HCR Law Events

5 May 2020

FCA advice gives consumers breathing space

More support for consumers has been announced by the Financial Conduct Authority (FCA), following on advice to lenders to defer credit card and overdraft payments. From 27 April, there is a temporary freeze on repayments for those who have entered into motor finance agreements or pawn broking agreements.

What does this mean for consumers?

Consumers who are struggling to meet their repayments for a Personal Contract Purchase or motor finance agreement during this pandemic should be given a three-month payment freeze. If consumers have entered into a ‘buy now pay later’ agreement or ‘rent to own’ agreement, the repayments can also be temporarily frozen for three months.

If a consumer is struggling with the repayments on a High Cost Short Term Credit agreement, such as a payday loan, then they should be given a one-month payment freeze on the repayments. The shorter time period reflects the fact these loans often cover a very short period of time.

If a consumer entered into a pawn broking agreement, then the consumer should be allowed to have the redemption period extended by three months to represent a temporary freeze. During this time the items should not be sold.

What does this mean for companies/pawnbrokers?

As well as providing the temporary freeze on repayments, motor finance companies should not seek to repossess the vehicle during this time. If the consumer wants to buy the vehicle at the end of the temporary freeze period, but they cannot afford the balloon payment due to coronavirus-related payment difficulties, then the company should try to work with the consumer to find an alternative solution.

Companies who have provided short term loans or ‘buy now pay later’ agreements should not seek to alter the contracts or agreements in a way that would be unfair to the consumer. If a consumer is in possession of an item under a ‘rent to own’ agreement which they need during the pandemic, the item should not be reclaimed by the company.

The FCA has also advised that pawnbrokers should not sell items whilst they are in the extended three-month redemption period.

Companies who are providing these loans and agreements need to work with consumers who are struggling to make the repayments and find alternative solutions after the payment freeze ends. This includes deferring payments and interest and arranging smaller payments over a longer period of time. The overall consideration is that consumer must be treated fairly during the financial hardship that has been caused by the pandemic.

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About the Author
Richard Morgan, Partner, Head of Dispute Resolution, Defence, Security and the Forces Sector

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