Drivers struggling to meet car finance payments should be offered a payment freeze and all vehicle repossessions should be halted, according to the UK’s financial watchdog.
The Financial Conduct Authority (FCA) has proposed that car finance lenders should offer a penalty-free payment break of up to three months to borrowers facing difficulties due to the coronavirus outbreak.
Its proposals come after similar moves to grant payment freezes on mortgages, credit cards and bank loans.
Christopher Woolard, interim chief executive of 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.
'We have tailored our measures to specific products. 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. If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.”
No unfair changes
As well as offering payment breaks, the FCA wants lenders to avoid ending agreements early or repossessing vehicles of drivers facing financial hardship. It has also demanded that lenders don’t change contracts in unfair ways, such as using the temporary depreciation in values caused by the outbreak to recalculate final balloon payments.
Around 90 per cent of new cars are bought on some form of finance and the Finance and Leasing Association (FLA) whose members provide most of this lending says its members are already making efforts to help struggling borrowers.
It has called for motor finance lenders to be offered the same government support as banks to fund borrowers’ payment breaks.
Adrian Dally, head of motor finance at the FLA, said: “The proposals announced by the Financial Conduct Authority broadly mirror the forbearance measures that motor finance lenders have been providing to their customers over recent weeks.
“During this unprecedented period, every lender has recognised that forbearance is a vital bridge for customers whose income has been disrupted, and the industry has committed significant resource, human and financial, to meeting requests for support.
“To enable this level of support to be maintained for customers, the industry will need some help from Government, and those discussions need to begin in earnest, with decisions reached rapidly.”
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