Please note: The advice contained in this blog is correct as of 22/04/20. Due to the ongoing nature of the COVID-19 outbreak, advice is subject to change so we would always advise you speak with a solicitor for specific advice.

The Financial Conduct Authority (FCA) announced on Friday another proposed package of measures to directly support consumers who face payment difficulties due to COVID-19.

The range of temporary measures announced covers specifically motor finance and very high cost credit agreements, which include Pay Day lending. The proposals also cover Buy Now Pay Later (BNPL), Rent to Own (RTO) and Pawn Broking.

Motor Finance

The FCA expects finance companies to allow a three month payment freeze to customers who are having temporary difficulty meeting finance or leasing payments due to COVID-19. Specifically, the FCA advises that firms should not take steps to end the agreement or repossess the vehicle. Also, where a customer wants to keep a vehicle at the end of their PCP agreement and is unable to fund the balloon payment due to COVID-19 related financial difficulties then the finance company should work with the customer to find an appropriate solution. There is no more specific guidance in relation to this but financial firms are bound by a commitment to ‘treat customers fairly’ and the spirit of this should be adhered to in this situation.

Pay Day Lending

The FCA announced on Friday that the firms that provide short term credit agreements (Pay Day Lending) will be expected to provide a one month interest free payment freeze to customers facing payment difficulties due to the virus. There is only a one month freeze in this case as this is to reflect the shorter length of loan contract with this product. After the end of the freeze, the firm should allow the customer to pay the deferred payment in an affordable way. This could be by one single payment after the end of the term or by a number of smaller installments.

Other Credit Products

The FCA are proposing that firms that enter into RTO, BNPL or pawn broking agreements will be expected to provide a three month payment freeze to customers who are facing payment difficulties due to the virus.

More information on these latest proposals can be found on the FCA website.

At the moment I am receiving a lot of enquiries from clients who have had their income reduced or stopped due to COVID-19. The first part of the advice will invariably be to speak to creditors both secured and unsecured to arrange a payment holiday, if possible. This will allow some breathing space and further debt and insolvency advice can be given at a later date if needed. This will also allow time for, hopefully, life to return to normal with the economy and jobs and, in a lot of cases, the loan and credit agreements can resume after the debtor has returned to work or their income has increased.

Most people are generally aware that their mortgage payments can be deferred for three months if the householder has an income downturn due to COVID-19. This doesn’t mean that the householder will pay any less in relation to their secured loan; it simply means that the payments and interest are recovered at a later stage. The mortgage may be increased after the payment holiday has ended so the mortgage term stays the same but the monthly payments increase slightly to include the three month lost payments. The Bank however may agree with the householder that the mortgage term will be extended by three months. It is important to speak to or contact the Bank to agree a method to repay the missed payments.

Similarly, personal loan payments and credit card payments can be deferred via a three month payment holiday and this will work in a similar way. There will be no interest or ‘debt forgiveness’, the payments will simply recommence in three months time with the added interest.

No doubt these are strange and difficult times which are exacerbated by potential problem debt. What I would say is in the first instance always speak to creditors, there is considerable understanding by the banks with regard to people’s circumstances at this time. It is crucial that the Banks are contacted and payment holidays are agreed however, rather than simply stopping payment which will be recorded as a default on your credit file.

Of course I am available to advise in relation to any of these matters and how best to deal with your finances during the lockdown. I am available on 07960 077 252 and mark.skinner@farleys.com.