Britain’s financial watchdog has proposed a repayment freeze for millions of consumers with auto finance contracts, goods bought on high-cost credit, and pawned belongings during the coronavirus pandemic.
Britain extended a national lockdown on Thursday by a further three weeks to early May, with many businesses shut and millions of people furloughed or having to claim welfare as a deep and rapid recession beckons.
The Financial Conduct Authority (FCA) said on Friday it expects car leasing firms to provide a three-month payment freeze to customers who are having short-term difficulties as a result of the 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 said in a statement.
The watchdog said car leasing firms should not try to use temporary car price depreciation caused by the coronavirus outbreak to recalculate so-called balloon, or final, repayments under personal contract purchases (PCP) used by millions of people to buy a car.
“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 FCA said.
The Finance & Leasing Association (FLA) said new business in Britain’s consumer motor finance market was 38 billion pounds ($47.3 billion) in 2019, with PCPs accounting for 80% of that.
Adrian Dally, head of motor finance at the FLA, said the proposals broadly mirror the forbearance measures that motor finance lenders have been offering in 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,” Dally said.
Payday lending firms that offer short-term loans at a high interest rate are expected to provide a one month interest-free payment freeze, the FCA said.
“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,” it said.
Companies that offer rent-to-own, buy-now-pay-later, or pawnbroking agreements are expected to provide a three-month payment freeze to customers facing payment difficulties due to the coronavirus, the FCA said.
If a pawnbroker has already informed the customer they intend to sell the item, they should suspend the sale during the payment freeze, the watchdog said.
“If social distancing means that pawnbrokers and rent-to-own firms are unable to redeem, collect or repossess goods, they should not pass on any additional charges or fees to the consumer,” it added.
“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,” said FCA interim Chief Executive Christopher Woolard.
The package of proposals is being put out to public consultation. They will be finalised by April 24 and come into force shortly afterwards, the FCA said.
It follows a package of measures introduced by the FCA that forces banks to offer repayment relief to customers with overdrafts and credit cards.