Car finance firms will have to offer customers payment deferrals of up to six months as part of new coronavirus-related measures. But the move, which the regulator claims is designed to help consumers through the Covid-19 crisis, has been met with concern by a finance industry body.
In the spring the Financial Conduct Authority (FCA) confirmed three-month payment holidays for those struggling to pay due to the coronavirus crisis, before extending the measure in the summer. Now, though, the regulator has confirmed six-month deferrals for those yet to apply for a payment holiday. Those who have already been granted a three-month deferral under the FCA’s June guidance will have the opportunity to apply for a second deferral.
Despite the introduction of the new measures, the FCA says it’s important that those who can afford their repayments continue to pay. The payments will need to be made eventually, but the deferral scheme is designed to help consumers facing financial hardship as a result of the Covid-19 pandemic.
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At present, the measures are simply proposals, but the FCA says it will work with trade bodies and lenders “on how to implement these proposals as quickly as possible”. However, the move has been criticised by the Finance and Leasing Association (FLA), which represents finance companies. The organisation says the deferrals should be limited to three months to protect consumers.
“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,” said Stephen Haddrill, director-general of the FLA. “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.
“If HM Treasury and the FCA press ahead with a deferrals policy until the end of March 2021 in spite of these risks, then furlough should also be extended well beyond one month to give more people a realistic chance of being able to better manage their repayments in the interim.”