New guidance has been issued for motor finance providers on granting extended payment holidays, and agreeing new deferrals, just after industry statistics showed how far business volumes have fallen.
The Financial Conduct Authority (FCA) today (July 3) proposed new guidance for the motor finance industry, along with firms providing buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking products, that should be applied to the granting of payment holidays.
At the same time figures have been published by the Finance & Leasing Association (FLA) which reveal how far sales levels had dropped – before car showrooms began to reopen. New business volumes in the consumer car finance market fell during May by 78%, compared with the same month last year, and by 41% in the five months to May 2020.
These figures were dropping sharply just as car finance providers were administering payment breaks – some of which may be approaching expiry.
The new guidance determines the options car finance providers should give to customers coming to the end of a payment freeze, as well as those yet to request one. For customers yet to request one, the time to apply would be extended until the end of October – effectively the same policy announced for credit card, store card and personal loans earlier this week.
For motor finance customers who’ve already taken up support, who are still experiencing payment difficulties, firms would continue to offer a further payment deferral or reduced payments for another three months.
The proposals state the following:
· At the end of a first payment freeze, firms should contact their customers to find out if they can resume payments - and if so, agree a plan on how the missed payments could be repaid. If customers can afford to return to making regular repayments it is in their best interest to do so.
· Anyone who continues to need help gets help - for customers still facing temporary payment difficulties as a result of coronavirus:
· Firms should provide them with support by freezing or reducing payments to a level they can afford, for a further three months.
The FCA has also proposed that a ban on car finance repossessions should continue until October 31 – for customers who’re still facing temporary payment difficulties due to coronavirus and need their vehicles.
Adrian Dally, head of motor finance at the FLA, said: “Motor finance lenders have been providing unprecedented levels of forbearance to customers since the start of the crisis, but it is now time for the government to support the industry so that it is able to continue to offer finance to consumers and businesses at affordable rates during the recovery.”
A consultation on the FCA proposals runs until 5pm on July 6. The FCA expects to finalise the guidance shortly after.
Car finance business volumes The FLA statistics announced at the same time as the new guidance show that business volumes in the car finance market for new cars particularly, dropped 86% in May 2020, compared with the same month in 2019.
Activity in the consumer used car finance market also dropped substantially, with new business volumes decreasing by 73% in May on a year ago.
Geraldine Kilkelly, head of research and chief economist at the FLA, said new business volumes had actually improved on the record low in April, as the industry embraced the use of click and collect to meet customer demand.
She added: “As the industry gears up to meet an extended period of forbearance and a strong pick-up in demand for new credit, the government and Bank of England need to ensure that all lenders, including non-banks, have access to financial support schemes.”
This comes after industry figures showed a plunge in registrations in April.