This guidance applies to regulated firms that issue regulated motor finance agreements. This includes 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 (eg credit sale). It also applies in relation to personal contract hire (PCH) agreements. In addition, this guidance applies to firms that have acquired such agreements.
It does not apply to credit agreements or consumer hire agreements where they relate to other types of goods. Nor does it apply to agreements for business purposes.
This guidance applies in the exceptional circumstances arising out of the coronavirus pandemic (Covid-19) and its impact on the financial situation of motor finance customers. It is not intended to have any relevance in circumstances other than those related to coronavirus.
This guidance sets out our expectation that firms provide, for a temporary period only, exceptional and immediate support to customers facing payment difficulties due to circumstances arising out of coronavirus. It is intended to provide help to those who might be having temporary difficulty in making their finance or leasing payments due to a loss of or reduction in their income (or income of other members of their household) or to those who expect to experience such difficulties.
This guidance applies where customers are already experiencing or reasonably expect to experience temporary payment difficulties as a result of coronavirus. Where a customer was in pre-existing financial difficulty, our existing forbearance rules and guidance in CONC would continue to apply. These would include for example the firm considering suspending, reducing, waiving or cancelling any further interest or charges, deferring payment of arrears or accepting token payments for a reasonable period of time.
We will review this guidance in the next 3 months in the light of developments regarding coronavirus and may revise the guidance if appropriate.
This guidance builds on Principle 6 ('A firm must pay due regard to the interests of its customers and treat them fairly'). It sets out the FCA’s expectations for firms to provide coronavirus related support for customers who are experiencing or reasonably expect to experience temporary payment difficulties at the current time. When implementing this guidance, firms should take account of the particular needs of their vulnerable customers.
The guidance is potentially relevant to enforcement cases and the FCA may take it into account when considering whether it could reasonably have been understood or predicted at the time that the conduct in question fell below the standards required by Principle 6.
Payment deferrals
In this guidance, ‘payment deferral’ means an arrangement under which a firm permits the customer to make no payments (or a token payment not exceeding £1 where firms’ systems will not allow a zero payment) under their agreement for a specified period without being considered to be in arrears. As the customer would not be considered in arrears we would expect firms not to pursue relevant guarantors for payment during a deferral period, in respect of payments deferred under this guidance.
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 of a situation in which a payment deferral may be appropriate is 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 obviously not in customers’ interests, firms should consider both customers’ need for immediate temporary support and the longer-term effects of a payment deferral on the customer’s situation, in particular the customer’s ability to repay any accrued interest once the payment deferral ends, and over what period. The interest rate and remaining term will be among the relevant considerations. For example, a payment deferral would obviously not be in customers’ interests if it would give the firms’ customers a greater overall debt burden compared to other solutions (that might involve reduced or waived interest for example) that could equally meet customers’ needs and that debt burden would be clearly unsustainable.
There is no expectation under this guidance that the firm makes 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. We have disapplied[2] CONC 6.7.18R and 6.7.19R to give effect to this.
Where a 3 month payment deferral is not considered appropriate, firms should without unreasonable delay, offer other ways to provide temporary relief to the customer in accordance with treating the customer fairly. This could include reduced payments or a rescheduled term. This could also include a payment deferral of fewer than 3 months if, for example, the expected loss of income is for a shorter period, or accepting a sum below the normal payment due if, for example, the loss of income is partial.
This 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.
Customers should be able to request a payment deferral at any point after the guidance comes into force for a period of 3 months. This means that a payment deferral could go beyond the point where the 3 month window for requesting a payment deferral expires.
Firms should make clear in their communications, including on their websites, that payment deferrals are available as set out in the circumstances described above. Firms should make it as easy as possible for their customers to contact them both online and by phone. In addition, if, during an interaction between the firm and the customer, the customer provides information suggesting that the customer may be experiencing or could reasonably expect to experience temporary payment difficulties as a result of circumstances relating to coronavirus, the firm should ask whether the customer wishes it to consider granting a payment deferral.
Firms are not prevented from continuing to charge interest under regulated credit agreements during a deferral period. If the customer is unable to resume payments at the end of the payment deferral period because of payment difficulties at that time, they should contact the firm. The firm should work with the customer to resolve these difficulties in advance of payments being missed.
Where a customer, who received a payment deferral, or a different solution for a period where a payment deferral has been deemed not in the customer’s interests, as a result of circumstances relating to coronavirus, is entitled at the end of the period to forbearance under our existing rules, then as part of this, we expect any interest accrued during the relevant period to be waived.
