The Financial Conduct Authority (FCA) has proposed changing the rules surrounding car repossessions during the first quarter of 2021. Were it to come into force, the new guidance would allow lenders to repossess vehicles after January 31, but only as a “last resort”.

Under the current FCA guidance, firms should “generally not enforce repossessions” under the agreement a customer needs before 31 January 2021. Until that date, repossessions can only take place in “exceptional circumstances”, such as at the request of the customer.

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The proposed rule change would see repossessions permitted after January 31, although the FCA will suggest repossessions only take place as a last resort, and then only when certain criteria have been met. Under the new guidance, repossessions would have to comply with government public health guidelines and regulations, such as those on social distancing and shielding, and firms would be expected to consider the impact on customers who may be vulnerable when deciding whether repossession of vehicles is appropriate.

The FCA is inviting comments on the draft guidance, which should be submitted by 10am on Monday, January 18, 2021. Should there be no serious objections warranting changes to the proposals, the new rules will come into force on January 31.

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“For customers who remain in payment difficulties under a relevant consumer credit agreement, continuing to restrict repossessions may not be in their interests,” said an FCA statement. “The shorter terms and higher interest rates on these agreements, combined with the depreciating value of the goods or vehicles, means that they could end up owing more in the long term if repossessions are prevented.

“Our approach, therefore, takes appropriate account of the risks to customers of further asset depreciation, whilst providing appropriate protections by ensuring that firms repossess only as a last resort and also consider the impact of repossession action on those who are vulnerable, as well as following relevant government public health guidelines and regulations when undertaking repossession action."

Adrian Dally, the head of motor finance at the Finance and Leasing Association (FLA), said the news would be welcomed by lenders.

“This is a welcome move as it allows lenders and consumers to decide together on the best outcome," he said. "If a customer still needs their vehicle due to vulnerability, lenders will of course take that into consideration, but where a customer’s circumstances have changed so that they do not need their vehicle any longer and repossession is the best option, it is absolutely right that lenders can now offer that solution.”