Payment freezes confirmed for car finance, payday loans and high-cost credit

The Financial Conduct Authority (FCA) has today confirmed it will introduce new guidance on payment freezes across car finance, payday lending and other forms of high-cost credit.

The temporary measures include a three-month payment freeze for motor finance, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking agreements.

For high-cost short term credit (including payday loans) payments will be frozen for one month with no additional interest charged.

There were concerns among alternative lenders about whether customers would be enabled to secure, for example, three month-long payment freezes in succession, but customers can ask for a freeze once, in a three-month period. Some lenders, however, are already offering two-month freezes where appropriate.

Many alternative lenders have also interpreted the guidance in a way that the payment freeze won’t affect the total price cap.

The tone of the final guidance from the FCA has also shifted a little more towards wider forbearance that can be offered, and the regulator in fact praised some lenders for offering support that goes beyond regulatory expectations.

Christopher Woolard, interim chief executive at the FCA, said: “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.”

Jason Wassell, chief executive of the Consumer Finance Association (CFA), said: "In these extraordinary times, our members have moved quickly to make changes, and be ready to help those customers that find themselves in financial difficulty.

"We are happy to see that the FCA listened to our contributions to the discussion and clarified some issues that we raised. For short-term lenders, there will be additional costs of extending lending. However, our members understand the need for us all to play our part.

"There have been concerns expressed about the payment holiday that lasts for one month. However, for those that need support, there are other forbearance options available, including reduced payments or longer deferrals. Payment deferral is just one tool in the toolbox.”

After the initial proposed guidance was announced last week, the FCA has confirmed expectations including:

• A three-month payment freeze for car finance customers temporary difficulties meeting finance or leasing payments due to coronavirus. If customers are experiencing temporary payment difficulties due to coronavirus and need to use their car, firms shouldn’t end the agreement or repossess the vehicle.
• Car firms should not alter personal contract purchase (PCP) or personal contract hire (PCH) agreements unfairly.
• High-cost, short-term credit firms to provide a one-month payment freeze to customers facing temporary payment difficulties.
• The FCA said it expects firms to use the deferral period to engage with their customers to understand whether they are likely to be able to resume payments.

The regulator added that firms should take the following steps on specific products:

• Pawnbrokers to extend the redemption period for the three-month freeze period or, if the redemption period has already ended, agree not to serve notice to sell an item that has been pawned for that period.
• If a BNPL customer is within the promotional period, firms to extend this by three months.
• If an RTO customer needs the goods during the guidance period, repossession should not take place.

The measures take effect on Monday April 27.