Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Law360, London (January 13, 2021, 12:24 PM GMT) -- The finance watchdog said on Wednesday that it will extend a ban on mortgage repossessions until April to reflect the worsening state of the COVID-19 crisis, adding that lenders will be able to resume repossessing cars and other goods from February.
The Financial Conduct Authority said it will push back the planned end date on a ban on lenders taking possession of the homes of consumers who are in financial distress as a result of the coronavirus outbreak. The prohibition had been due to end on Jan. 31 but now will continue until at least April.
But the FCA said it will not extend a similar ban on the recovery of the cars and other consumer goods of borrowers who are failing to make repayments. Lenders will be able to start taking back goods in cases where buyers have defaulted on payments from the end of January.
"This approach takes account of the worsening coronavirus situation and the government's tighter coronavirus-related restrictions, which mean that consumers could experience significant harm if forced to move home at this time as a result of repossession proceedings," the watchdog said.
The regulator added that its decision to allow repossession of goods to go ahead "reflects the different risks and harms that customers with goods or vehicles on credit are likely to face compared to those who are at risk of losing their home."
The FCA said that buyers who have a consumer credit agreement and are struggling to make repayments might be better off having the item repossessed.
"The shorter terms and higher interest rates on these agreements, combined with the depreciating value of the goods or vehicles, means that they could end up owing more in the long term if repossessions are prevented," it said.
But the watchdog added that businesses should recover consumer goods only as a last resort and only if the process can comply with government rules such as shielding and social distancing. Lenders must also consider the needs of particularly vulnerable customers when making decisions about repossessions, the FCA said.
The finance regulator said in October that that the estimated number of British consumers who have fallen into financial trouble has risen by 2 million since the onset of the COVID-19 crisis. It urged those households to turn to their lenders for help.
An FCA study in 2020 found that about 12 million people in Britain have so-called low financial resilience, which means they struggle to pay bills or make loan payments. Two million of them have become newly financially vulnerable since February last year. The regulator based its estimates on a survey of 7,000 people in July.
The watchdog told banks in April to offer three-month payment breaks to customers who fell ill or lost their jobs during the COVID-19 crisis, and extended the measure until the end of October. The payment deferrals did not affect a consumer's credit file.
The FCA said in November that borrowers struggling to repay credit card debt, motor finance and similar bills because of the health crisis will be given more time to defer payments.
Consumers wanting to apply for a deferral on their debt payments for the first time have until March this year to do so. They will be able after that date to extend existing deferrals until the end of July, the FCA said. The same deadlines will apply for consumers seeking a further deferral of payments.
--Additional reporting by Najiyya Budaly and Irene Madongo. Editing by Ed Harris.
For a reprint of this article, please contact firstname.lastname@example.org.