Motor finance firms have been warned against repossession or cessation of contracts involving customers who have been adversely affected by Coronavirus.
The Financial Conduct Authority (FCA) has stated its intention to enforce a payment freeze of up to three months in order to give the hardest hit consumers some leeway.
PCP and PCH must also not be unfairly altered. This means that motor finance firms cannot recalculate their balloon payments to fall in line with the predicted depreciation of the vehicle in question.
These measures come as a welcome break for those who have been financially devastated by the government-imposed COVID-19 lockdown. Unfortunately though, this has created an issue in and of itself, with the FCA stating; “The FCA expects firms to act fairly where terms are adjusted”, whilst also urging companies and consumers to work towards “an appropriate solution” when the latter is seeking to keep their car and there is a large discrepancy between balloon payment and current value.
It has been mooted that both parties may have to get creative, with the FCA recognising that balloon payment refinancing “might not be appropriate in the circumstances”.
There is support though. Draft measures have been announced to aid those who have motor finance and cannot cope with the financial distress the Coronavirus pandemic has put them under.
The payment freeze measures aren’t just limited to the motor finance industry either. The FCA’s interim chief exec, Christopher Woolard has stated:
“We have worked at pace to introduce temporary financial relief tailored for a range of specific credit products…many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments.”
Consumers who have outstanding payday loans and other high-cost credit can apply for a 0% additional-interest payment freeze of one month, whilst lower-credit consumers such as buy-now-pay-later plans can apply for a three-month hiatus.
A caveat offered by the FCA is that a freeze on payments may not always be the best option for the consumer. James Fairclough of AA Cars put this clearly in a statement:
“While 3 month payment holidays will be welcomed by many individuals in difficulty, there is a real risk that some customers who could afford to continue payments might see the saving as an opportunity to increase their spending, and find themselves in greater financial difficulty later down the line.”
This was echoed by the FCA, who have reiterated that if a payment freeze isn’t the right option for a customer, both parties should work together to find a suitable solution, which may include rescheduled loan payment terms or wiping interest for the period.
On top of this, if a customer cannot begin payments once the freeze is over, they are encouraged by the FCA to contact their lender and ensure all issues can be resolved. It is then the lender’s responsibility to put together a suitable plan for both parties. The initial responsibility though, lies solely with the consumer.
It is not a free pass to simply skip payments. They must contact their lender in due course before issues arise and avoid ceasing payments without warning. All consumers who wish to make a case for a payment deferral must get in touch via email or phone with their lender.
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