Further to the draft guidance published on 24th April 2020, the FCA has now issued its final guidance regarding support for customers of motor finance agreements, who are struggling financially as a result of the coronavirus pandemic. The FCA welcomed comments on the draft guidance by way of a short consultation, and has published an accompanying feedback statement alongside the final guidance, addressing some of the concerns raised by trade bodies during the consultation. The measures come into force on 27th April 2020, with customers being able to request a payment deferral at any point in the next three months.
Key points under the final guidance
The FCA has confirmed the steps that it expects firms to take in respect of motor finance agreements.
- Firms should provide a three-month payment freeze to customers who are having temporary payment difficulties as a result of the coronavirus pandemic. The customers should not be considered to be in arrears during this period. Where the customer requires use of the vehicle and is experiencing temporary payment difficulties, the firm should not take steps to end the agreement or repossess the vehicle.
- Firms should not alter PCP or PCH agreements in a manner that is unfair to the customer.
- Where the customer wishes to keep the vehicle at the end of their PCP agreement but cannot afford the balloon payment due to the current crisis, firms should work with the customer to find an appropriate solution.
Changes from the draft guidance
The FCA has clarified that the guidance also applies to restricted-use agreements, where the creditor and the supplier are different. The FCA has also removed any reference to altering GMFVs or RVs only when entering into a new agreement, with the guidance applying regardless of how a payment deferral is given. Finally, the FCA has removed the reference to a statutory off-road notification, aiming to keep the guidance at a ‘high-level.’
The FCA recognises the trade bodies’ concerns regarding the financial impact of payment deferrals and other methods of relief for motor finance agreement customers on firms but remains steadfast in its expectation that customers should be offered the appropriate relief under the guidance. The FCA notes that any firm which is concerned about the impact of doing so, should contact the FCA at the earliest opportunity to discuss further.
The feedback statement clarifies that credit reporting should resume at the end of a payment deferral, reflecting the FCA’s aim of providing temporary relief to those suffering financially as a result of the current pandemic. For those customers who require further relief after the initial payment deferral period, this would generally be noted in the normal way on their credit files. However, customers are open to place a ‘notice of correction’ on their credit file to explain the circumstances around any missed payments or forbearance arrangement post the initial deferral period.
Trade bodies also raised concerns about the ability of firms to comply with their obligations under the Consumer Credit Act 1974, particularly the requirement to issue a notice of sum in arrears. The FCA suggests that accompanying information should be issued alongside the notice of sum in arrears when sent to the customer, providing further explanation.
The FCA does not offer any further guidance on what approach firms can take to PCP agreements reaching term end, where the customer is unable to afford the balloon payment. With respect to the proposed moratorium on repossessions, the FCA clarifies that it is currently intended to last for three months and is limited to those customers who require use of the vehicle and are experiencing temporary payment difficulties as a result of the current crisis.
Article co-authored by Niresh Sri Rajkumar.