The Financial Conduct Authority (FCA) has been urged to extend support for struggling consumer borrowers until the end of January 2021, to protect households from a “potentially disastrous financial cliff-edge”.
Consumer rights champion Which? has submitted recommendations to the City regulator’s consultation, to protect households when temporary relief measures come to an end.
Which? has proposed that the protections that are currently in place, such as payment holidays and interest-free overdrafts, should be extended by three months until 31 January 2021 to ease the financial impact on consumers when the furlough scheme ends on 31 October 2020.
The consumer rights body predicts that the number of consumers falling into financial distress will rise when the furlough scheme ends and has called on lenders to offer wider forbearance options such as payment rescheduling or freezing interest.
Which? has also said that it is too early to return to existing forbearance rules, as it is concerned that firms will be unable to offer tailored support to struggling customers. It has found that some people are already experiencing problems contacting lenders for help, as firms’ resources are stretched.
And it has proposed that the timescales of forbearance complaints are reduced so consumers can get urgent support when they need it. Which? said it has seen cases where the slow handling of complaints by the banks and the Financial Ombudsman Service has affected consumers’ finances.
Additionally, the FCA is being urged to extend its changes to credit reference agency reporting rules from 31 October until 31 January 2021, so that anyone who has accessed a payment holiday due to the pandemic does not have their long-term creditworthiness negatively impacted as a result during this period.
Recent Which? research found that furloughed workers are three times more likely to have defaulted on at least one payment in the last month.
“The regulator has acted quickly and effectively to help those struggling financially due to the pandemic, but it must be prepared to take further bold action to prevent millions of people from being hit by a perfect storm of financial pressures in the coming months,” said Gareth Shaw, head of money at Which?
“The huge number of payment holidays taken highlights the scale of financial difficulty people in this country are facing – a situation that is likely to become worse as support measures like the furlough scheme come to an end.
“The regulator must treat all consumers fairly – ensuring financial support is still provided to those who need it and also available for those who may face financial problems for the first time after 31 October.”