The motor finance sector could need government “help” to provide assistance to customers struggling because of the coronavirus pandemic, a financiers’ group has said. The Finance and Leasing Association (FLA) said the industry would need support if lenders cannot enforce repayments for some time.
This statement follows an announcement from the Financial Conduct Authority (FCA), which confirmed motor finance customers facing financial hardship because of the coronavirus pandemic would offer a three-month “payment freeze”. During these freezes, the FCA says the finance firm “should not take steps to end the agreement or repossess the vehicle”.
More on car finance:
At the same time, the FCA said firms would be barred from changing customers’ agreements in “unfair” ways. For example, the organisation says lenders should not try to recalculate personal contract purchase (PCP) balloon payments based on a temporary depreciation of car prices caused by the coronavirus situation.
And for those who want to keep their car at the end of a PCP deal, but can’t afford it because of “coronavirus-related payment difficulties”, the FCA has said firms should work with customers to find an appropriate solution. However, the FCA has warned that firms’ solutions should not lead to “unfair” outcomes for consumers.
Now, the FLA has said lenders have already introduced these systems since the Covid-19 outbreak began. However, if the economic impacts of the lockdown continue to cause issues for consumers, the organisation says a long period of forebearance - lenders not chasing customers for money - could mean financiers themselves need support.
Adrian Dally, the head of motor finance at the Finance and Leasing Association, said lenders were “aware” of the problems faced by consumers, but the industry could not sustain the current level of forebearance without the government stepping in.
“The approach is essentially what motor finance lenders have been providing to their customers since the beginning of the coronavirus crisis,” he said. “Every lender is aware of the need to help customers whose income has been disrupted, but for this level of forbearance to be sustained, the industry itself will need some help from the government.”
The finance sector is an important part of the motor industry, with figures from the FLA showing the new car finance market was worth £19.6 billion in 2019, with more than 933,000 private customers using finance to acquire new cars. As a result, finance deals accounted for 92 percent of all private new car acquisitions last year.