Car finance and payday borrowers to be given up to three month breaks from payments and interest – The Sun
STRUGGLING payday loan and car finance borrowers could soon be offered a help hand by their lender if their finances have taken a hit due to coronavirus.
Payday loan should be offered one month interest freezes, according to new rules proposed by city watchdog the Financial Conduct Authority.
It also wants to see other borrowers with high cost, such as buy now pay later, pawnbroking and rent to own, as well as car finance borrowers, offered up to three month repayment holidays.
These proposals are expected to be finalised by April 24, 2020, with the guidance coming into force shortly afterwards.
But the FCA points out that lenders can go above and beyond this, including offering longer payment freezes if appropriate.
The move follows measures announced by the regulator last week for lenders to offer temporary payment freezes on loans and credit cards for up to three months.
Under last week's proposals banks were also encouraged to give up to £500 interest-free overdrafts and to ensure borrowers weren't stung by hefty overdraft rates.
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.
Christopher Woolard, interim chief executive at the FCA, said: "We are very aware of the continued struggle people are facing as a result of the pandemic.
"These measures build on the interventions we announced last week, and will provide much needed relief to consumers during these difficult times."
Here's what the regulator has proposed in more detail.
One month interest freeze for payday loans
For high cost short-term credit loans, such as payday loans, the FCA says firms will be expected to provide a one month interest-free payment freeze to customers facing payment difficulties due to the coronavirus pandemic.
It says offering just a one month interest freeze reflects both the much shorter length of most loans and prevents firms from accruing additional interest during the freeze.
After the end of the freeze, firms should allow borrowers to pay the deferred payment in an "affordable way".
The FCA says this could be one single payment after 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 help measures on a case by case basis.
This includes suspending, reducing, waiving or cancelling any 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 the FCA wants firms 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 the promotional period should have this extended by the length of the payment freeze.
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.
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.
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.
More to follow…
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