Motor finance expert warns that FCA Coronavirus proposals could leave NHS and other essential workers without cars.
Friday, 24. April 2020
This is a piece written for the press:
Last Friday the FCA issued a consultation document aimed at providing drivers with the most popular forms of finance some respite by forcing the finance providers to allow drivers a 3 month payment holiday.
Monday the 20th was the cutoff for interested parties to make their feelings known to the FCA before they issued their final instructions on the target date of Friday 24th April.
Leading car finance expert Graham Hill welcomed the move, ‘Whilst several funders have already announced that they would be offering drivers reduced payments or holiday periods this is a welcome industry-wide instruction’.
‘Personal contract hire is a much easier product to adjust as it’s a more simple rental product but PCP, by far the most popular consumer car finance product, is more complex as it raises the question that if the contract is extended by 3 months will that affect the optional Guaranteed Minimum Future Value?
‘Also the holiday period accrues interest, how will that be recovered by the finance provider? And given the way that PCP interest is calculated if the contract is only a few months old nearly all of the monthly payment is interest.
The FCA has gone further than recommending a payment holiday they have also proposed a way that PCP providers should deal with cars that end their contracts during lockdown:
Rob here is the complete section. The first part is fine, it’s the second part that causes concern:
PCP agreements reaching term end during the period this guidance is in force
Where a customer wishes to retain the vehicle, but does not have funds to cover the balloon payment due to coronavirus related financial difficulties, firms should work with the customer to find an appropriate solution. Given the increased potential for disparity between the balloon payment and the value of the vehicle in the current climate, firms should ensure that solutions do not lead to unfair outcomes. For example, refinancing the balloon payment might not be appropriate in the circumstances.
Where a customer wishes to return the vehicle, but this is impractical due to the coronavirus situation, firms should inform the customer that they are unable to use the vehicle once the agreement has been terminated or come to an end (if that is the case). The firm should inform the customer of the need to make a Statutory Off Road Notification (SORN) declaration if the customer is the registered keeper of the vehicle and they want to stop taxing and insuring it because it is ‘off the road’.
If the customer doesn’t want to buy the car he would normally have two choices, either use the car as a part exchange if there is equity in the car or simply hand the car back.
According to Hill, ‘With car dealerships on lockdown it is not possible for drivers to negotiate a part exchange and given the collapse of used cars it’s unlikely that there would be any equity in the car anyway.’
‘So with most drivers that are at the end of their PCP agreements with little choice but to hand the car back they are potentially looking at a situation that could leave them without a car unless the FCA adjusts its proposals, i.e. that drivers should be informed by the funder that they are no longer able to use the car.’
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‘This could result in those who are dependent on their cars such as emergency service workers, NHS workers, doctors, midwives, care home workers and other essential workers being without their cars. This must not happen.’
The FCA have also recommended that if a driver reaches the end of his PCP agreement that he is told not only to stop driving it but also, if the car can be stored off-road on a driveway or private land, to file with the DVLA a Statutory Off Road Notice (SORN) that will enable the driver to cancel his insurance and stop paying the car tax.
According to Hill that is a highly dangerous recommendation. As he points out, ‘Without insurance what happens if the car is stolen off the drive or the land it’s parked on or damaged in any way? There has also been an increase in theft of Caralytic Converters from cars because of their precious metal content. If any of this happens without insurance drivers could be severely out of pocket. The FCA really needs to reconsider this proposal’
‘It also raises a more fundamental question. If the car is parked on the road the driver will have to keep the car taxed and insured even though he has been told he cannot drive it per the FCA instructions. But if he has told the finance company that he wants to hand the car back under the terms of the agreement if the car cannot be collected the tax and insurance should be the responsibility of the finance company as they are the legal owners of the car.
‘As the driver has been told he cannot drive the car he cannot be seen to be the keeper so again the responsibility rests on the shoulders of the finance provider. The instructions – as they are could have some very serious consequences.
Asked about the number of consumers the proposals could affect Hill explained, ‘I have calculated that there could be around 3 million new car PCP’s that are active and therefore could be requesting payment holidays. Used car PCP’s are more difficult to assess but there could be around 3 – 4 million active agreements looking for payment holidays.
‘With regard to PCP’ agreements coming to an end, as collections of end of PCP cars stopped in March, the highest month of the year for registrations, I believe that we could be looking at 450,000 cars coming to the end of their agreements between March and June.’
With the final instructions due out on Friday it is important that we don’t leave PCP customers without their wheels if only to get then to and from their local shops, whilst avoiding as much contact as possible, and keeping them off public transport. By Graham Hill
