FCA proposes to extend payment deferrals for consumer credit

The regulator, whose update will also cover buy-now pay-later products as well as pawnbroking, has proposed that:

• Those who have not yet had a payment deferral will be eligible for two payment deferrals of up to six months in total
• Those who currently have an initial payment deferral, will be eligible for a further payment deferral of up to three months.

The regulator also said it was “important that consumer credit customers who can afford to do so continue to make repayments,” and that borrowers “should only take up this support if they need it.”

The FCA added: “Under our proposals borrowers who are currently benefitting from a first payment deferral under our July guidance would be able to apply for a second deferral.”

For 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.

The watchdog said it will work with trade bodies and lenders on how to implement the proposals as quickly as possible.

Reacting to the proposals, Stephen Haddrill, director general of the Finance & Leasing Association, said: “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 the 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.”

Peter Tutton, head of policy at StepChange, said: “We would urge people using deferrals to continue making affordable payments where possible, to avoid building up bigger debts to deal with later on.

“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.

“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.”