A leading finance association says new guidance to allow credit customers to defer payments for up to six months because of the new coronavirus lockdown measures could be ‘dangerous’.
The Financial Conduct Authority (FCA) today released updated guidance following the announcement of new lockdown measures, which says consumer credit customers can apply for the deferral if they did not do so following its July guidance.
However, Stephen Haddrill, director general of the Finance and Leasing Association, 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.”
In the FCA guidance, it says: “It is important that consumer credit customers who can afford to do so continue to make repayments. Borrowers should only take up this support if they need it.
“To support those financially affected by coronavirus, we will propose that consumer credit customers who have not yet had a payment deferral under our July guidance can request one. This could last for up to 6 months unless it is obviously not in the customer’s interests.
“Under our proposals borrowers who are currently benefiting 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.
“We will work with trade bodies and lenders on how to implement these proposals as quickly as possible, and will make another announcement shortly.”
Finance and leasing dominates the new car sales market, with FLA figures from October showing that 93.5 per cent of sales in the 12 months to October 2020 were financed by FLA members. Despite the pandemic, the consumer car finance market grew one per cent by volume and eight per cent by value in August 2020, compared with the same month last year.