Payment freezes set to be introduced for payday loans, car loans, rent-to-buy schemes and pawnbrokers

The Financial Conduct Authority (FCA) has announced another proposed package of measures to directly support consumers facing payment difficulties due to coronavirus.

Who will this deal help?

The FCA has proposed for firms to freeze payment on a number of short-term and high-cost credit loans during the coronavirus outbreak.

Those who are struggling to pay car finance and high-cost credit agreements such as payday loans, buy-now-pay-later schemes (BNPL), rent-to-own schemes and pawnbroking, can be granted a payment freeze in the wake of the coronavirus pandemic.

How long would it be in place for?

The FCA expects motor finance firms to provide a three-month payment freeze to customers who are having temporary trouble meeting finance or leasing payments due to coronavirus.

Firms that offer rent-to-own, buy-now-pay-later schemes or pawnbroking agreements in place with customers will also be expected to provide a three-month payment freeze.

Payday loan lenders are expected to implement a one-month interest-free payment freeze once the proposals come into effect.

No car repossesions or selling of pawned items

The FCA has told motor finance firms that they should not take steps to end agreements or repossess vehicles if a customer is experiencing temporary financial difficulties and Pawnbrokers have been advised not to sell items that struggling customers have borrowed against.

With the exception of high-cost short-term credit (payday) loans, the aforementioned firms will be allowed to continue to charge interest during the payment freeze.

But companies have been told not to alter any pre-existing agreements or contracts in an ‘unfair’ way. “We will expect firms to act fairly where terms are adjusted,” the FCA said.

When will it come into effect?

The FCA expects to finalise proposals by Friday, April 24, with them coming into force shortly afterwards.

Customers should speak to the company their loan is with to make arrangements for any freeze after next week.

Christopher Woolard, interim Chief Executive at the FCA, said: “We are very aware of the continued struggle people are facing as a result of the pandemic. “These measures will provide much needed relief to consumers during these difficult times.”