Motor finance and payday loan support measures proposed

20 April 2020   By Dr Lucy Brown, Editor

Measures to support customers struggling with motor finance, high-cost short-term credit and other credit products proposed by Financial Conduct Authority (FCA).

Payment freezes of three months are expected to be offered to customers experiencing difficulties with their motor finance repayments.

One-month interest-free payment holidays are also being proposed for payday lending customers, while rent-to-own (RTO), buy-now-pay-later (BNPL) and pawnbroking agreements are also covered under the new guidance.

These proposals are undergoing a short consultation period, with measures expected to come into force soon after Friday 24 April.

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Credit: Piotr Swat/

Motor finance support

Motor finance and alternative forms of credit such as payday loans were major absentees in the financial support measures already announced by the FCA and the Government.

Under these new proposals, however, customers experiencing difficulties in paying their motor finance bills due to the ongoing coronavirus crisis can request payment holidays.

Customers will be able to request a three-month payment freeze from their lender and firms will be warned against attempting to end the financial agreement or repossess the vehicle.

In addition, if a customer's Personal Contract Purchase (PCP) ends and they want to keep the vehicle but don't have the money to cover the balloon payment, finance firms will be expected to work with the customer rather than end the agreement outright.

Short term loans

For the payday loan and high-cost short-term credit sector, the FCA is proposing a shorter payment freeze up to one-month interest-free. This shorter period is designed to reflect the shorter contract lengths of these loans.

The FCA proposes this payment freeze should be interest-free as the high interest rates of such credit products are often the most financially crippling element for borrowers.

Lenders will be expected to allow customers to pay the deferred payment at the end of the freeze either through one single payment or a series of smaller payments.

Credit offered through RTO, BNPL and pawnbroking agreements are also covered within the proposed measures. All should offer payment freezes to customers in financial difficulties of three months, along with taking the following steps:

  • If RTO customers need the goods under contract during the guidance period, the firm should not repossess the items
  • If BNPL customers are within the promotional period of their agreement, this period should be extended by the length of the payment period
  • Pawnbrokers should extend the redemption period for an item for the length of the payment freeze, agree to not to serve notice to sell or suspend an order to sell during the payment freeze
  • RTO firms and pawnbrokers are warned that if social distancing impacts their ability to redeem, collect or repossess their goods, additional fees must not be passed on to the customer

For these credit options, lenders will still be able to charge interest, but cases should be dealt with individually if further forbearance is required.

The coronavirus outbreak has already hastened the demise of RTO giant BrightHouse, who collapsed at the end of March due to the trading restrictions brought in by the Government.

Other financial support

These new measures proposed by the FCA are in addition to others announced in recent weeks, including the temporary freezing of repayments on credit card and loans.

That announcement also included £500 interest-free for three months for arranged overdraft customers, a measure sitting alongside many providers' suspension of planned overdraft hikes which were supposed to come into force this month.


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