Borrowers struggling with their finances because of the coronavirus pandemic will get a payment freeze
Millions of people struggling to keep up with car finance and high-interest loans due to the coronavirus pandemic will get a payment holiday under new plans.
The Financial Conduct Authority (FCA) has confirmed proposals announced last week to help consumer credit customers facing financial difficulties because of coronavirus.
Car finance borrowers will get a three-month payment holiday and repossessions will be frozen under the plans.
Customers using payday loans will be granted a one-month repayment freeze as part of the measures.
The financial watchdog is also introducing three-month payment holiday for borrowers with buy-now-pay-later, rent-to-own and pawnbroking debts.
Christopher Woolard, interim chief executive at the FCA, says: “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 says the measures will be introduced from 27 April.
The financial watchdog says car finance firms will have to provide a three-month payment freeze to customers experiencing temporary payment difficulties meeting finance or leasing payments due to coronavirus.
Firms should also not end agreements or repossess vehicles if customers are experiencing financial problems.
The regulator says firms should not alter car finance agreements in a way that is unfair for customers.
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.
James Fairclough, chief executive of AA Cars, advises borrowers with payment difficulties to contact their lender.
He says: “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.”
For high-cost short-term credit, including payday loans, firms should provide a one-month payment freeze to customers facing temporary payment difficulties due to the pandemic.
The financial regulator says no extra interest should be charged to customers because of the payment freeze.
The FCA expect firms to use the period to talk to their customers to understand if they can resume payments in the future.
If customers continue to face payment difficulties, they should be offered alternative support such as a single payment after their term ends, or smaller instalments.
Rent-to-own, buy-now-pay-later and pawnbroking agreements
Borrowers with rent-to-own, buy-now-pay-later and pawnbroking agreements who are struggling will be offered three-month payment freezes.
Rent-to-own firms have also been banned from repossessing items from customers for three months.
Pawnbrokers are expected to extend the redemption period for the three-month freeze period or, if the redemption period has already ended, 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.
Buy-now-pay-later customers who are still within the promotional period should also have this extended by three months.
If a payment freeze is not in a customer’s best interests, firms should offer an alternative solution, potentially including waiving interest and charges or changing the term of the loan.