In its latest announcement, the UKs Financial Conduct Authority (FCA) proposed that consumer credit customers who have not yet had a payment deferral under its July guidance are able to request one, and that borrowers who are currently benefitting from a first payment deferral under the July guidance are able to apply for a second deferral.
In an effort to support those financially affected by the pandemic, deferrals could last for up to six months “unless it is obviously not in the customer’s interests”.
Having initially introduced payment holidays for credit customers in April 2020, the FCA extended them for a further three months in July. Then, following the government announcement of another nationwide lockdown for England, the FCA revealed this latest batch of six-month payment deferrals.
Stephen Haddrill (pictured above), director general of the FLA, explained: “Lenders are committed to supporting customers in financial difficulty and it is vital that this support is provided in a way that best serves their borrowers’ interests.
“This is best achieved under existing FCA rules that require lenders to assess their customer’s position carefully. Giving borrowers the impression that a six-month deferral is always the right answer is dangerous. It could leave people with unsustainable debts that they may struggle to repay.”
Following the announcement of another UK lockdown set to take place over November 2020, the FCA explained that it is crucial that consumer credit customers who can afford to continue to make repayments continue to do so, and that borrowers should only take up this support if they need it.
Additional points in the FCA’s plan include:
- With high-cost short-term credit (such as payday loans), consumers will be able to apply for a payment deferral of one month if they haven’t already had one;
- Consumer credit customers who have already benefitted from payment deferrals and are still experiencing payment difficulties should speak to their lender to agree tailored support;
- Consumer credit customers should not contact their lender immediately, with lenders due to provide further information if the FCA’s proposals are confirmed.
The FCA did not comment on whether people could still have interest on the first £500 of their overdrafts waived, explaining that an additional statement would be made in due course, clarifying the specific details of the deferrals.
Haddrill added: “The FCA should limit its guidance on payment deferrals to three months at this stage as it did in March, so that there can be a full review of the policy by the FCA, and of individual circumstances by lenders before any extension. Without this, some people will continue deferring payments and accruing debt to their extreme detriment.
“If HM Treasury and FCA press ahead with a deferrals policy until the end of March 2021 in spite of these risks, then furlough should also be extended well beyond one month to give more people a realistic chance of being able to better manage their repayments in the interim.”
In its final point, the FCA stated it would be working closely with trade bodies and lenders in the near future on how to implement these proposals as quickly as possible.
The FCA loosely state in this release that simply delaying a debt problem will not resolve the issue at all. In many cases, payment deferrals are not the most viable option for a customer and they should not be used unless truly needed. In fact, “tailored support” from the lender may be a better option for many customers experiencing financial difficulties.
According to the BBC, banks and other lenders have a duty to identify anyone who is vulnerable and make sure they are supported, and that as the pandemic rages on, the number of people falling into that category is likely to rise.