It’s a complex set of challenges, but as the FCA brings out temporary measures to support during the near term, motor finance providers need to also keep one eye on the longer term to ensure customer outcomes are managed appropriately, says Tracey Roberts, Debt Management expert at Capita.
In the automotive industry, motor finance, like any form of lending, is regulated by the Financial Conduct Authority. With 9 out of 10 new cars being funded from some form of finance plan, there has been real growth in the number of people taking out a Personal Contract Purchase as a way of financing their new car.
This type of finance had caused the FCA to undertake a recent review, due to concerns raised around whether consumers had received sufficient information to make an informed choice as to the right type of plan for their circumstances. This has been further compounded by Covid-19 which has caused the FCA to refocus their actions around the here and now problem of issuing temporary guidance to support customers who are facing difficulties on making payments due to the coronavirus pandemic.
Alongside other temporary measures such as payment holidays for mortgages and loans, the FCA has now issued guidance on how motor finance should be supporting affected customers, especially those who are in vulnerable situations. The new guidance allows for payment holidays of three months to give customers the opportunity to defer payments for a short period of time until the temporary reduction of income is restored.
Critically, the onus is on firms to make the decision around whether payment deferrals are in their customers' best interests.
For an industry sector already under scrutiny, it’s inevitable that motor finance firms will be nervous about making this judgement to ensure they can retrospectively evidence one of the FCA’s key principles of “treating customers fairly”. The key point here is whether the problem has been caused by Covid-19 and that it is seen as a temporary issue. It may be a mistake, for example, for firms to offer this to customers who were already experiencing difficulties and where a more specific solution to arrears should be considered.
The Finance and Leasing Association (FLA), which represents the credit arms of the car manufacturers as well as the banks, said: “It’s early days in terms of quantifying the impact on arrears, but the number of forbearance requests has grown significantly in recent weeks.”
Firms also need to ensure that communications are clear around wider impacts on interest and future payments due to any deferment or extension of finance terms. Add in the difficulties of balloon payments being due during the crisis period then this further compounds the level of complexity that firms will face when trying to do the right thing by their customers.