New plans for six-month car finance payment holiday

The UK’s finance watchdog is considering allowing motorists a six-month break on car finance payments as parts of the country face new lockdown restrictions.

The Financial Conduct Authority (FCA) plans to change its guidance to lenders of personal credit, including car finance, telling them to offer struggling customers a temporary payment freeze.

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It says the move is in response to the latest government restrictions which could leave some credit customers struggling to meet their payments.

It is the third such payment holiday proposed by the FCA since the Covid outbreak began and goes further than previous offers. In April it announced that lenders would have to offer a freeze of up to three-months for customers who were facing financial hardship. Then in July, it said that customers still facing difficulties should be offered an extension of up to three more months.

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It also implemented a ban on repossessions and stopped lenders ending an agreement early if the customer was in difficulty due to the outbreak and required the use of the vehicle.

Now, it has said it will propose a new freeze of up to six months for new customers and those who have already benefited from July’s extension.

In a statement, the FCA said: “To support those financially affected by coronavirus, we will propose that consumer credit customers who have not yet had a payment deferral under our July guidance can request one. This could last for up to six months unless it is obviously not in the customer’s interests. Under our proposals borrowers who are currently benefitting from a first payment deferral under our July guidance would be able to apply for a second deferral.”

However, lenders have warned that offering another six months’ deferral could leave some people in even worse circumstances when the period ends.

Stephen Haddrill, director general of the Finance and Leasing Association, said: “Lenders are committed to supporting customers in financial difficulty and it is vital that this support is provided in a way that best serves their borrowers’ interests. This is best achieved under existing FCA rules that require lenders to assess their customer’s position carefully. Giving borrowers the impression that a six-month deferral is always the right answer is dangerous. It could leave people with unsustainable debts that they may struggle to repay.

“The FCA should limit its guidance on payment deferrals to three months at this stage as it did in March, so that there can be a full review of the policy by the FCA, and of individual circumstances by lenders before any extension. Without this, some people will continue deferring payments and accruing debt to their extreme detriment.”