Cash-strapped motor finance customers can ask for a second three-month freeze or cut on their monthly payments that could last into 2021, the Financial Conduct Authority has confirmed.

The FCA has ruled that customers, who've not yet had a payment freeze nor requested an extension to their current one, can apply to their motor finance provider up to October 31.

And the ban on repossessions will also continue until October 31, to protect customers who're facing temporary payment difficulties as a result of the coronavirus pandemic and need their vehicles.

Its decision follows a brief consultation of the industry since announcing the plan on July 3.

It wants firms to contact customers who are already using the payment freeze facility to see if they'll need an extra three months' freeze or can agree a plan to return to making regular payments.

Anyone who continues to need help should still be supported by the motor finance firm, the FCA said.

Such support would include freezing or reducing motor finance payments to a level they can afford, and customers on 'buy now pay later' finance, where they're in the promotional period, should be offered an additional extension to that period.

"If customers can afford to return to regular repayment, or make partial payments, it is in their best interest to do so," said an FCA spokesman.

The FCA's guidance states that a customer seeking temporary support should not have a negative impact on their credit files.

Motor finance firms are being urged to help their customers with solutions that create positive outcomes, although the Finance And Leasing Association trade body has been lobbying to highlight that some of its members don't have endless pots of resources themselves, yet they are facing considerable levels of forbearance. 

An FCA spokesman added: "When implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and should consider how they engage with them.

"Firms should also help customers understand the types of debt help and money guidance that are available and encourage them to access the resources that can help them."

Christopher Woolard, interim chief executive at the FCA, said: “Our measures will ensure that people who are still facing temporary payment difficulties because of this pandemic, continue to have access to the help they need."

John Perez, partner at legal services firm DWF, said lenders will need to give careful consideration on how they treat accrued interest on missed payments during the deferral period.

"The FCA have made it clear they expect lenders to waive interest on missed payments should customers be in need of extended support during this period. There will be challenges for lenders in how to implement any waiver of interest.

"Also, any customer requiring support through an extended deferral period will mean that lenders will have to wait 6 months before reverting back to standard enfacement options, including taking steps to terminate the finance agreement.

"This could lead to poor outcomes, not only for lenders balance sheets, but also for customers who could be faced with a much higher crystallised shortfall down the line once steps are taken to recover and sell the vehicle at a much reduced value due to depreciation throughout the six month period, and the threat of reduced values generally for used vehicles once we start to come out of this difficult period."

For the FCA's updated temporary guidance on motor finance click here.