Britain’s financial watchdog has proposed a repayment freeze for millions of consumers with auto finance contracts, goods bought on high-cost credit, and pawned belongings during the coronavirus pandemic.
Britain extended a national lockdown on Thursday by a further three weeks to early May, with many businesses shut and millions of people furloughed or having to claim welfare as a deep and rapid recession beckons.
The Financial Conduct Authority (FCA) said on Friday it expects car leasing firms to provide a three-month payment freeze to customers who are having temporary difficulties meeting payments due to the coronavirus.
“If customers are experiencing temporary financial difficulties due to coronavirus, firms should not take steps to end the agreement or repossess the vehicle,” the FCA said in a statement.
The watchdog said car leasing firms should not try to use temporary depreciation of car prices caused by the coronavirus situation to recalculate so-called balloon repayments under a personal contract purchase (PCP), used by millions of people to buy a car.
“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,” the FCA said.
Payday lending firms that offer short-term loans at a high interest rate, are expected to provide a one month interest-free payment freeze.
“This shorter period reflects both the much shorter length of most loans and, given interest rates tend to be higher than for other high cost credit products, prevents firms from accruing additional interest during the freeze period,” the FCA said.
Companies that offer rent-to-own, buy-now-pay-later, or pawnbroking agreements are expected to provide a three-month payment freeze to customers facing payment difficulties due to coronavirus, the FCA said.
If a pawnbroker has already informed the customer they intend to sell the item, they should suspend the sale during the payment freeze, the watchdog said.
“If social distancing means that 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 the consumer,” it added.
“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,” said Christopher Woolard, FCA interim chief executive.
The package of proposals are being put out to public consultation and they will be finalised by April 24 and come into force shortly afterwards, the FCA said.
It follows a package of measures introduced by the FCA that forces banks to offer repayment relief to customers with overdrafts and credit cards.