These are unprecedented and extremely difficult times for the motor finance industry. Lenders are grappling with constantly changing Financial Conduct Authority (FCA) guidance, communications to customers, high call levels from customers looking for forbearance (over 600,000 requests!) and assistance, fraud and complaints and all at a time when lenders may have had to furlough staff and tighten their belts due to the rapid decline in new business.

I have been trying to assist our clients to navigate their way through the forbearance minefield over the last few months and assisted the Finance & Leasing Association (FLA) to pull together the recent best practice guide for vehicle repossessions. The guidance applies to agreements terminated prior to any COVID-19 lockdown or impact and/or due to financial difficulties not linked to COVID-19.

Go deeper with GlobalData

Data Insights

The gold standard of business intelligence.

Find out more

The guidance was issued before the recently updated FCA draft guidance for motor finance forbearance. The FCA draft guidance continues to state that there is a ban on repossessions for customers facing temporary financial difficulties as a result of coronavirus, who need their vehicles.  It is really important to recognise that this is a two-stage test. The customer’s financial issues must be temporary and they still need their car.

I share the FLA’s view – as set out in feedback to the FCA – that the FCA should reinstate the ability for lenders to terminate where termination is in the best interests of the customer. If this is not the case, there will certainly be customers who will end up being worse off because the vehicle will reduce in value which will ultimately reduce the amount they can offset against the debt. Further, it should be made clearer that if customers choose not to communicate, they will be at risk of repossession as lenders follow their usual forbearance and collections strategies.

However, despite the guidance, there appears to be a common misconception that there is a complete ban on repossessions. Lenders will have stockpiled cases from customers who were in serious long-term financial difficulties before COVID-19 and who were terminated before lockdown.  Lenders can repossess these vehicles.  There will also be customers who can’t be said to be in temporary difficulty any more, as a result of the fact that they have been made redundant for example. Finally, there will be cases where the customer recognises they can’t afford the vehicle and then voluntarily terminate or consent to a repossession post-termination.

In all of these situations, lenders can and should think about repossession in order to prevent depreciation and the customer’s ultimate liability from increasing. Lenders should ensure their panel agents follow the new FLA guidance on safe vehicle recovery. The guidance introduces a two-stage recovery process. Lenders or their recovery agents are encouraged to try and speak to the customer by telephone prior to collection to try and ensure the recovery is consensual. If a customer can’t be reached by telephone, then letters and emails should be sent.  If there is still no contact then stage 2 of the process can be invoked.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

If the recovery is consensual the agent should:

  • Call the customer on arrival if no answer, ring the doorbell or knock on the door
  • Ask for keys to be provided in the vehicle or left on the doorstep (while maintaining safe 2m distance)
  • No written confirmation/consent is required from the Customer as this will have been obtained prior to the visit

If the recovery is not consensual:

  • Call the customer on arrival if no answer, ring the doorbell or knock on the door
  • If the customer refuses to co-operate then the agent must consider whether he can take the vehicle without keys (assuming under a third of Tap paid and not on private land)
  • If the customer shows signs of hostility the agent should retreat back to Vehicle and consider aborting the job

In conclusion my message to motor finance lenders is “be brave”.  As long as you can evidence your decision making, you always act in accordance with PRIN 6 of the Principles for Business in the FCA Handbook to treat customers fairly and you try to engage with customers at every stage, there will inevitably be times where it is both compliant and a good customer outcome to recover the vehicle.  I suggest issuing agents with clear instructions and auditing their compliance with the FLA guidance.

Mel Chell

Partner

Shoosmiths law firm