message from the FCA was that lenders should offer a three-month payment deferral to any customer who requested it, with a minor mention buried in a lengthy document that other support measures should be offered instead if they were more suitable. This time around, the regulator has been more forward about suggesting alternative options and promoting a more tailored approach to each customer.
A blanket three-month payment holiday offer was probably necessary in the first instance, as there was a pressing need to provide stability for the millions of car finance customers across the UK and prevent widespread defaulting. While the car industry and associated lenders were prepared to accept that directive at the time, there was a quiet insistence that it was only suitable as a one-off measure and that the industry couldn’t afford to repeat it.
One particularly welcome point within today’s FCA draft guidance was an expectation for lenders to contact customers who have taken a payment holiday to see if they can resume payments, rather than sitting back and waiting for customers to call up and beg for support. We received many complaints from readers who found it impossible to get hold of their finance companies to even discuss their situation, or lenders who refused to offer any kind of support until the FCA stepped in to issue clear directives (Volkwagen Finance, we’re looking at you).
Another point buried in the FCA’s 14-page document is that lenders must adequately explain the consequences of a further payment deferral. Car finance agreements will still accrue interest at the same rate, meaning that – unless you’re on a 0% APR agreement – every month that you don’t make a full payment will cost you more down the line. Lenders are also required to explain the consequences of extending the end date of finance agreements, and the implications for MOTs/servicing/warranties/insurance/breakdown cover.