Car finance lenders will be expected to offer customers a three-month payment freeze if they’re struggling to pay bills because of the coronavirus pandemic.
The Financial Conduct Authority (FCA) outlined the proposals this morning, which would encourage lenders to not penalise customers or repossess their vehicles if they’re temporarily unable to pay.
The proposals also tell lenders not to ‘change customer contracts in a way that is unfair’, such as using temporary depreciation of car prices caused by the pandemic to recalculate repayments.
— Financial Conduct Authority (@TheFCA) April 17, 2020
The FCA published its recommendations this morning (April 17) and encouraged stakeholders to respond by Monday, April 20 with a view to finalising the proposals by Friday, April 24. They would come into force shortly after.
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.”
Mark Turner, managing director in Duff & Phelps’ Compliance and Regulation Consulting practice, said: “Today, the FCA has clearly set out their expectations that the motor finance industry acts fairly and decisively during the Covid-19 crisis.
“If these proposals are enacted, which I expect they will immediately following the end of the consultation on Monday, senior managers of motor finance firms will need to ensure they are enacted quickly, as even short delays could put customers at risk.
“The FCA’s decision to introduce payment holidays for motor finance loans will have come as a great relief for many borrowers in the UK.”