Rallying the industry: Adrian Dally offers comments on the latest FCA announcement suggesting help for motor finance customers

Christopher Woolard, interim Chief Executive at the FCA, explained: “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.”

Expecting firms to offer a 3-month payment freeze to customers having temporary difficulties meeting finance or leasing payments due to the pandemic, the FCA has also stated that 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, e.g. trying to use temporary depreciation of car prices caused by the coronavirus situation to recalculate PCP balloon payments.
• 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.

According to the organisation, high-cost short-term credit firms will be expected to provide a 1-month interest-free payment freeze to customers struggling under the weight of the virus. Following this freeze, the firm should allow the consumer to pay the deferred payment in an affordable way.

However, the FCA stressed that these suggested measures did not prevent companies from providing more favourable forms of assistance to a customer, including a longer payment freeze if appropriate.

FLA members have been working like this for weeks

In response to this announcement from the FCA, Adrian Dally, head of motor finance at the Finance and Leasing Association (FLA) explained: “As expected, the FCA are putting the idea of a three-month payment freeze out there as a starting point, but they’re also saying that it won’t be suitable for everybody, so it does depend on what forbearance options are suitable for the customer.

“There may be other options available that are more suitable, for example if a customer has had an income reduction but they know they’re going back to their job in three weeks, then they could have a shorter payment holiday or if you find that you don’t need the car anymore then the voluntary termination options remain there as well.”

Dally went on to say that there are various ways for lenders to adjust finance agreements now that borrowers are experiencing difficulties in meeting repayments, stating that: “We have made no secret of the fact that some may need to modify agreements, for example if you’re extending an agreement then the Consumer Credit Act means you have to put together a Modifying Agreement – a new contract that has to be signed.

“We’ve formerly asked the Government to enact new legislation to bypass those provisions to give them a more customer friendly approach regarding forbearance and changing contracts etc.

“If this is the kind of forbearance that society needs then it has to be done. But it doesn’t come at no cost and it will be putting a great amount of strain on lenders. Over the medium term, there are some very significant impacts of this. Essentially, the type of forbearance required here is not the typical type seen in the motor finance market and it will be done on an unprecedented scale.”

Feedback from FLA members

“The concept of the payment holiday came out first for mortgages, and we pretty much knew it was coming to other areas such as motor finance. To be honest, our members have been acting broadly in alignment with this guidance for weeks now anyway, because it’s simply a statement of how forbearance works in these circumstances.

“Up to the end of the third week of the pandemic, across all FLA markets not just motor, there were 520,000 enquiries about forbearance to our members. More than half of which have been granted so far.

“In Week One of the pandemic there was a 1400% increase in forbearance requests, in Week Two that went up by a further 220% and in Week Three it went up by 204% so in other words a very significant spike in the first two weeks and then a levelling off in Week Three.”