Car finance and high-cost credit payment holidays set to be extended

Back in April, the Financial Conduct Authority (FCA) told firms they must give a three-month payment holiday to customers who, due to coronavirus, were struggling to make payments on car finance or rent-to-own, buy-now-pay-later or pawnbroking agreements, though interest would continue to rack up while payments were deferred.

Now the regulator has proposed that customers who've already taken up support and are still experiencing payment difficulties should be offered a further payment deferral or reduction for the next three months, while those who've yet to request a payment holiday will have until 31 October 2020 to apply for one.

In April, the FCA also told payday loan firms to give struggling customers a one-month interest-free payment holiday. Today, it said any such customers who are still facing difficulties should be offered support in accordance with the usual rules on forbearance – but stopped short of proposing a new payment holiday or other specific measures as a result of the pandemic.

The new measures announced by the FCA today are still proposals. They will be rapidly consulted on – with the consultation due to end at 5pm on Monday (6 July) – and the FCA says it expects them to be confirmed shortly afterwards.

See our Coronavirus Finance & Bills Help guide for more info on the help available when paying bills and debts during the coronavirus pandemic.

What further help will those with car finance get?

Car finance lenders may offer help over and above what's required by the FCA, but here's what the regulator has proposed should happen as a minimum:

• Customers who've already taken a payment holiday should be offered an extension of up to three months if they're still struggling due to coronavirus. Lenders can also offer to reduce payments to an affordable level for up to three months as an alternative. Lenders must contact customers at the end of their first payment freeze to find out if they can resume payments – however, any extension of your payment holiday won't be automatic, so you'll need to ask for help if you need it.

  Interest will continue to accrue on loans during any payment freeze, and in some cases the interest rate can be hefty – so only consider doing this if you really need it.

  As is already the case, it'll be up to individual firms to decide whether your loan's term will be extended as a result of a payment freeze, or if you could be asked to make higher payments once the freeze is over. So make sure you check all the implications of taking a payment freeze before you make any decisions.

• Customers who've not yet requested a payment holiday should have a further three months to ask for one. So you must request one by 31 October 2020.

• Lenders now shouldn't be able to repossess a vehicle if a customer's struggling due to coronavirus until 31 October 2020. This measure is already in place for car finance customers who are facing temporary payment difficulties as a result of coronavirus and need their vehicles – the FCA now proposes to extend it by three months.

What further help will payday loan customers get?

In April, payday loan firms were required to offer struggling customers a one-month payment holiday – and unlike the payment holidays offered to car finance and other high-cost credit customers, this was interest-free.

However, the FCA hasn't proposed any further payment holidays or other specific measures to help those with payday loans in its latest announcement. The regulator said that if customers are experiencing difficulties, payday lenders "should be providing a range of support – including formal forbearance – in accordance with the FCA Handbook".

What further help will those with other high-cost credit get?

The FCA has proposed new measures to help those with other high-cost credit agreements who are still struggling due to coronavirus, including:

• Buy-now-pay-later customers. If you've already had a payment holiday, you should be able to extend it by up to three months, or reduce payments over that period. If you've not had a payment holiday, you should have until 31 October 2020 to request one.

  Where a buy-now-pay-later loan is within a promotional period, this would involve getting an additional extension to that period. However, if interest is being charged it would continue to accrue during the payment holiday – so you'd need to weigh up carefully whether you really need to freeze payments.

• Rent-to-own customers. If you've already had a payment holiday, you should be able to extend it by up to three months, or reduce payments over that period. If you've not had a payment holiday already, you should be able to request one until 31 October 2020. However, interest would continue to rack up during the freeze, so you should only consider this if you really need it.

  The FCA's proposed lenders shouldn't be able to repossess items from customers who are facing temporary payment difficulties due to coronavirus and need their goods until 31 October 2020.

• Pawnbroking customers. Again, if you've already had a payment holiday, you should be able to extend it by up to three months, or reduce payments over that period. Where the loan is within the redemption period, this would mean firms extending that period for up to three months, agreeing not to sell or suspending the sale of an item for up to three months if the redemption period has already finished.

Who's eligible for a payment freeze and will it affect credit files?

These rules would only apply to customers whose financial difficulties have been caused by the coronavirus pandemic. You'll also need to ask for help – payment holidays and payment holiday extensions won't be automatic.

If you're already struggling financially for unrelated reasons, you could be offered other forms of 'forbearance' (tolerance and help) under existing rules – which could include reducing or cancelling interest charges, or delaying the payment of arrears.

Firms won't be expected to investigate why you're asking for a payment holiday or payment holiday extension, though they could decide not to give you one if this would clearly be against your interests.

Payment holidays and payment reductions won't result in missed payments and defaults being reported on your credit file. But lenders can often use bank statements or Open Banking data to see that you've taken a payment holiday, and they are allowed to use that information as part of their credit checking process if you apply for new credit in future.

What does the FCA say?

Christopher Woolard, interim chief executive at the FCA, said: "It is vital that people facing temporary payment difficulties because of the impact of coronavirus get the assistance they need.

"For those who have already taken a payment freeze and can afford to start making payments, even partially, it is in their best interest to do so, but for those that need help it will be there."