Which? is calling for the financial regulator to take urgent steps to extend support for consumers who are struggling due to the coronavirus crisis to prevent millions of people from facing serious financial consequences.
The consumer champion’s submission to the FCA’s consultation makes four key recommendations that the regulator should adopt to protect households facing a potentially disastrous financial cliff-edge when temporary relief measures such as payment holidays, interest-free overdrafts and the furlough scheme come to an end:
The protections that are currently in place, which provide crucial support for those that are struggling, 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.
While payment holidays are not a long-term solution and it is in the best interests for consumers to repay where possible, we are likely to see a rise in the number of consumers falling into financial distress as a result of the furlough scheme ending who will need to access this support. Lenders should also offer wider forbearance options such as payment rescheduling or freezing interest when another deferral is not in the consumer’s best interest.
It is too early to return to existing forbearance rules as Which? is concerned that firms will be unable to offer tailored support to struggling customers. The consumer champion has found some people are already experiencing problems contacting lenders for guidance or assistance, as firms’ resources are stretched.
Normal credit reference agency reporting rules should not immediately be applied after the 31 October deadline has passed. Anyone who has already accessed a payment holiday due to the extraordinary circumstances created by the pandemic – or who accesses one between now and 31 January 2021 – must not have their long-term creditworthiness negatively impacted as a result.
The timescales of forbearance complaints should be reduced so consumers can get urgent support when they need it. Which? has seen cases when slow handling of complaints by the banks and FOS has affected consumers’ finances.
Recent Which? research highlights the scale of the financial problems that many people are already facing, with furloughed workers three times more likely to have defaulted on at least one payment in the last month. Awareness and accessibility of the temporary support is greatly needed to prevent consumers unnecessarily defaulting.
Gareth Shaw, Head of Money at Which?, said:
“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.
“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 October 31.”