The Financial Conduct Authority (FCA) has extended the availability of payment freezes and interest-free overdrafts for a further three months in a bid to help consumers mitigate against the impact of the COVID-19 coronavirus.

The move, announced by the FCA this morning (June 19), has prompted some debt charities to warn that individual debts could be storing-up trouble for the future, with the Finance and Leasing Association (FLA) suggesting that efforts should be made to ensure consumers make efforts to transition back into normal repayment patterns.

For customers yet to request a payment freeze or an arranged interest-free overdraft of up to £500  under FCA guidelines outlined back in April the time to apply has now been extended to October 31 under the new guidance.

For those who have already taken up support and are still experiencing temporary payment difficulties due to coronavirus, the FCA said that its proposals should ensure that firms would continue to offer support with options including a further payment deferral or reducing payments to an amount the customer can afford for a further three months.

Christopher Woolard, interim chief executive at the FCA, said: “We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency.

“The proposals we’ve announced today would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus.

“Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”

Earlier this week the FLA said that fiscal support from Government to non-bank lenders was “needed now” as its members were called upon to provide increasing volumes of forbearance to consumers during the COVID-19 crisis.

FLA motor finance division members have received an estimated 613,000 forbearance requests in the last 12 weeks and has so far granted 90%, it said.

Commenting on the publication of new proposals today, Stephen Haddrill, the director general of the FLA, said: “Helping customers through this difficult period remains a priority for lenders, but with more parts of the economy reopening, lenders also have a responsibility to transition customers back to regular payments where possible.

“The FCA’s advice to customers to consider carefully if a further payment deferral is really the best option is important.” 

Speaking to AM earlier this month, Tashfin Osmani, senior analyst at ASI, echoed Haddrill's sentiment, stating that while the need for payment deferrals may entirely be justified by the customer’s financial situation caused by the current lockdown, “the customer should not be under any illusion that it will take on additional cost in any revised car finance agreement”.

Haddrill added: “The cost of forbearance is already at unprecedented levels. 

“The FLA has sought urgent assistance from Government to enable lenders to continue to provide affordable lending to consumers and businesses through the crisis and during the recovery.

“The FCA, the Treasury and the Bank of England must ensure their approach to forbearance and support for lenders are developed together.”

The FCA’s latest update to its COVID-19 support proposals include:

• At the end of a payment freeze, firms should contact their customers to find out if they can resume payments – and if so, agree a plan on how the missed payments could be repaid. If customers can afford to return to regular repayment it is in their best interest to do so.
• Anyone who continues to need help gets help – for customers still facing temporary payment difficulties as a result of coronavirus, firms should provide them with support by reducing payments on their credit card and personal loans to a level they can afford for 3 months.
• Support for overdraft customers – allowing customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, to request up to £500 interest-free for a further three months, and providing further support in the form of lower interest rates on borrowing above the interest-free buffer and repayment plans for those who would benefit from them.
• Extending the time the scheme is available to people who may be impacted at a later date – customers that have not yet had a payment freeze or an arranged interest-free overdraft of up to £500 and experience temporary financial difficulty, due to coronavirus, would be able to request one up until October 31, 2020.
• Where a customer needs further temporary support to bridge the crisis, any payment freezes or partial payment freezes offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.