A warning from debt advisers: What happens when the financial support is switched off?

One of the UK’s free debt advice providers, PayPlan, has said it expects a huge surge in demand for debt advice when the current temporary relief being offered by lenders comes to an end.

The FCA called for interest and charges to be frozen on all loans and credit cards to help consumers struggling financially, as a result of the pandemic. PayPlan warned that, for people who were struggling with debts before the crisis, a delay in seeking advice will only exacerbate their problem.

PayPlan is urging the government to ensure there is as much clarity as possible around payment dates for those who are self-employed and make access to any interim financial help as easy as possible.

Chief executive Rachel Duffey said: “We welcome the comments by the FCA, and the help being offered by creditors in these very difficult times. When someone can’t afford their payments, it is pointless adding further stress by worrying about debt repayments. However, for anyone with ongoing debt problems, it is still often worth seeking financial help.”

Debt repayment plans can be very flexible. Where creditors know that one of their clients is struggling, they will allow them to pay small amounts now and then increase payments to suit their circumstances. This is particularly relevant for anyone who is receiving an income but at a reduced rate.

Duffey added: “We’re seeing high volumes of people coming to us which means that we can advise them on the best course of action to get their finances under control. What we’re more concerned about is how we can help those people who do not know where they currently stand. We’re finding that self-employed people and small business owners are still very worried about the ambiguity surrounding their income.”

While there has been more immediate support offered for employees, many self-employed people are having to survive on the standard weekly rate of Universal Credit until their Income Support payment comes through from HMRC in June, and some local councils have not yet released the information needed for small business owners to claim the grants they’re entitled to.

Other debt advice providers think there’s still work for the FCA to do in the immediate term.

The Money Advice Trust has called on the FCA to “close the gaps” in its package of support for consumer credit customers affected by the Covid-19 outbreak.

The charity, which runs National Debtline and Business Debtline, welcomed FCA proposals on credit cards, loans and overdrafts, but called for the following:

• Action on other types of borrowing including hire purchase agreements, guarantor loans and other high-cost short-term credit products;
• A requirement for firms to suspend interest on credit card or loan payments that will otherwise be accrued during payment deferrals;
• Extending the measures to cover micro-businesses with business credit cards, business overdrafts and other business lending products.

In its full response to the FCA’s emergency consultation on the measures, announced last Thursday, the Money Advice Trust said the regulator “should also be prepared to extend these measures beyond three months if necessary”.

Chief executive Joanna Elson said: “Crucially, we all need to have one eye on the future – and what happens when these temporary measures from the FCA end. Suspending interest on credit cards and personal loans during the three-month payment deferral period will help to prevent further financial difficulty later on.”