The financial regulator has said car finance companies must offer a three-month payment freeze and should not repossess vehicles if customers are facing financial difficulties because of the coronavirus.
The Financial Conduct Authority also said payday loan firms must give customers a one-month interest payment holiday, as part of emergency measures to help households hit by the coronavirus outbreak.
In addition, consumers with other credit products – such as buy-now-pay-later, rent-to-own and pawnbroking agreements – will also be allowed three-month payment freezes if they face temporary financial difficulties.
The measures, which would usually require a lengthy consultation, are expected to come into force as soon as 24 April.
“We are very aware of the continued struggle people are facing as a result of the pandemic,” said Christopher Woolard, the interim chief executive at the FCA. “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. These measures will provide much-needed relief to consumers during these difficult times.”
The FCA said motor finance firms should not take steps to end agreements, repossess vehicles or change contracts “in a way that is unfair”.
Examples include using the temporary drop in car prices caused by the virus lockdown to recalculate “balloon payments” at the end of a contract.
There are growing concerns that some consumers in the UK’s £75bn car loan market will not be able to cover their monthly vehicle repayments. The UK’s car loan market includes 6.5m vehicles financed through leasing deals.
The most common car purchase method is a personal contract plan, known as a PCP, where a buyer pays a deposit and then rents the vehicle for two to three years at a monthly cost, typically about £250.
The measures around payday loans will stop lenders accruing additional interest on loans during the one-month freeze period.
“After the end of the freeze period, the firm should allow consumers to pay the deferred payment in an affordable way,” the FCA said. “Whether, for example, by one single payment or by a number of smaller instalments.”
There was also some welcome news for savers as National Savings & Investments cancelled plans to cut interest on variable rate products and to make its premium bonds prize pot less generous.
The Treasury-backed institution, which has 25 million customers, had planned to reduce rates by up to 0.45 percentage points, and to reduce the odds of winning a premium bonds prize from 24,500 to 1 to 26,000 to 1.
However, it said the changes, due to come into effect in May, would not now be implemented to “support savers during the coronavirus pandemic” and that customers should ignore any notifications they receive.
Cuts to fixed-rate accounts will still go ahead. These will reduce interest rates on NS&I’s guaranteed income and growth bonds by up to 0.40 percentage points.