Under current Financial Conduct Authority guidelines, those who fall behind on their car finance payments and other outgoings could once again have their assets ceased by lenders. The FCA’s formal ban on asset repossessions officially expired at the end of January, with no current indication that it will be extended further.
In fact, the FCA has suggested that to extend the policy could inflict further harm on those already struggling to keep up with their repayments. Should the ban on asset repossessions be extended, those covered by the policy could find themselves facing insurmountable debt when their repayment obligations are reactivated at a later date.
However, the regulator has stated that property repossessions in the case of mortgage defaults should not commence once again until April at the earliest.
At the height of the first national lockdown, authorities implemented measures to grant struggling debtors a certain amount of breathing room while the crisis unfolded. Millions found themselves in a position where they were suddenly unable to meet their repayment obligations – most through no fault of their own.
Typically, lenders have the right to begin proceedings to seize assets as soon as a debtor falls behind on their repayments. Under the policy outlined by the FCA, such repossessions were temporarily prohibited – a measure that would subsequently be extended until the end of January.
With the exception of homes, the FCA has now stated that the seizure of certain types of assets purchased on credit, like cars and other vehicles, can start again as of February. However, the regulator also stated that repossession should only occur when all other options have been exhausted.
“This should only be as a last resort, and subject to complying with relevant government public health guidelines and regulations, for example on social distancing and shielding,” the FCA said.
“Firms will also be expected to consider the impact on customers who may be vulnerable, including because of the pandemic, when deciding whether repossession of goods or vehicles is appropriate.”
Defending its decision, the FCA stated that to allow debtors to defer payments any further would result in elevated debt levels and potentially unsustainable outgoings that would do more harm than good.
Most households across the UK showed reluctance to take on additional forms of debt during the first and second waves of the COVID-19 crisis. As a result, total car finance transactions for 2020 fell significantly from those of the previous year.
According to the Finance and Leasing Association, there were approximately 24% fewer transactions recorded in November 2020 than in the same month in 2019.
With repossessions of vehicles set to commence once again, those struggling to meet their repayment obligations are advised to contact their lenders immediately to discuss the available options.
Many lenders have already indicated their intent to grant struggling customers payment breaks or allow lower monthly repayments, though all such agreements will now be reached entirely on a voluntary basis.