The UK’s financial watchdog has proposed a freeze on car finance repayments, ruling out repossessions of vehicles during the coronavirus crisis.
The Financial Conduct Authority (FCA) told car leasing firms today to offer three-month repayment pauses for customers in financial difficulty as a result of coronavirus.
“We are very aware of the continued struggle people are facing as a result of the pandemic,” interim FCA boss Christopher Woolard said.
“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.”
In addition, lenders should offer a one month interest-free payment freeze on short-term credit agreements, while lenders involved in pawnbroking agreements are expected to give customers a three-month payment freeze.
The watchdog today urged lenders against seeking to repossess vehicles or change contracts “in a way that is unfair”.
One example cited was lenders using the temporary drop in car prices caused by the coronavirus lockdown to recalculate end-of-lease balloon payments.
The UK’s car loan market includes 6.5m vehicles financed through leasing agreements.
The measures are set to be rushed into practice by 24 April.
The FCA has already confirmed a three-month freeze on loan and credit card payments due to the unfolding pandemic.
Lloyds Banking Group welcomed the guidance.
Richard Jones, managing director of motor finance and leasing, said the bank has helped more than 50,000 leasing customers so far.
“Customers can apply to defer their payments for up to three months on personal contract purchase, hire purchase and contract hire agreements by using our new online service which enables most customers to action their request instantly,” he said. “There are no missed payment fees and a customer’s credit rating will not be adversely impacted.”