The FCA has confirmed the support available for motor finance, high-cost short-term credit, buy now pay later, rent-to-own and pawnbroking customers who continue to experience payment difficulties due to the coronavirus pandemic (collectively, the Guidance), coming into force today (17 July 2020). Alongside the Guidance, the FCA also published the feedback received from firms, trade bodies, consumer groups and individuals (the Feedback Statement). Our earlier article gave an in-depth analysis of the Guidance when originally proposed earlier this year, and can be found here.
The Guidance confirms the following:
Firms should contact customers reaching the end of their payment deferral to determine if they are able to resume payments, and if so, agree a payment plan on how the missed payments could be repaid.
Should customers be able to afford to return to making a regular repayment, or make partial payments, it is in their best interest to do so.
If customers continue to face temporary payment difficulties as a result of coronavirus:
Firms will provide support by allowing a payment deferral or reducing payment to an amount customers can afford on their motor finance, buy now pay later or rent to own agreements for a further three months.
For buy now pay later customers, if a loan is within the promotional period, this will mean offering customers an additional extension to that period.
For pawnbroking agreements, if a loan is within the redemption period, firms will be required to offer a further extension to the redemption period. If the redemption period has already ended, this will mean agreeing not to sell the item during the payment deferral period.
Customers who have not had a payment deferral or requested an extension of an existing payment deferral can request one up until 31 October 2020.
The ban on repossessions, applicable to motor finance and rent to own customers facing temporary payment difficulties as a result of coronavirus and who still need their vehicles or goods, will continue until 31 October 2020.
High-cost short-term credit customers can apply for a payment deferral up until 31 October 2020 in relation to each agreement. If customers have had a payment deferral and are still experiencing payment difficulties, firms will provide a range of support, including formal forbearance, in accordance with the FCA Handbook.
Should a customer need further temporary support, any full or partial payment deferrals offered under the Guidance should not have a negative impact on a customer’s credit files, although customers must be mindful that lenders may use other sources of information when assessing creditworthiness.
As mentioned in other guidance in relation to other consumer credit products and mortgages, the FCA reminds firms that in implementing the Guidance, they must be aware of the needs of vulnerable customers, including considering how they engage would them. This would include, for example, helping customers understand the type of debt assistance and money guidance that is available, providing assistance in accessing such resources if needed.
Changes to the original guidance – motor finance customers
The Guidance applicable to motor finance customers is largely an extension of the existing support already offered to those experiencing financial difficulty due to coronavirus. As well as extending the period in which customers are permitted to request a full or partial payment deferral, the ban on repossessions will remain in force for those customers facing temporary payment difficulties due to coronavirus and still need their vehicle until 31 October 2020.
The sole change contained within the motor finance Guidance relates to charges and fees. A customer would not be liable to pay any charge or fee in connection with the full or partial payment deferral or any other alternative solution if not deemed to be in a customer’s best interests under the Guidance. However, the Guidance states that the exception to this would be if interest continues to accrue at the contractual rate but, for operational reasons, the firm levies this as a charge. The continuing accrual of interest on sums owed under the agreement that remain unpaid would not be inconsistent with this Guidance.
The Feedback Statement – motor finance customers
Within the Feedback Statement, the FCA found that the majority of respondents were largely supportive of its intention to provide exceptional and immediate support to motor finance customers facing temporary financial difficulty due to coronavirus. The following concerns in relation to the below headings were raised, and the FCA provided further clarity in these areas.
The majority of respondents were supportive of extending the ban on repossessions, although consumer groups highlighted the need to consult customers who wished to keep their vehicles. Some firms and trade bodies did however highlight that it may not be in the customers’ best long-term interest to retain the vehicle and continue to suspend the repossession due to the vehicle’s depreciation in value.
Generally, the Guidance is clear that firms should keep their customers fully informed and aware of the consequences of the firm suspending any repossession action, including on the residual value. In exceptional circumstances, such as if a customer provides consent, initiating the termination and repossession process would not contravene Principle 6 of the FCA Handbook (‘A firm must pay due regard to the interests of customers and treat them fairly’). Firms, however, must consult Government advice on social distancing and self-isolation to ensure this is carried out appropriately.
Understanding customers’ financial circumstances and affordability of repayment plans
Some respondents asked for further clarity on the information firms should request in assessing what would be in a customer’s best interests and what they could afford to repay. The FCA stated that if customers are able to resume full or partial repayments, they should do so, and firms should engage with customers in good time before the expiry of the deferral period to determine this.
While the FCA does not expect that the majority of firms will undertake enquiries to determine individual circumstances surrounding a request for a payment deferral, it is of the view that the Guidance allows firms to do so if they consider it necessary. If such enquiries are carried out, it should not delay the provision of timely support and the FCA would expect them to be fair and proportionate. If customers were already experiencing payment difficulties due to coronavirus, the FCA’s existing rules around forbearance and guidance in CONC would continue to be applicable. This could include a payment deferral if appropriate.
In terms of the affordability of repayment plans, the FCA argues that the Guidance provides sufficient flexibility for firms to determine appropriate solutions based on a particular customer’s circumstances and the solutions they provide to them. Creditworthiness rules include obliging firms to carry out a creditworthiness assessment, and if such rules are applicable, the FCA expects firms to continue to comply with them. If a creditworthiness assessment is required, a firm can undertake this in a proportionate way, having regard to CONC 5.2A.
Guaranteed minimum future values
Within the Feedback Statement, the FCA confirmed that the Guidance does not prevent firms from adjusting guaranteed minimum future values or residual values, provided customers are treated fairly. This would include, for example, adjusting those values to reflect the expected depreciation of a vehicle prior to car values being affected due to coronavirus.
Term of the support
A number of respondents sought further clarity on the length of support offered; asking to confirm whether the total period of support offered to a customer could be up to 6 months. The FCA confirmed that, unless renewed or updated, the Guidance would expire on 31 October 2020. This would mean that the overall term of support for some customers could be up to 6 months.