The Impact of Forbearance on Consumer’s Credit
Naturally, dealers are keen to help customers seeking finance to buy a car to source an ‘acceptance’ as quickly as possible. Inevitably, not every customer will benefit from an ‘auto-acceptance’ and this has the potential for frustration when a proposal is referred for review; this is not unique to Mann Island Finance.
The unprecedented social and economic events of recent months may have seen the lending appetite for some providers change. At Mann Island, that appetite has not changed at all. The one change, when compared with pre-lock-down position at the business is that the Mann Island team is continuing to work from home; this, when combined with the high volume of proposals, has meant some proposal referrals have been taking a little longer to review than usual. This is regrettable but a consequence of the circumstances under which we are and have been working.
With a nod to the return to a ‘new normal’, our office in Liverpool has now reopened albeit on a reduced staff basis, with the office-based team members working in tandem with home-based colleagues for the benefit of dealers and customers whilst of course observing all social distancing rules.
On the broader issue of underwriting, a frequent question has been the potential impact of any forbearance support measures, such as payment holidays, on people’s creditworthiness. In short, provided there is an agreed arrangement in place and it is being maintained by the customer, it should not result in arrears building up on a customer’s credit report. In simple terms, forbearance measures for credit services should not have a detrimental impact on a customer’s credit rating.
FCA guidance to lenders on this matter, issued on April 9th noted; “in order to treat customers fairly we would expect lenders to work with customers and Credit Reference Agencies to ensure that credit files do not record a worsening status during the payment deferral period. Firms should also ensure that no default or arrears charges are levied in relation to payments missed in these circumstances.”
It is possible that across all lending forms, given the speed and scale of the COVID-19 lock-down measures, some people may have inadvertently fallen into arrears without an agreement in place. In this situation, any arrears could have had a credit score impact until the credit provider amended or amends their file.
A final note, household utility firms (gas, electric, water) have been taking differing approaches to how they have supported consumers impacted by COVID-19. These may result in changes to how they update customer’s credit reports. Where customers agree a payment holiday with such suppliers, they are advised to ask the company how this may show on their credit report.
We hope this information helps.