What are the implications of COVID-19 for consumer finance agreements?
This week, we invited James Marquette, Senior Policy Advisor at the Finance & Leasing Association (FLA) to provide insight into the implications COVID-19 is having on consumer finance agreements, and whether there are likely to be any knock-on effects on PCP and PCH agreements as a result. Click here in case you missed the webinar. In this guest blog, James explains more…
My role at the FLA is to manage its motor finance committees and initiatives. I produce guidance and support to FLA members on a range of policy areas impacting on lenders. Clearly during the current COVID-19 there are still lots of unanswered questions, but I’d like to mention three key points here. I’d also like to point out that we’re still in conversations with other organisations such as the Financial Conduct Authority (FCA) and the DVLA to clarify some outstanding questions, so there will definitely be more updates to come over the next couple of weeks.
1. Finance payment holidays and deferrals
In relation to consumers, the FCA are suggesting that consumers will be entitled to payment holidays. The key thing is that holidays will only be provided where appropriate. Payment holidays can obviously be quite costly for consumers. So, they really are only suitable for those who are suffering a temporary hit to their income but are expected to get back to normal income levels post COVID-19. Where people are unemployed, its going to be difficult for them to get those measures in place, unless they can prove they’ll get back to similar levels of income three or four months down the line. Where payment deferrals aren’t appropriate, there are a number of measures such as waiving interest fees, providing payments plans, token payments or allowing token payments at a lower amount for a certain period. The key thing here is that where payment deferrals are being offered, they have to be sustainable for the consumer. That might result in an extension for some agreements to allow the consumer to pay the extra three months. Another thing to note is that the FCA have said that three months isn’t the limit, so if lenders see fit, they can provide longer payment deferrals. And the final key thing to note, is the way payment deferrals are recorded with credit reference agencies – they shouldn’t be classed as being in arrears. If other forbearance is required thereafter though, then their credit file will be impacted.
2. Vehicle movement during COVID-19
Vehicle movement is another big one in terms of impact on the consumer, for example, where a consumer might have come to the end of their PCP agreement during the crisis, but there’s no one available to come and collect the vehicle. Obviously, dealerships are closed currently, but also a number of delivery agents aren’t operating currently because of the risks of the virus or because they’re accessing government funding schemes and have therefore furloughed their workers. So, there are implications for consumers in terms of taxing and insuring those vehicles. The DVLA and the FCA have both stated that those vehicles should be ‘SORN’ if they’re not being used to remove the tax liability. There are still some uncertainties surrounding this though, so we have passed feedback to the DVLA and the FCA, which we hope will result in that being cleared up soon.
3. Extensions to PCP and PCH agreements
For PCP and PCH agreements that have been extended, is that going to cause future problems where the change cycle is being delayed? I think it’s clear that there will be an impact but at this stage we don’t know quite how big that impact will be. As I mentioned on the webinar, we’re awaiting further guidance from the FCA on the topic of payment deferrals to help clarify some details. I think the general message on all of this is that, please do obviously keep engaged with the lenders that you work with. I know that many of our support teams are there and ready to help throughout the current circumstances.
Missed the webinar? Catch up on demand now.
If you missed the webinar, you can hear from James in more detail, along with hearing fresh insight into consumer attitudes towards purchasing their next vehicle as a result of COVID-19. Plus, hear the latest audience, pricing and lead trends. Click here to watch on demand now.