After drawing breath and putting the UK government’s pandemic economic remedies under the microscope, the Finance & Leasing Association (FLA) and the British Vehicle Rental & Leasing Association (BVRLA) have just moved to make their voices heard.
On Wednesday 15 April Stephen Haddrill, director general of the FLA, highlighted to the Treasury Select Committee the need for non-bank lenders to have access to the Term Funding Scheme, and for critical changes to be made to the Consumer Credit Act (CCA) to allow swift help for consumers in financial difficulty.
Haddrill explained: “By early April, FLA members had received an estimated 526,000 Covid-related requests for forbearance, and had helped almost 60% by that date with more in the pipeline. Lenders are rightly supporting their customers – in many cases, the lenders and borrowers know each other well.
Open Term Funding to non-bank lenders as a matter of urgency
“The non-bank lending sector relies heavily on capital markets and bank funding – two sources of finance which are currently closed. The result is that these lenders will not be able to provide new lending as well as forbearance – and when you consider that these finance companies provided £46 billion of funding during 2019 to SMEs for business investment and point of sale finance for consumers, that would be a huge loss to the economy right at the point when funding will be needed to help the UK recovery.
Haddrill added: “To remedy this, we want to see the Term Funding Scheme opened to non-bank lenders as a matter of urgency, and eligibility criteria streamlined to fast-track firms which are FCA regulated or already part of a British Business Bank scheme.
Urgency for the Consumer Credit Act to be updated
“At a time when customers need quick and simple solutions to help them manage disruptions to their incomes, the inadequacies of the Consumer Credit Act (CCA) have been thrown into sharp relief.
“The CCA includes formal and complex modifying agreement provisions which requires a new agreement to be sent to the customer, signed and then returned before they are activated. Imagine how labour-intensive that process is when multiplied by the number of customers seeking forbearance.
“In the next couple of months, a further problem which will manifest itself – the Notice of Sum in Arrears – an abruptly worded letter which the lender is required to send, even though a new payment arrangement has already been agreed. It will no doubt trigger another spike in calls as customers question why this has been sent. This is inexcusable when customers are already worried.
“While the FCA is obviously aware of the problem, we have had little clarity on what happens at the end of this period of disruption to help consumers transition back to a normal payment schedule and firms back to normal business. A clear exit strategy is needed.”
New risk assessment protocols required for vehicles collections
Jointly with the BVRLA, the FLA requested clarity about certain types of activity that remain permissible – specifically collection and delivery of vehicles.
They state: Businesses and agents should consider risk assessing each case which can be broadly grouped into hostile and consensual collections and deliveries.
- Voluntary terminations and surrenders are instigated by the customer’s choice to terminate a lease or finance agreement. Terminations are likely to increase over the crisis period because customers are isolation at home and may feel they can manage without a vehicle at this time;
- Agreed collections and deliveries – for example where the customer may have come to the end of a lease or finance agreement and is handing back the vehicle, a vehicle or parts are being delivered, or for any other reason where the collection or delivery is consensual;
- Hostile collections – pose a higher risk because they may lead to the customer or person in possession of the vehicle showing some resistance to allowing the vehicle to be recovered;
- Default termination – where the customer has shown no engagement and the business has obtained a court order to repossess at the known location of the vehicle. The risk may be reduced here if the customer does provide consent to collection post receipt of the court order;
- Fraud recovery – where the agent identifies the location of the vehicle which is in the possession of a fraudulent third party. The risk of not proceeding here must be balanced very carefully with the risk of the vehicle disappearing over the lock-down period.