FCA Confirms Payment Freeze For High-Cost Credit

By Lucia Osborne-Crowley
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Law360, London (April 24, 2020, 12:08 PM BST) -- Britain's financial watchdog confirmed on Friday that it is introducing new rules to force banks and lenders to freeze payments and interest on high-cost credit products such as payday loans in a move to support consumers amid the COVID-19 outbreak.

The Financial Conduct Authority has published new temporary measures that freeze payments on car finance, rent-to-own contracts and buy-now-pay-later and freezing payments as well as interest for payday loans.

The measures, which come into force on April 27, were drafted to help consumers who are struggling to make repayments during the coronavirus crisis. The outbreak has killed more than 180,000 people worldwide.

"We have worked at pace to introduce temporary financial relief tailored for a range of specific credit products," Christopher Woolard, interim chief executive at the FCA, said. "Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments."

Lenders will have to provide a three-month payment freeze on car finance contracts to customers struggling to pay. They must also allow customers to continue using the car if they need to during the crisis and should not take steps to end the contract or take back the vehicle.

Businesses must freeze interest as well as payments for one month for customers with payday loans or other short-term, high-cost credit products. The FCA emphasized that no interest should accrue on any of these loans during the payment freeze.

Providers of high-cost credit should also use the one-month payment freeze to contact their customers and find out whether they will be able to resume payments at the end of the freeze.

Other credit products including pawnbroking, rent-to-own contracts and buy-now-pay-later contracts will also be subject to a three-month payment freeze, the watchdog said.

Firms should also not take possession of any items on a rent-to-own contract during the crisis, and should not charge fees for customers who cannot make payments or collect goods because of social distancing rules.

Lenders should consider other alternatives, such as rescheduling the repayment of the loan, if a payment freeze is not in the best interest of the consumer.

The rules build on measures introduced by the FCA earlier this month, which encouraged banks to introduce payment freezes for customers struggling to pay off credit cards and loans during the pandemic.

They include freezes of up to three months for customers who have fallen ill, been laid off or furloughed.

--Additional reporting by Najiyya Budaly. Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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