The FCA published draft relief measures for customers with motor finance agreements today.
It is looking for feedback on the measures to be sent to FCAconsumercredit@fca.org.uk by 5pm on Monday 20 April.
Who does the proposed rules apply to?
It would apply to firms that issue (or have otherwise acquired e.g. through debt sale) regulated motor finance agreements including hire purchase agreements (including PCP), conditional sale agreements to other credit agreements used to purchase a vehicle where the creditor is also the supplier and also personal contract hire agreements.
Which customers would be covered?
It would apply to customers who are already experiencing or reasonably expects to experience temporary payment difficulties as a result of coronavirus.
It would not apply to customers who are in pre-existing financial difficulty – usual forbearance rules should continue to apply to that cohort of customers.
Any new relevant definitions?
Yes – the FCA has defined “payment deferral” as meaning an “arrangement under which a firm permits the customer to make no payments (or a token payment not exceeding £1 where firms’ systems will not allow a zero payment) under their agreement for a specified period without being considered to be in arrears.”
What would firms have to do?
Look at the customer’s situation – if a customer qualifies and wishes to receive a payment deferral, the firm would have to grant the payment deferral for 3 months unless the firm reasonable determines that it is not in the customer’s interest to do so.
Where a 3 month payment deferral is not considered appropriate, firms would have to offer alternative temporary relief measures straightaway e.g. by offering reduced payments, rescheduling the term etc.
Rely on self-certification – the FCA is not expecting firms to make enquiries with each customer to determine the circumstances surrounding the request (CONC 6.7.18R and 6.7.19R is disapplied).
Extend the payment deferral — firms will be able to provide more favourable forms of assistance including longer payment deferrals is they wish. However, firms should consider the customer impact of depreciating asset values when looking at longer deferrals and other forms of assistance.
Charge Interest – firms will be able to continue to charge interest during the deferral period. However, where a customer is entitled to usual forbearance after expiry of the payment deferral period, then firms would be required to waive accrued interest during the payment deferral period at that point.
Engage with Customers – documentation will have to inform customers that they should engage with the firm towards the end of the payment deferral period if they are not able to resume payments. Firms will have to work with customers to resolve these difficulties in advance of payments being missed.
Communicate with customers and update call centre policies – firms would have to make it clear in their communications (including websites) that payment deferrals are available. Firms would have to also brief agents/staff to identify issues where a payment deferral payment might be appropriate so that they can offer these when customers are experience temporary payment difficulties due to coronavirus.
Make it as easy as possible to contact them – the FCA notes that customers should be able to contact firms both online and by phone.
Firms should also provide customers with adequate information to enable them to understand the implications of a payment deferral, including the consequences of accrued interest on future payments and the amount of the final balance. In addition, firms will have to highlight to customers the possible wider implications such as potential knock on effects on insurance, warranties, breakdown cover or MOT.
Monitor reporting at the CRAs – where a firm has not implemented these changes properly which has resulted in a customer missing a payment – a NOC should be filed with the relevant CRAs to remove any adverse entries on the file.
What will firms have to stop?
No Fees or Charges – firms will not be able to charge any fees or charges in connection with a payment deferral.
Not report to the credit reference agencies – use of a payment deferral should not negatively impact a customer’s credit file.
Firms will have to avoid unfair outcomes and will have to give due regard to the unfair relationship requirements in the CCA
PCP Guaranteed Minimum Future Value, PCH Residual Value and other features – when granting a payment deferral or other option for assisting customers affected, a firm may enter into a new agreement with the customer to vary certain parts of the original PCP or PCH agreement. Firms should not by means of such an agreement modify, or seek to unilaterally alter, any aspect of the original agreement in a way that takes advantage of the customer’s necessity, lack of experience or weaker bargaining position or otherwise leads to unfair outcomes.
Firms should have regard to the Consumer Credit Act 1974 (CCA) unfair relationship provisions – in particular, sections 140A(1)(a-c) and 140A(2).
PCP agreements reaching term end during the period this guidance is in force
Difficulty with balloon payments:
Where a customer wishes to retain the vehicle, but does not have funds to cover the balloon payment due to coronavirus related financial difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.
When customers wish to return the vehicle:
Where a customer wishes to return the vehicle, but this is impractical due to the coronavirus situation, firms should inform the customer that they are unable to use the vehicle once the agreement has been terminated or come to an end (if that is the case). The firm should inform the customer of the need to make a Statutory Off Road Notification (SORN) declaration if the customer is the registered keeper of the vehicle and they want to stop taxing and insuring it because it is ‘off the road’.
Where a customer wishes to retain the vehicle, but does not have funds to cover the balloon payment due to coronavirus related financial difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.
Repossessions
Where the customer has the right to use the vehicle, firms should not take steps to terminate the agreement or seek to repossess the vehicle (whether by way of any requisite legal proceedings or otherwise) where the customer is experiencing temporary payment difficulties as a result of circumstances relating to coronavirus and needs use of the vehicle.
Government advice on social distancing and self-isolation should be consulted to establish whether any proposed repossession should go ahead and if so, how it is to be carried out.
When are these measures likely to be implemented?
The FCA intends to publish final guidance by Friday 24 April 2020 with the final measures coming into force shortly after that.