STRUGGLING payday loan and car finance borrowers have been offered up to three month payment holidays if their finances have taken a hit due to coronavirus.
The Financial Conduct Authority (FCA) has today confirmed a range of proposals first announced earlier this month, including payment and interest freezes, to ensure borrowers are treated fairly.
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It's confirmed the following:
- Payday loan customers should be offered one month interest and payment freezes
- Borrowers with other types of high cost credit, such as buy now pay later, pawnbroking and rent to own agreements, should be offered up to three-month payment breaks
- Car finance borrowers should be offered up to three-month repayment holidays
The measures will take force from April 27, 2020.
Firms don't have to follow the measures, but the FCA says it expects them to and adds that it can take enforcement action if they don't treat customers fairly.
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It also points out that lenders can go above and beyond it, including offering longer payment freezes if appropriate.
Customers with complaints about lenders failing to comply will still have the right to first complain to the firm involved, and then to the Financial Ombudsman Service as usual.
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.”
Here's what the regulator has proposed in more detail.
One month payment and interest freeze for payday loans
For high cost short-term credit loans, such as payday loans, the FCA says firms are expected to provide a one month payment and interest freeze to customers facing payment difficulties due to the coronavirus pandemic.
It says offering just a one month freeze reflects both the shorter length of most loans and prevents firms from accruing additional interest during the freeze.
After the freeze, firms should allow borrowers to repay loans in an affordable way.
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The FCA says this could be one single payment at the end of the term or by a number of smaller instalments.
It adds that firms should also consider whether other options are more suitable and use existing measures known as "forbearance" on a case by case basis if the customer is expected to be in financial difficulty for more than a month.
Forbearance measures include suspending, reducing, waiving or cancelling further interest or charges, deferring payment of arrears, or accepting token payments for a reasonable period of time.
Three-month payment freeze for rent to own, buy now pay later, and pawnbroking agreements
For borrowers with a rent to own, buy now pay later, or pawnbroking agreement, firms are to offer a three-month payment freeze to struggling customers.
With rent to own, which is where borrowers pay a monthly fee for household goods such as TVs and fridges, the FCA says firms should not repossess goods being used during the payment freeze.
When it comes to buy now pay later, the FCA says customers within a promotional period, such as the first three months interest-free, should have this extended by three months.
In addition, pawnbrokers should 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.
Pawnbroking firms should also suspend intended sales of consumers' items during any payment freeze.
During redemption periods, borrowers are usually entitled to their possessions back from pawnbrokers if they repay loans in full, plus interest.
The FCA adds that if social distancing means 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 borrowers.
But it points out that firms will be able to continue to charge interest during the payment freeze for these three types of loan – unless a customer requires further assistance.
In this scenario, lenders can use existing measures on a case by case basis, which include the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time.
If a customer is unable to start making payments again at the end of a payment deferral period, they should contact their lender.
The FCA says firms should work with customers to resolve these difficulties in advance of payments being missed.
Three-month payment freeze for car finance borrowers
Here, the FCA expects firms to provide a three-month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus.
It adds that firms should not end agreements or repossess vehicles if borrowers are struggling and still need to use their cars.
The FCA adds that firms should not change customer contracts in a way that is unfair.
For example, they should not try to use temporary falls in car prices caused by the coronavirus situation to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term.
Balloon payments are an additional sum car finance borrowers can pay at the end of their agreement if they wish to buy the car from the dealer.
Plus, 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, the FCA says firms should work with customers to find a solution.
It adds that refinancing the balloon payment might "not be appropriate" in the circumstances.
Is other help being offered?
The move follows measures announced by the regulator earlier this month for lenders to offer temporary payment freezes on personal loans and credit cards for up to three months.
Banks have also been encouraged to give up to £500 interest-free overdrafts, and to ensure borrowers aren't stung by hefty overdraft interest rates.
Mortgage lenders have also been told by the government to offer three-month payment holidays.
But the regulator had come under criticism for leaving out high cost credit and car finance borrowers, who until now, have had to negotiate help on a case by case basis themselves.
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