The proposals are intended to complement the measures already announced by the government to support consumers during the coronavirus pandemic.

For motor finance customers, The FCA expects firms to provide a three-month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus.

If customers are experiencing temporary financial difficulties due to coronavirus, firms should not take steps to end the agreement or repossess the vehicle.

The FCA has also proposed that:

• Firms should not change customer contracts in a way that is unfair.  For example, firms should not try to use temporary depreciation of car prices caused by the coronavirus situation to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term. We will expect firms to act fairly where terms are adjusted.
• 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 financial difficulties, firms should work with the customer to find an appropriate solution.

For high-cost short-term credit, which includes payday loans, the FCA has proposed that payday lending firms will be expected to provide a one-month interest-free payment freeze to customers facing payment difficulties due to the coronavirus pandemic.

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 end of the freeze, the firm should allow the consumer 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.

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

For other credit products, the FCA has suggested that 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 proposing that firms should also take the following steps in relation to 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 that 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

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

However, in the event that 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.

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.”

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