Payday loan and car finance customers will be able to request temporary payment freezes under proposals by the regulator to give more breathing space to those financially affected by Covid-19.
The Financial Conduct Authority (FCA) announced a proposed package of measures to support people facing payment difficulties because of the pandemic.
It wants to hear responses to its suggestions by 5pm on Monday, April 20 and expects to finalise proposals by Friday, April 24, with them coming into force shortly afterwards.
Under the proposed measures, motor finance firms will be expected to provide a three-month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus.
If customers are experiencing temporary financial difficulties due to coronavirus, firms should not take steps to end the agreement or repossess the vehicle.
The FCA is also proposing that payday lending firms should provide a one month interest-free payment freeze to customers facing payment difficulties due to the coronavirus pandemic.
The shorter period reflects both the much shorter length of most loans and, given interest rates tend to be higher than for other high cost credit products, prevents firms from accruing additional interest during the freeze period, the regulator said.
After the end of the freeze, the firm should allow the consumer to pay the deferred payment in an affordable way, whether for example, by a single payment after the end of the term or by a number of smaller instalments.
The FCA is also proposing that firms that enter into rent-to-own, buy-now-pay-later, or pawnbroking agreements will be expected to provide a three-month payment freeze to customers facing payment difficulties due to coronavirus.
If social distancing means that pawnbrokers and rent-to-own firms are unable to redeem, collect or repossess goods, they should not pass on any additional charges or fees to the consumer.
The measures outlined do not prevent firms from providing more favourable forms of assistance to any customer, including a longer payment freeze if appropriate, the regulator said.
Christopher Woolard, interim chief executive at the FCA, said: “We are very aware of the continued struggle people are facing as a result of the pandemic.
“These measures build on the interventions we announced last week, and will provide much needed relief to consumers during these difficult times.
“We have tailored our measures to specific products.
“For most of these proposals, firms and consumers should consider the amount of interest which may build up, and balance this against the need for immediate temporary support.
“If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.”
Gareth Shaw, head of Money at Which?, said: “The coronavirus outbreak has placed significant numbers of people under financial strain, so these measures are a positive step that will provide breathing space for those who need urgent help.
“It’s vital that consumers are given clear information about how they can access this support when it is introduced, and that anyone in financial hardship is aware of the options available to help them get through an incredibly challenging next few months.”