FCA to extend payment freezes to car finance, payday loans, rent-to-own and pawnbroking

The Financial Conduct Authority’s (FCA’s) latest proposed package of measures include more temporary measures for impacted customers, and they cover motor finance, high-cost short-term credit (including payday loans), buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking.

The proposals are intended to complement measures already announced to support consumers during the pandemic. Mortgage lenders, credit card companies, guarantor lenders, home credit firms and overdraft providers are already offering payment holidays.

The FCA said it is open to receiving comments on proposals – stakeholders have until 5pm on Monday 20 April to respond to the consultation. The regulator said the short timescale recognises "the significant impact coronavirus is having on consumers’ finances right now".

Motor finance
The FCA expects car finance firms to provide a three-month payment freeze to customers having temporary difficulties meeting finance or leasing payments due to coronavirus.

If customers are experiencing temporary financial difficulties due to coronavirus, the FCA said “firms shouldn’t take steps to end the agreement or repossess the vehicle”.

The FCA has also proposed that:

• Firms shouldn’t change customer contracts unfairly. For example, firms should not try to use temporary depreciation of car prices caused by coronavirus to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term. The FCA will “expect firms to act fairly where terms are adjusted.”

• Where a customer wishes to keep their vehicle at the end of a PCP agreement, but doesn’t have the cash to cover the balloon payment due to coronavirus-related financial difficulties, firms should work with the customer to find an appropriate solution.

High-cost short-term credit
Payday lenders and instalment loan providers will be expected to provide a one-month interest-free payment freeze to customers facing payment difficulties due to coronavirus.

The FCA said this shorter period reflects both the much shorter length of most loans and, given interest rates tend to be higher than for other high-cost credit products, prevents firms from accruing additional interest during the freeze period.

After the freeze ends, firms should allow consumers to pay the deferred payment in an affordable way – whether for example, by one single payment after the end of the term or by a number of smaller instalments.

The FCA also reminded high-cost-short-term-lenders to consider whether immediate formal forbearance may be more suitable, if a customer was already in financial difficulty before the impact of coronavirus.

Rent-to-own and buy now, pay later

Firms that enter into RTO, BNPL, or pawnbroking agreements will be expected to provide a three-month payment freeze to customers facing payment difficulties due to coronavirus.

The FCA is also proposing that firms should take the following steps for specific products:

• Pawnbrokers should extend the redemption period for the three-month freeze period or, if the redemption period has already ended, agree not to serve notice to sell an item that has been pawned for that period. If the firm has already informed the consumer they intend to sell the item, they should suspend the sale during the payment freeze;

• If a BNPL customer is within the promotional period, firms should extend this by the length of the payment freeze;

• RTO firms should provide a three-month payment freeze. In addition, if a customer needs the goods during the guidance period, repossession should not take place;

• If social distancing means pawnbrokers and RTO firms are unable to redeem, collect or repossess goods, they should not pass on any additional charges or fees to the consumer.

"If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges"
Chris Woolard, interim FCA chief executive

As for most other loan freeze arrangements, firms will be able to continue to charge interest during the payment freeze (except in the case of high-cost short-term credit).

However, the FCA said that if a customer requires full forbearance, that interest should be waived. If a customer was already in financial difficulty, the FCA has existing forbearance rules which apply. These will include for example the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time.

The FCA added that any measures outlined today (April 17) do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate.

Christopher Woolard, interim chief executive at the FCA, said: “We are very aware of the continued struggle people are facing as a result of the pandemic. These measures build on the interventions we announced last week, and will provide much needed relief to consumers during these difficult times.

“We have tailored our measures to specific products. For most of these proposals, firms and consumers should consider the amount of interest which may build up, and balance this against the need for immediate temporary support.

“If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.”