Martin Lewis clarifies ‘mystifying’ payment holiday rules for consumer credit – be aware

Martin Lewis discusses car finance payment holidays

Martin Lewis provided consumers with advice on- how they could save money with their car insurance, power of attorney costs and barclaycard dealings yesterday but he also made time for live questions. Sue wrote in and detailed her car financing company had denied her holiday payment request.

She detailed the company argued they are not offering the option as they have not been instructed to do so by the FCA and Martin expressed concern in his response: “I find that very mystifying.

“Until March 31, the FCA has said that to treat customers fairly, if people need coronavirus related payment holidays on car finance, then up to six months is available in three months chunks.

“Now they can refuse it if they think it isn’t appropriate and the best thing for you, but that’s not what they’re saying, they’re saying it doesn’t exist.

“It does exist, you can go to the FCA website and show them where it exists there, if they continue to say no make a formal complaint and escalate it to the Financial Ombudsman, which is free [to do].

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“And when [speaking to the Ombudsman] I’d say it’s urgent because you need the help right now, so you want to be quick, otherwise you may have to wait eight weeks until it gets heard, but no that is fundamentally wrong.”

Martin concluded by urging Sue to keep him in the loop as she carried on as he would want to know if she’s being mistreated.

It should be noted these rules on payment holidays can be utilised by other forms of credit and not just the car finance deals Martin highlighted.

The FCA extended payment holidays to multiple forms of consumer credit in 2020, which includes buy-now pay-later (BNPL) plans, rent-to-own investments or pawnbroking agreements.

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Payment holiday rules, for many forms of financial products and obligations, have been extended a number of times and in November 2020 the FCA updated their guidance on how they can be utilised by consumer credit customers, as the following details:

  • Those who have not yet had a payment deferral will be eligible to apply for payment deferrals of up to six months in total.
  • Those who currently have a payment deferral will be eligible to apply for a further deferral, as long as the total length of deferrals doesn’t exceed a maximum of six months in total.
  • Those who have previously had a payment deferral of less than six months will also be eligible to apply for a further payment deferral, as long as the deferrals don’t exceed six months in total.
  • A firm may assess that a payment deferral is obviously not in a customer’s interest. In such cases, the firm should instead provide tailored support appropriate to the customer’s circumstances.
  • Consumers who have already had six months of payment deferrals or who are in arrears or receiving tailored support, will not be eligible for a further payment deferral. Instead, firms will provide tailored support appropriate to their circumstances. This may include the option to defer further payments.
  • High-cost short-term credit consumers, such as those with payday loans, will be eligible for a payment deferral of one month.

As this guidance was laid out, Sheldon Mills, the interim Executive Director of Strategy and Competition at the FCA, provided the following comments: “It is in a consumer’s best interest to only take a payment deferral when absolutely necessary.

“Those that are able to keep paying should do so.

“However, for those continuing to face payment difficulties as a result of coronavirus, these measures will ensure they continue to be able to access much needed support during this crisis.

“We also want to highlight that tailored support will still be offered and remains the most appropriate option for many borrowers.”

While payment holidays can be requested up until March 31, the FCA have detailed that beyond that date, they will be able to extend existing deferrals to July 31 2021.

This will be allowed so long as the extension covers consecutive payments that are subject to the maximum six month period allowed.

It should be remembered that while payment deferrals shouldn’t be reported as a missed payment on a credit file, lenders can still factor them in when assessing a consumer’s credit worthiness.

The FCA detailed they will keep these measures under review and as such, further extensions may be forthcoming should the economic climate demand it.

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