'Fair treatment' focus of coronavirus consumer credit guidance

The regulator has published temporary guidance for motor finance providers; RTO, buy-now-pay-later (BNPL) and pawnbroking agreements; and high cost short term credit lenders, including 'payday' lenders. The guidance, which comes into force on 27 April, was finalised following a week-long consultation period, and will be in place for at least three months.

The measures set out in the guidance include a three-month payment freeze for motor finance, BNPL, RTO and pawnbroking agreements. Payments on high-cost short term credit agreements will be frozen for one month, during which no additional interest will accumulate.

Where motor finance customers are struggling to make payments, providers should not take steps to end the agreement or repossess the vehicle, particularly where the customer needs the use of the vehicle, according to the guidance. Providers should also ensure that any changes to these agreements are fair, particularly around the 'balloon' payments due at the end of the agreement where the customer wishes to keep the vehicle.

Providers should work with their customers to find an appropriate solution where the customer can no longer afford the balloon payment due to the impact of the pandemic, according to the guidance.

Consumer credit expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said that while elements of the motor finance provider guidance mirrored that provided to other consumer credit firms, other aspects were "particular to the motor finance industry".

"Firms need to be very careful to ensure that they don't use a customer's weaker bargaining position at this time, or temporarily depressed market conditions, to gain an advantage over inexperienced customers," he said.

"The fact that the FCA expressly flags sections 104A(1)(a-c) and 140A(2) of the Consumer Credit Act is a clear shot across the bow to firms. Claims management companies will have noted this, and will undoubtedly pursue claims against firms for breach of these sections if there is even a suggestion of unfair outcomes for customers," he said.

While interest will continue to build up where payment freezes are granted to motor finance, BNPL, RTO and pawnbroking customers, the FCA has warned providers to monitor this. It said that a payment freeze would not be in the best interests of some customers, who may instead need an alternative solution such as waiving interest or rescheduling the term of the loan.

Providers should work with customers who may continue to struggle to make payments once the payment freeze is over to find alternative solutions in advance of payments being missed, the FCA said.

Many product providers have already offered customers payment deferrals under the FCA's existing forbearance rules. The FCA has already published temporary guidance on the treatment of consumers struggling with mortgage, loan and credit card repayments due to the pandemic.

Financial regulation expert David Hamilton of Pinsent Masons said: "Although the FCA's guidance is exactly that, and firms have a measure of flexibility in offering respite for customers suffering exceptional financial difficulty, its provisions are nevertheless grounded in the obligation to treat customers fairly, FCA Principle 6".

"It is, in that context, notable that the FCA expressly stated in the consultation that the guidance would be particularly relevant to enforcement cases, with the regulator taking it into account when assessing a firm's treatment of distressed customers, including whether the treatment fell below the standards required by Principle 6. The FCA has a history of appealing to regulatory, or even industry, guidance in enforcement cases, judging conduct against the standards of market practice they enshrine. This guidance is therefore not simply a collection of suggestions: it does have force, and firms will need to pay careful heed to it in ensuring that customers are treated fairly in light of the Covid-19 crisis," he said.