FCA to announce consumer credit extension measures

The Financial Conduct Authority (FCA) is expected to announce more details of an extension to the mortgage holiday scheme, with the initiative originally set to have expired on Saturday (31st October) but extended due to the national lockdown announced for England at the weekend.

The FCA has already said that those who have yet to apply for a mortgage holiday can request a pause on repayments of up to six months, while those who have already agreed to defer payments can extend it until they reach the six-month limit.

The regulator is also considering a payments holiday for people struggling with debts on credit cards, personal loans, motor finance, rent to own, buy-now pay-later, pawnbroking and high-cost short-term credit to support consumer credit customers financially affected by coronavirus by discussing the options with trade bodies and lenders on how to implement these proposals as quickly as possible.

High-cost short-term credit (such as payday loans), consumers would be able to apply for a payment deferral of one month if they haven’t already had one.

Banks and building societies have already agreed with regulators and HM Treasury to extend the provision of mortgage payment deferrals of up to a maximum of six months in the light of the tightened Covid-19 restrictions announced by the Prime Minister this evening.

Customers seeking to access this support do not need to contact their lenders yet. Lenders will provide information after 2nd November on how to apply for this support.

UK Finance, the BSA and our members will continue to work with the FCA on the details with a further announcement to follow.

Eric Leenders, Managing Director of Personal Finance at UK Finance, said “Lenders are providing unprecedented levels of support to help customers through the Covid-19 crisis and stand ready to deliver ongoing assistance to those in need. The industry is working closely with the Financial Conduct Authority to ensure customers impacted by the new lockdown measures announced this evening will be able to access the most appropriate support. Customers seeking to access this support do not need to contact their lenders yet. Lenders will provide information after 2nd November on how to apply for this support.”

Robin Fieth, Chief Executive of the Building Societies Association (BSA), said “Building societies and credit unions recognise the financial pressures on some households and will continue to work hard to support customers in the coming months, working closely with the FCA.”

Stephen Haddrill, Director General of the FLA, said “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.”

“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.”

Gareth Shaw, Head of Money at Which?, said “Our research has shown many people are struggling financially and there has been a significant increase in consumers defaulting on loan or credit card payments. With new restrictions set to be imposed next week, it is right the government has extended some financial support measures including the furlough scheme and mortgage holidays, and confirmed mortgage deferrals won’t impact credit files.”

“We’d also urge the regulator to follow suit and consider extending vital support measures across other credit products.”

“Lenders must now take a proactive approach and ensure there is adequate support available for those who need it. The regulator must also be ready to intervene if there is any indication that customers are not getting the support they need quickly enough.”

Joanna Elson CBE, Chief Executive of the Money Advice Trust, said “The FCA has been right to respond quickly to this second lockdown, which will unfortunately see many more households fall into financial difficulty – some of them for the first time.  Extending the availability of payment deferrals on both mortgages and consumer credit is a sensible approach.”

“Together with the Government’s extension of the Job Retention Scheme this will at least mitigate some of the financial impact of the resurgence of Covid-19.”

“We need similar action, however, for people who are self-employed – including increasing Self-employment Income Support Scheme grants back to 80% of average earnings, to match the support available through furlough.  Worryingly, the government’s temporary scrapping of the Minimum Income Floor – which has given self-employed people fairer access to Universal Credit – comes to an end later this month.  This change must be extended straight away.”

“Help for homeowners with mortgages must be matched with help for people struggling to pay their rent – including a further freeze on repossessions, increasing the rate of Local Housing Allowance to cover 50% of average market rents, and more discretionary support.”

“More widely, it is becoming increasingly clear that the Government will have to extend its £20 a week uplift in Universal Credit beyond April.  It would be better to announce this now, to give people who have lost their jobs some reassurance that this additional support will not be withdrawn in just a few months time.”

Peter Tutton, Head of Policy at StepChange, said “With millions of people’s livelihoods due to be affected by the coming national lockdown, renewed payment deferral support for consumer credit customers will be vital to help people stay afloat financially. However we would urge people using deferrals to continue making affordable payments where possible to help avoid building up bigger debts to deal with later on.”

“However people who have already taken advantage of payment deferrals but need more help now should apply for tailored support from their lender. Unlike payment deferrals, people getting tailored support may see a deterioration in their credit rating. So we’re calling on the FCA to look at this again as those who have already had one or two payment holidays are just as likely to be affected by Thursday’s lockdown as those newly in need of support. The priority must now be to ensure people facing payment problems because of the pandemic are not plunged into longer term debt or financial exclusion where possible.”

“Our own research has found household debt built up due to the pandemic had soared to more than £6bn in May, a figure almost certain to have swelled further in the past five months. With no end in sight to the coronavirus crisis, we need to see short-term fixes replaced by a long-term, cross-Government strategy that supports struggling households and prevents the build-up of unmanageable debt.”