Worrying about affording your monthly car finance during the Coronavirus crisis?

The Financial Conduct Authority (FCA) has announced a package of measures covering motor finance and high cost credit agreements to directly support you if you are facing payment difficulties due to coronavirus. Read on if you are worrying about affording your monthly car finance during this Covid19 crisis.

These new measures follow on from the previous announcement by the FCA to introduce a three month loan and credit card payments freeze during the pandemic. Car financing such as personal contract purchase (PCP), and a range of high-cost short-term credit arrangements, including payday loans, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking are to be included.

Financial well-being is important

The coronavirus Covid-19 pandemic is causing a strain on physical and mental health, financial well being is a huge concern.

‘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.’
Christopher Woolard – FCA interim chief executive

Motor finance – monthly car finance

Motor firms are expected to facilitate a three-month payment freeze to customers currently paying monthly car finance, who are having temporary difficulties meeting finance or leasing payments due to coronavirus. The FCA stresses firms should not take steps to end the agreement or repossess vehicles.

Firms should not change customer contracts in a way that is unfair. For instance a firm should not try to use temporary depreciation of car prices caused by the coronavirus situation to recalculate PCP balloon payments at the end of the term.

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.

‘The proposals announced by the FCA broadly mirror the forbearance measures that motor finance lenders have been providing to their customers over recent weeks.
‘To enable this level of support to be maintained for customers, the industry will need some help from government, and those discussions need to begin in earnest, with decisions reached rapidly.’
Adrian Dally – Head of motor finance at the Finance & Leasing Association

Steps if I can’t afford to pay my monthly car finance due to coronavirus?

If you pay for your car monthly, the first thing you should do is make contact with your finance provider. It is best to be upfront and honest with them as opposed to just default on payments, because this will affect your credit score and make it harder to get finance in future.

High-cost lenders – pay day lending

One month interest-free payment freeze from Pay day lending firms to customers facing payment difficulties due to the coronavirus pandemic.

Afterwhich, the firm should allow the customer to pay the deferred payment in an affordable way which could be a number of smaller instalments for example.

High-cost-short-term-lenders should consider whether immediate formal forbearance may be more suitable if a customer was already in financial difficulty before the impact of coronavirus.

Pawnbroking, RTO, BNPL

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.

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 FCA’s 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, 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.

Longer payment freezes are optional at the discretion of the firm

The FCA measures do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate.

When will these measures go live?

The FCA proposals are expected to be finalised proposals by 24 April 2020, with them coming into force shortly afterwards.

Motor finance guidance is here: Motor finance agreements and coronavirus: draft temporary guidance for firms

Rent-to-own, buy-now-pay-later and pawnbroking guidance is here: Rent-to-own

High-cost short-term credit guidance is here: High-cost short-term credit and coronavirus: draft temporary guidance for firms

We hope this information helps you and we are here for you during this difficult time. We will continue to keep you updated as the Government releases new information. Our business contingency plan is in place and we will do everything we can to support our clients during this uncertain period, please do not hesitate to contact us here if you have any concerns or queries.

Visit our COVID19 Business Hub for more information

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above