Watchdog calls for extension of financial help
● Warning over potentially disastrous financial cliff edge’
Vital financial help for struggling households should be extended into 2021, Which? has urged.
The consumer group said the protections window currently in place to provide crucial support for those having difficulties making their usual payments due to the impact of coronavirus should be extended to 31 January 2021.
It said the Financial Conduct Authority (FCA) should take further steps to protect households facing “a potentially disastrous financial cliff edge” when temporary relief measures such as payment holidays and interest-free overdrafts come to an end.
The ending of the furlough scheme in October could mean that some people potentially only start to experience financial difficulties later this year.
In July, the FCA made a “call for input”, asking for early views on what should happen to consumers coming to the end of a second three-month payment deferral under its temporary guidance for firms in light of the pandemic.
The regulator has also been seeking views on whether it should extend its current guidance beyond the current October deadline, or provide an alternative form of support.
If responses show that further guidance is needed, it is expected that the FCA will publish draft guidance on mortgages in late August and draft consumer credit guidance in September.
At present, people have until 31 October 2020 to ask their lender for temporary support with borrowing such as mortgages, personal loans and credit cards.
Borrowers requesting payment deferrals will still accrue interest on the loan and need to pay it off eventually.
Meanwhile, the Coronavirus Job Retention Scheme is set to close on 31 October 2020.
Which? said that, while payment holidays are not a longterm solution and it is in the best interests of consumers to repay where possible, there is likely to be an increase in the number of people falling into financial distress as a result of the furlough scheme ending, who will need to access this support.
It also said that lenders should offer wider forbearance options such as payment rescheduling or freezing interest when another deferral is not in the consumer’s best interest.
Which? added that normal credit reference agency reporting rules should not immediately be applied after the 31 October deadline has passed.
It said anyone who has already accessed a payment holiday due to the pandemic must not have their long-term creditworthiness negatively affected as a result.