Reed Smith Client Alerts

On 17 April 2020, the Financial Conduct Authority (the FCA) released urgent draft temporary guidance for FCA-regulated firms that provide motor finance agreements, high-cost short-term credit and rent-to-own, buy-now pay-later and pawn broking agreements, to permit temporary relief measures for customers facing payment difficulties due to the COVID-19 pandemic. The measures are likely to come into force this Thursday - 23 April.
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Key takeaway points

The latest draft measures focus on the application of Principle 6 of the FCA’s Principles for Business (“a firm must pay due regard to the interests of its customers and treat them fairly”) and primarily cover (i) motor finance and high-cost agreements which include hire purchase agreements, personal contract purchase agreements, conditional sale agreements or other credit agreements used to purchase a vehicle where the creditor is also the supplier (the measures also apply to personal contract hire agreements, but do not apply to credit agreements where they relate to other types of goods, or to agreements for business purposes); (ii) high-cost short-term credit (HCSTC); and (iii) rent-to-own (RTO), buy-now pay-later (BNPL) and pawn broking agreements.

In respect of the guidance on motor finance agreements, RTO, BNPL and pawnbroking agreements, the measures require lenders to offer a payment freeze for up to three months to customers who are experiencing temporary difficulties meeting payments due to the COVID-19 pandemic. Under the guidance on HCSTC, the FCA expects firms to offer a payment deferral for one month to customers facing payment difficulties, and to allow the customer to repay the deferred payment over a period and in an amount that the customer can afford.

The FCA confirms in the draft guidance that these measures do not replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty.

What is a payment deferral

The draft measures provide that where a customer is experiencing temporary financial difficulties due to the coronavirus and wishes to receive a payment deferral, firms should permit the customer to make no payments (or a token payment where zero payment is inapplicable) under their agreement for a specified period without being considered to be in arrears. Other than for HCSTC, firms may continue to charge interest under regulated credit agreements during the deferral period. However, firms should give customers adequate information to enable them to understand the implications of a payment deferral. The FCA expects that regulated firms will not charge the customer any fees in connection with permitting such payment deferral.