The FCA has recently issued temporary draft guidance for firms that issue regulated motor finance agreements in the wake of the COVID-19 virus and its impact on the financial situation of motor finance customers.
Agreements in scope of the guidance will include hire purchase agreements (such as personal contract purchase (“PCP”) agreements), conditional sale agreements or other credit agreements used to purchase a vehicle where the creditor is also the supplier (e.g., credit sale). It will also apply in relation to personal contract hire (“PCH”) agreements and it will extend to firms that have acquired such agreements.
The FCA expects to publish its final guidance on 24 April.
The following sets out the key aspects of the guidance:
1. Payment Deferrals
- Where a customer is already experiencing or reasonably expects to experience temporary payment difficulties as a result of circumstances relating to coronavirus, and wishes to receive a payment deferral, a firm should grant the customer a payment deferral for 3 months unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so. An example where payment deferral may be appropriate includes where there is or will be a temporary reduction in household income that would have otherwise been used to make finance or leasing payments.
- In determining whether a 3 month payment deferral is not in customers’ interests, firms will need to consider both customers’ need for immediate temporary support and the longer-term effects of a payment deferral on the customer’s situation. Interest rate and remaining term will be among the relevant considerations.
- There is no expectation from the FCA that a firm should make enquiries with each customer to determine the circumstances surrounding a request for a payment deferral, or whether this is not in the customer’s interests. The FCA has disapplied CONC 6.7.18R and 6.7.19R to give effect to this.
- In order to meet the firms treating customer fairly obligations, firms should, where a 3 month payment deferral is not considered appropriate, offer other ways to provide temporary relief to the customer. This could include reduced payments or a rescheduled term. The guidance does not prevent firms from providing more favourable forms of assistance to any customer including a longer payment deferral if deemed appropriate. In considering longer payment deferrals, firms should consider the customer impact of depreciating asset values.
- Firms will be expected to make clear in their communications, including on their websites, that payment deferrals are available, making it as easy as possible for their customers to contact them both online and by phone.
- Firms should give customers adequate information to enable them to understand the implications of a payment deferral. For example, for a regulated credit agreement, this would include the consequences of interest that is accrued during this period and its effect on the balance due under the agreement and on future payments. Firms will not be prevented from continuing to charge interest under regulated credit agreements during a deferral period.
- Where a term is being extended, firms should bring to the attention of the customer the need to consider wider implications of the extension – such as potential knock-on effects on insurance, warranties, breakdown cover or MOT.
2. Personal contract hire agreements
- Where granting a payment deferral or another option for assisting customers affected by coronavirus, a firm may enter into a new agreement with the customer to vary certain parts of the original PCP or PCH contract.
- Firms should not seek to unilaterally alter, any aspect of the original contract in a way that takes advantage of the customer’s necessity, lack of experience or weaker bargaining position or otherwise leads to unfair outcomes.
- The FCA also makes it clear that firms should not recalculate the residual value in a way that is based on temporarily depressed market conditions due to the effect of coronavirus in an attempt to recover more of the original car value through the periodic payments.
- Where a customer is facing temporary financial difficulties as a result of the pandemic and needs to use the vehicle, firms should not seek to terminate the agreement, nor repossess the vehicle. Government advice on social distancing should be considered when considering whether any repossession should take place.