With the financial effects of coronavirus on UK consumers showing no sign of ending, it is no surprise that the Financial Conduct Authority has instructed lenders to provide additional forbearance to customers with high-cost short-term credit (HCSTC), motor finance, buy-now-pay-later (BNPL), rent-to-own (RTO) and pawnbroking arrangements.
Numbers of daily cases and deaths may be declining slowly in the UK, and society may gradually be inching back towards normal, but many people have lost their jobs, been furloughed on reduced earnings, seen their self-employed earnings reduce etc. The hospitality sector may have been permitted to re-open, but not every outlet has re-opened, so job security for those employed in this sector is very limited. The entertainment sector may remain closed for many months to come.
For customers who have motor finance, pawnbroking, HCSTC, BNPL or RTO agreement and are yet to request a payment freeze, the period in which they can apply for one will be extended until October 31 2020.
For customers who have already been granted a pay freeze for one of these products, firms should make contact with them at the end of their payment freeze period to ascertain what their financial situation is at that time.
The FCA’s first point is very clear – if the customer is in a position to resume repayments, then they should do so, as otherwise significant arrears could accumulate on the account.
If a customer needs additional support, the FCA says that firms may need to provide additional forbearance as follows:
- For motor finance, BNPL or RTO agreement – either a further three-month payment freeze should be agreed if the customer is unable to afford to pay anything, or a reduced payment arrangement should be set up at a level they can afford
- For BNPL customers – the promotional period of the loan could be extended, where applicable
- For a pawnbroking agreement – if the agreement is still in the redemption period, that period could be extended by another three months. If the redemption period has ended, the firm could agree not to sell the item for a further three months
- For HCSTC – if a customer has already had a one-month payment freeze, the new FCA rules do not dictate that another one needs to be offered if the customer remains in financial difficulty. However, the FCA says “firms should be providing a range of support – including formal forbearance – in accordance with the FCA Handbook”
The ban on re-possessing any goods provided as security under any of these arrangements continues until October 31 2020.
Firms are responsible for ensuring any forbearance they provide to borrowers affected by Covid-19 does not have an impact on their credit files.
Christopher Woolard, Interim Chief Executive at the FCA, said:
“It is vital that people facing temporary payment difficulties because of the impact of coronavirus get the assistance they need. For those who have already taken a pay freeze and can afford to start making payments, even partially, it is in their best interest to do so, but for those that need help it will be there.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article