A firm 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.
A customer should have no liability to pay a charge or fee in connection with the permitting of a payment deferral, or a different solution where a payment deferral has been deemed not in the customer’s interests, under this guidance. The exception to this is where interest continues to accrue at the contractual rate but, for operational reasons, the firm levies this as a charge.
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.
The payment deferrals described here should be regarded as being offered in exceptional circumstances outside of the customer’s control. In accordance with the relevant Coronavirus Data Reporting Guidance published by the Credit Reference Agencies in consultation with SCOR, firms should not report a worsening arrears status on the customer’s credit file during the payment deferral period. However, where additional forbearance is required, for example in the form of waived interest and charges, we would expect this to be reflected in the usual manner.
Where customers have been unable to reach timely agreement with firms for a payment deferral because of firms’ operational difficulties and subsequently miss a payment which is reported to their credit file, or where they have entered into a similar temporary payment deferral arrangement with their lender as a result of the coronavirus situation which has resulted in a worsening arrears status being reported, we would expect firms to work with customers and Credit Reference Agencies to ensure that any necessary rectifications are made to credit files to ensure no worsening arrears status is recorded during the payment deferral period. Firms should also ensure no default or arrears charges are levied in relation to payments missed in these circumstances.
PCP Guaranteed Minimum Future Value (GMFV), PCH Residual Value (RV) and other features of these agreements
When granting a payment deferral or other 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 agreement. Firms should not by means of such an agreement modify, or seek to unilaterally alter, any aspect of the original agreement in a way that takes advantage of the customer’s necessity, lack of experience or weaker bargaining position or otherwise leads to unfair outcomes.
For example, firms should not recalculate the GMFV or RV 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.
Firms should have regard to the Consumer Credit Act 1974 (CCA) unfair relationship provisions - in particular, sections 140A(1)(a-c) and 140A(2).
PCP agreements reaching term end during the period this guidance is in force
Where a customer wishes to retain the vehicle, but does not have funds to cover the balloon payment due to coronavirus related financial difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.
Where a customer wishes to return the vehicle, but this is impractical due to the coronavirus situation, firms should inform the customer that they are unable to use the vehicle once the agreement has been terminated or come to an end (if that is the case). The firm should inform the customer of the need to make a Statutory Off Road Notification (SORN) declaration if the customer is the registered keeper of the vehicle and they want to stop taxing and insuring it because it is ‘off the road’.
Repossessions
Where the customer has the right to use the vehicle, firms should not take steps to terminate the agreement or seek to repossess the vehicle (whether by way of any requisite legal proceedings or otherwise) where the customer is experiencing temporary payment difficulties as a result of circumstances relating to coronavirus and needs use of the vehicle.
We consider that seeking to terminate the agreement or commencing or continuing repossession action as described above is very likely to contravene Principle 6 - absent exceptional circumstances (such as a customer requesting that repossession continues).
Government advice on social distancing and self-isolation should be consulted to establish whether any proposed repossession should go ahead and if so, how it is to be carried out.
Firms who have issued hire purchase, conditional sale or other regulated credit agreements should have regard to the CCA unfair relationship provisions, as an unfair relationship can be established from the way in which a firm exercises or enforces their rights under the agreement (see CCA sections 140A(1)(b) and 140A(2)).
Process and next steps
We want to act quickly to protect consumers in these difficult times. We consider that the delay involved in publishing a formal consultation accompanied by a cost benefit analysis would be prejudicial to the interests of consumers. We are therefore not doing so. There is no statutory requirement to prepare a cost benefit analysis in relation to guidance.
We would welcome comments from stakeholders on this draft guidance by 5pm on Monday 20 April. Please send your comments to: [email protected].
Timing
We will aim to publish the final guidance by Friday 24 April 2020, with this coming into force shortly after.
The FCA’s objectives and regulatory principles
The proposals in this guidance support our consumer protection objective and are designed to protect consumers by providing them with temporary support in the light of the current exceptional circumstances arising out of coronavirus.
Equality and Diversity
We are required under the Equality Act 2010 to ‘have due regard’ to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited by or under the Act, advance equality of opportunity between persons who share a relevant protected characteristic and those who do not, and to foster good relations between people who share a protected characteristic and those who do not.
As part of this, we ensure the equality and diversity implications of any new policy proposals are considered. We do not consider this guidance will adversely affect consumers with protected characteristics.