The Financial Conduct Authority (FCA) has proposed a resumption of policy enabling consumer finance firms to repossess vehicles from 31 January 2021.

The regulator’s current guidance states that firms should not be able to terminate a regulated agreement or repossess vehicles under the agreement that the customer needs, except in exceptional circumstances.

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The new guidance, the FCA said, should still only be as a last resort. Firms will 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.

A statement from the FCA said: “Our proposed approach reflects the different risks and harms that customers with goods or vehicles on credit are likely to face compared to those who are at risk of losing their home.

“For customers who remain in payment difficulties under a relevant consumer credit agreement, continuing to restrict repossessions may not be in their interests. The shorter terms and higher interest rates on these agreements, combined with the depreciating value of the goods or vehicles, means that they could end up owing more in the long term if repossessions are prevented.

“Our approach, therefore, takes appropriate account of the risks to customers of further asset depreciation, whilst providing appropriate protections by ensuring that firms repossess only as a last resort and also consider the impact of repossession action on those who are vulnerable, as well as following relevant government public health guidelines and regulations when undertaking repossession action.”

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Adrian Dally, head of motor finance at the Finance and Leasing Association, welcomed the proposed change in guidance: “It allows lenders and consumers to decide together on the best outcomes.

“If a customer still needs their vehicle due to vulnerability, lenders will of course take that into consideration, but where a customer’s circumstances have changed so that they do not need their vehicle any longer and repossession is the best option, it is absolutely right that lenders can now offer that solution.”

The FCA invites comments on the draft guidance by 18 January.