Finance houses will soon ramp up help for customers struggling to pay their loans and motor finance contracts during the ongoing coronavirus crisis.
Temporary measures for loans have been confirmed today by The Financial Conduct Authority, to give regulated firms the flexibility to provide emergency relief to those facing payment difficulties.
And more measures, specific to motor finance including leasing, are to be announced by the FCA next week.
Banks and finance houses are now expected to offer a temporary payment freeze on loans and credit cards for up to three months, for those consumers negatively impacted by coronavirus.
They must also ensure those who use this measure will not have their credit file affected.
And banks have been set new measures regarding customers’ overdraft facilities.
The rule changes will be in force from today and the full range of measures will apply by next Tuesday (April 14).
Christopher Woolard, interim chief executive at the FCA, said: “We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic. The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time.
“The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.
“Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.
“We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week.”
The FCA announced plans last week to enable finance companies to support their customers left in financial distress by the coronavirus crisis, which has led to many workers' incomes being reduced through furloughing or voluntary steps after businesses deemed non-essential in the crisis were forced to halt trading.
In response to the consultation, the guidance now includes clarification on which products are in scope. In particular, the FCA are confirming that the following products are covered: guarantor loans, logbook loans, home collected credit, a loan issued by Community Development Finance Institution and some loans issued by credit unions, but only where these are regulated. The guidance also applies to firms which have acquired such loans.
It said these measures won’t replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty. Consumers in financial difficulty should contact the Money Advice Service (MAS) for further guidance.
The FCA will keep this guidance under review.
The Finance And Leasing Association has has today called on the Government and the Bank of England to take urgent action to support the non-bank lending market.
Stephen Haddrill, FLA director general, said: “The asset, consumer and motor finance markets play a significant role in supporting businesses and households across all sectors of the economy.
"We have welcomed the financial support schemes that the Government and Bank of England have put in place so far, but urgent action is now needed to ensure that non-bank lenders are able to continue to serve customers, both through new lending and forbearance.
“Non-bank lenders rely heavily on the capital markets and bank funding, which are essentially closed to them. Support needs to be provided to non-bank lenders to help them deal with the huge cashflow drain from forbearance, with Covid-related requests growing by more than 1000% in the week commencing 16 March, followed by a further 249% increase the following week.
“This sector needs urgent Government help to ensure that it is still in a position to lend to individuals and businesses when the current market disruption ends, because without their input, the UK’s economic recovery will be much slower.”