As part of proposals set out just last week, the Financial Conduct Authority (FCA) confirmed motor finance firms are to provide a three-month payment freeze to customers experiencing difficulty meeting the instalments.

The measures will be in force on Monday 27 April 2020 so from this point, customers should be able to request a payment deferral for a period of three months.

It added that where customers are experiencing temporary payment difficulties and they need to use their vehicles, firms shouldn’t look to end agreements or repossess the vehicle.

Further, firms mustn’t change Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is ‘unfair’. As an example, they shouldn’t recalculate PCP balloon payments based on a temporary depreciation of car prices caused by coronavirus.

Where a customer wants to keep their vehicle at the end of their PCP agreement but doesn’t have the cash to cover the balloon payment, the FCA said firms should “work with the customer to find an appropriate solution”.

Payday loans (high-cost short-term credit)

The measures mean high-cost short-term credit (payday lending) firms must provide a one-month interest-free payment freeze to customers.

It said this shorter period reflects 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 end of the freeze, the firm should allow the customer to pay the deferred payment in an affordable way such as by a single payment after the end of the term or by a number of smaller instalments.

However, firms should consider whether immediate formal forbearance may be more suitable if a customer was already in financial difficulty before the impact of coronavirus. If a customer expects their financial difficulties to last longer than a month, then forbearance may be more suitable.

Other credit products

Rent-to-own (RTO), buy-now-pay-later (BNPL) firms and pawnbroking agreements are also expected to offer a three-month payment freeze.

The FCA has confirmed these firms must take the following steps:

• 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 customer 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 period, repossession shouldn’t take place
• If social distancing means pawnbrokers and RTO firms are unable to redeem, collect or repossess goods, they shouldn’t pass on any additional charges or fees to customers.

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.”

James Fairclough, CEO of AA Cars, said the measures ensure every customer will be treated the same, whoever their lender is, and whatever type of finance plan they are on.

He said: “The recommendation that consumers be allowed to keep their car where possible will also be particularly valuable for key workers who still rely on their vehicle to get to work.

“However it’s important to note that lenders will not make special arrangements automatically. The onus is on drivers to contact their lender before they run into difficulty. Call centres are understandably busy at present, but many providers are offering payment holiday request forms online.

“Past experience shows that when faced with financial difficulties, some consumers simply stop making repayments on their finance deals. This is best avoided, as it can harm your credit rating. If you are struggling, contact your lender to ask for a payment holiday – don’t just miss a scheduled payment.”